President Biden is reportedly moving forward with plans to unilaterally “cancel” $10,000 in student debt for borrowers earning less than $125,000 annually. Politically this would please the progressive base, but as a policy matter it’s a terrible idea.
Here are 3 glaring problems with Biden’s plan.
1. It’s probably illegal
Congress has the power to spend taxpayer money, not the president. For the executive branch, through executive orders or Department of Education actions, to attempt to spend hundreds of billions of taxpayer dollars without Congress passing a law seems obviously unconstitutional.
No less a liberal than Speaker of the House Nancy Pelosi has admitted as much.
She’s on record saying, “People think the president of the United States has the power for debt forgiveness. He does not. He can postpone, he can delay… but he does not have that power. That has to be an act of Congress.”
A 2021 internal review by the Department of Education concluded that the executive branch “does not have the statutory authority to cancel, compromise, discharge, or forgive, on a blanket or mass basis, principal balances of student loans, and/or to materially modify the repayment amounts or terms thereof.”
So, if Biden does try to go it alone and enact “cancelation” via executive order, it may well be illegal and unconstitutional. Some progressive advocates have tried to stretch legal arguments to justify the authority, but I suspect it would ultimately be halted and struck down by the courts.
2. It’s still regressive
Full student debt cancelation is a taxpayer handout to the affluent. One University of Chicago study even found that “canceling” all student debt would benefit the top 20% of income earners six times more than the bottom 20%. It’s easy to understand why: debt cancelation only helps people who attended college, who tend to be more affluent, yet it burdens all working-class taxpayers.
Biden’s plan wouldn’t be nearly as regressive because of its income cap. But it still would largely help the middle and upper middle class, not the poor and working class, as Democrats often claim.
An analysis by the Wharton School of Business found that Biden’s plan would still give up to 73% of the benefits to the top 60% of earners—aka, 73% would not go to the bottom 40%, who are the poor/working class.
So, even with the income caps, it’s still mostly going to benefit the middle class/the affluent.
3. It still screws over taxpayers
Biden’s plan is way less expensive than full cancelation of all $1.6+ trillion in federal student loans. But it’s still pretty darn expensive. According to Wharton, it would cost about $300 billion.
To put that in simple terms, it’s roughly $2,093 per federal taxpayer. That’s not chump change. And, crucially, it’s money (resources) that necessarily could be spent on something else! Opportunity cost is real, and every policy choice has trade-offs.
If the president ultimately goes through with it, his means-tested, $10,000 per borrower “cancelation” won’t be nearly as bad as the full cancelation that progressive Democrats have demanded. But it will still largely help the affluent, burden taxpayers, and violate the Constitution.
Not great, Joe.