Yesterday afternoon President Biden announced a program to forgive student debt. The president’s announcement is here.
Today the reactions are beginning to come in. The editors of the Washington Post, who can generally be relied on to support the president’s initiatives, are critical:
Under progressive pressure to force grandiose policy changes, President Biden has generally embraced sensible reforms over flashy gimmicks. But his Wednesday student loan announcement did just the opposite.
They oppose the measure on the grounds that it is regressive and expensive, concluding:
Mr. Biden’s student loan decision will not do enough to help the most vulnerable Americans. It will, however, provide a windfall for those who don’t need it — with American taxpayers footing the bill.
In her Washington Post column Megan McArdle is even more critical, asking how many ways can a policy be bad? She criticizes the policy on the grounds above plus that it is likely to resemble the “doc fix”, well enough intentioned but ultimately political kabuki that accomplished little. She further suggests that loan forgiveness will actually increase college costs which I think is correct.
The editors of the Wall Street Journal are more critical yet, adding to the objections above questioning the president’s power to forgive student loans on his sole authority:
Waving his baronial wand, President Biden on Wednesday canceled student debt for some 40 million borrowers on no authority but his own. This is easily the worst domestic decision of his Presidency and makes chumps of Congress and every American who repaid loans or didn’t go to college.
The President who never says no to the left did their bidding again with this act of executive law-making, er, breaking. The government will cancel $10,000 for borrowers making less than $125,000 a year and $20,000 for those who received Pell grants. The Administration estimates that about 27 million will be eligible for up to $20,000 in forgiveness, and some 20 million will see their balances erased.
But there’s much more. Mr. Biden is also extending loan forbearance for another four months even as unemployment among college grads is at a near record low 2%. Congress’s Cares Act deferred payments and waived interest through September 2020, but Donald Trump and Joe Biden have extended the pause for what will now be nearly three years.
I doubt that the president will have much difficulty in securing whatever Congressional authorization he needs, probably with narrow majorities along party lines.
I do not believe that there is an educational debt problem. IMO there is a “not enough jobs that pay enough to service educational debt” problem. This seems like a good time to repeat a proposal I made some time ago.
The six largest states (California, Texas, Florida, New York, Pennsylvania, Illinois) could band together to create an online accredited degree-awarding university that offered bachelors degrees at no charge. Each of those states presently has at least one non-performing state university. Using the money they’re spending on those would provide the proceeds. Higher education at no cost beats the heck out of loan forgiveness.
Every administration since the Clinton Administration has at least paid lip service to the notion that the key to a brighter future was in higher education. They’re all been wrong, indeed, they’ve had it backwarrds but that’s been the policy. These days you can make more money as a welder or a plumber than working at most jobs that require a college degree.
The angle I’m working is how it will affect the official budget projections of the Federal Government.
Technically while the loans were suspended but not cancelled they still counted as assets / performing loans for the Federal Government.
In theory these “assets” will have to be written to $0, and their future cash flows taken out of future budgets.
Also, a normal accountant/actuary would also ask all future loans issued on the same terms to discount the reality they could be forgiven by political whim — and ask the loan issuer to build reserves against that risk.
But who knows — the accounting rules the Federal Government uses is not based on GAAP.
That’s what I would assume. It’s why I winge about the importance of expectations in government policy.
Three points. First, this is only the beginning of student loan forgiveness. It is the precedent. It will occur again repeatedly.
Second, once again there is no political party that supports the interests of the working class. Black, brown, red, white, yellow, no politician of any party cares, not even the Socialists. All US political parties support the interests of the upper middle class and upper class.
Third, we are now in the anomalous Constitutional situation that Presidents and the Executive Branch have legislative and judicial powers. Pretty soon the US House and Senate will join the ancient Roman Senate in irrelevance.
PS. Some executive departments have their own internal court system, which can issue fines and writs.
Not sure how Dave is confident that enabling legisla will pass. Student loan forgiveness was part of the big hard or soft infrastructure bills that didn’t survive, probably because they were advertised as stimulus.
Seems like as an executive decision, it will face a difficult court challenge assuming someone has standing to sue.
You could, maybe, justify this policy if it was much more narrowly tailored, but it’s not. $250k income limit for families is the only limitation which isn’t much.
“Second, once again there is no political party that supports the interests of the poor.”
Fixed it. All classes work.
This is free beer politics at its worst. It gives new meaning to the Summertime Blues line: “I’d like to help you son, but you’re too young to vote.”
PD, does enabling legislation for the President to forgive / modify loans by executive order already exist?
I was under the impression the American Rescue Act did include such a provision; but it merely had a provision that forgiven debt did not count as income for Federal income tax purposes.
Even if Congress did not grant the President such powers — who has standing to sue, they have to show harm and in general taxpayers cannot sue based on fiscally irresponsibility.
At this point, even if illegal, like DACA after it was announced, its too late to windback the clock. I can’t imagine any executive would try to collect on these loans in 3 years after a court finding that the loan cancellation exceeded a President’s powers.
The action is purportedly pursuant to a law passed right after 9/11 called the HEROES ACT that allows debt cancellation “in connection with a war or other military operation or national emergency.” The POTUS is claiming that “the present COVID-19 pandemic” constitutes the emergency. I don’t know anything about the accounting issues, but the legislative history refers to giving the POTUS the power to defer loan payments in a national emergency.
I think you might be right that there was some student debt relief in the American Rescue Act, but it was limited in some way. Sanders and Warren claimed that the POTUS had broader authority, either under the Constitution, their interpretation of ARA or the HEROES ACT, which _IIRC_ Biden’s people denied. Probably more background to come, but not a good look if the Biden Administration denied that they had the power they are now exercising.
On the court side of things, it sounds like the best argument for standing is on the part of banks that service the loans who earn a monthly fee during repayment. Second best argument would be some sort of Congressional standing, and worst argument taxpayer standing.
Agree that courts would be reluctant to reinstate debts cancelled, so timing is an issue. There has not been a final administrative action yet, just an inhouse legal opinion justifying the HEROES ACT authority. Any plaintiff will seek a preliminary injunction to prevent this from happening and stop the government moving forward with cancellation. Any preliminary injunction would need to be based not only on an initial opinion of the legality of the action, but whether the balance of equities favor a stay.
I can see the administration is making the argument it has the legal authority via the Heros Act.
Reading the Heros Act, it was clearly written to apply to active military / national guard. But there was a catch-all clause that “affected individuals” be anyone who lives or works in an area covered by a national emergency.
The drafters never imagined a pandemic would trigger the catch-all clause to be used to cancel $300-500 billion of debt — I don’t know how this interacts with the Constitution’s requirement that all spending must be authorized by Congress. Even if the power in question was delegated, Congress usually needs to authorize the funds for such action.
But yeah, I align with Dave’s view that the main impediment isn’t legal or political. The real impediment is economic. This is a variation of “why doesn’t Government stop collecting taxes and spend $YYY trillion” — and unless something changes to the status of the US dollar, we should be able to monetize moderate amounts of the deficit/debt.
This is an unjustified giveaway. I fully expect a court challenge. Not an emergency. If memory serves not as bad as the unfunded increase in Medicare Bush did but one bad act doesnt justify another.
Steve
@curiousonlooker, this is their legal argument:
“The Appropriations Clause provides that ‘[n]o Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.’ U.S. Const. art. I, § 9, cl. 7. Here, the waiver or cancellation of student debt does not require drawing money from the Treasury; it entails a waiver of the right to collect money that is owed to the United States. The Appropriations Clause therefore is not implicated.”
Don’t know if there are counterarguments. At least one argument would be that bypassing Congressional input to spending necessitates greater scrutiny as to whether Congress intended to authorize writing-off student loans.
Congress for one. If state funding is reduced as a consequence it’s possible that states would have standing.