The notion that President Biden may cancel some portion of student debt is starting to gain some traction.
On the campaign trail, Biden floated the idea of canceling $10,000 worth of debt for all borrowers, and all the debt for those who attended public or historically Black colleges and earn less than $125,000 a year. That plan would forgive about a third of the $1.7 trillion in student debt in the U.S., one expert told CNBC.
But remember--"forgive" or "cancel" doesn't mean the debt disappears. It means you shift that roughly $600 billion from borrowers to the U.S. government, which pays off the balance. The only other option is to default on the student loan issuers; forcing them to bear the losses. Unlikely. Plus, the government itself is the biggest issuer, so either way it's footing the bill.
The talk of "canceling" debt has picked up lately in part because proponents say Biden could do it without Congress. "I have a proposal with Elizabeth Warren that the first $50,000 of debt be vanquished," Senator Schumer said earlier this month, as part of his vision for Biden to have an "FDR-style agenda" during his first 100 days. "And we believe that Joe Biden can do that with the pen as opposed to legislation."
Again, it appears that Biden could only do that for debt that is owned by the federal government. If adding $600 billion (or $900 billion, potentially, under the Schumer-Warren plan) to the deficit doesn't sound like a big deal, just remember that Congress has been at loggerheads over a Covid relief bill of a similar size for months, and that the Fed is already having to buy more than half of new U.S. government bonds issued.
But wait--isn't this the exact plan I called for back in March? No, not at all. Because no one is talking about this forgiveness being tied to an overhaul of the federal student loan system that has worsened inequality and turned higher education into a vanity contest between bloated campuses.
As I wrote back then: "...in return for this unprecedented bailout, the federal government gets out of the student loan business, and going forward prospective students would each simply get a $50,000 voucher for tuition at college or grad school." It's a plan first put forward by disgruntled Trump official Wayne Johnson.
Johnson's plan also includes a $50,000 tax credit for those who already repaid student debt, paid for by a 1% tax on corporate earnings. Because it's obvious that any such move to forgive debt en masse will be met with anger by a good portion of the population (As in, "Yo @SenWarren, what is your plan for all the hardworking Americans who took on second and third jobs to legitimately pay off their student debt? Will they get refunds? Will the government be making their mortgage or credit card debt payments instead? What kind of b******t is this?).
There are other concerns, too; what about those who didn't go to college? Or wouldn't any extra federal funds now be better spent on Covid-specific relief? But as Matt Bruenig observed, "The fact that this kind of forgiveness, and only this kind of forgiveness, is arguably possible through executive action while other more ideal policy constructions are not may end up being a good-enough answer to these issues."
In other words, simply because Biden can do it, means there's a chance he will. If it were tied it to an overhaul, as described, of the federal student loan business, it really could be FDR-esque; but I'm not holding my breath.
See you at 1 p.m!