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The Biden administration has just bought itself a couple of congressional seats heading into the midterms by forgiving up to $10,000 in student debt.
Undoubtedly, millions of graduates will be happy to see some or even all of their student debt paid off by the government. However, the average American should not be so happy as more taxes are on the way to finance spending to buy the November elections by the Democrats.
To begin with, this measure disproportionately benefits people who do not need financial aid. The average American college graduate has an income of between $39,000-$53,000 per year, i.e., earns the same as the median income or up to $13,000 more, and by any standard is a person below the poverty line of $12,880.
Secondly, the conditions for repaying federal loans are quite lax, the current law provides that the loan payment cannot exceed 10% of the debtor’s income and Biden’s decree reduces it to 5%, in the end, up to one in five people will never end up paying their college loan.
Biden’s executive order would cost taxpayers as much as $300 billion, although the GOP claims the actual cost of debt forgiveness could be as high as $400 billion.
A consequence not mentioned by the Biden administration is that it could unleash new inflationary pressures, just when the Federal Reserve (FED) is trying to control the highest inflation record in 40 years. Credit forgiveness has the same effect as a cash transfer, which will leave extra money for these people that would once have gone to pay off their debts and will now go to more consumption.
Although on the surface the increase in consumption is a good thing, it is not so good in a period where it is debated whether the excess monetary stimulus pandemic made inflation more severe, injecting such a large amount of additional money may cause the economy to overheat again, and prices to rise even faster, affecting mainly the poorest people.
Student debt forgiveness will privilege the wealthiest Americans over the poorest
But perhaps saddest of all, only a fraction of this money could have gone to social programs that would actually help lower-income Americans and would have much more impact on their living conditions than the massive vote buying from the middle class that President Biden just did by paying off their student debts.
The cost of Biden’s debt forgiveness is equivalent to the cost of all transfers made by the Temporary Assistance for Needy Families (TANF) program since 2000.
One-third of the cost of the decree could be used to fund a utility rate assistance program for American households.
Despite the high cost of forgiving only a portion of the college debt, Democrats insist on forgiving the entire $1.6 trillion student debt.
As much as Democrats romanticize this “education subsidy,” the reality is that it will go to subsidize households with incomes averaging more than $75,000 a year at the expense of all Americans.
Economist, writer and liberal. With a focus on finance, the war on drugs, history, and geopolitics // Economista, escritor y liberal. Con enfoque en finanzas, guerra contra las drogas, historia y geopolítica