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CHRISTIAN MEDINA (29) is a Latino immigrant who came to New York several years ago in search of new opportunities. Like many Latinos, he got a job in the construction business. There, he started at the bottom, as an assistant, with very limited English and a long stretch ahead of him to move up the ladder.
Years passed and now Medina is no longer an assistant. In fact, he is in charge of a construction site in NYC. His English has improved remarkably and now he can dream of investing and increasing his savings for the future, something almost impossible for a bricklayer or even a construction assistant in Latin America. However, even though the U.S. economy offers Medina these opportunities, the Biden administration puts obstacles in his way, especially with its most recent controversial decision: canceling the student debt.
“I am grateful to the United States, a country where I enjoy freedom and opportunities. However, there are people who can’t go to college, especially Latino immigrants, I myself won’t be able to go because I have debts and I have to work to pay them. I don’t have that reach,” Medina tells El American. “I don’t think it’s fair that I have to pay taxes to pay the college for children of people who did have the opportunity.”
“I already pay a good amount of taxes every week, now they’re going to keep taking more money from me? It’s not fair. Inflation is already hitting me hard enough without adding more pressure to my pocket,” says the construction manager, with the reasoning that is used by experts and economists in the main national media.
For instance, Daniel Garza, president of the LIBRE organization, wrote for the New York Post a column titled “Working-class Latinos are bailing out the rich with Biden’s student loan payments.”
Garza explains in his article that attending college, for Latinos, is practically a luxury that not everyone can afford. In fact, most Hispanic parents work hard, save and start a business to pay for their children’s education in the future. But not everyone can. Many, instead, become entrepreneurs, specialize in a trade, or earn a living in a service job.
Of course, studying, entrepreneurship or honest work is of great merit; ultimately, human beings make decisions according to their possibilities, trying to improve their own context and reality. However, it is not fair that others pay for your decisions, or at least that is what Garza believes.
“Both paths [entrepreneurship or study] have merit and can be celebrated. But President Joe Biden’s plan to cancel by an executive order roughly a half a trillion dollars in student-loan debt for individuals earning as much as $125,000 a year, and couples earning up to a quarter of a million dollars is bad economics, bad policy and bad politics, it’s also incredibly unfair,” Garza says in his column.
04/03/2020.- A customer waits for an order at the Nixtama food stand inside Essex Market, New York’s largest market in the Bowery neighborhood of lower Manhattan. Latinos with businesses will see how the tax hike falls into their pocket, thanks to the latest decisions of the Democrats. (EFE)
And why is it unfair? Because, in practice, the money that the government will use to pay for this unilateral decision, of dubious legal authority, will be taken out of the taxpayers’ pockets. Increased government spending and high debt is being paid for by tax increases that hit, especially hard, lower and middle class Americans: workers who are now suffering the consequences of inflation and an economy that technically entered recession.
“As the government grows and federal spending increases, there will be less economic freedom. When this happens, the Latino community is negatively affected,” Daniel Garza explained to El American, in a conversation about his column in the New York Post.
“As we all know, most of the Latino community – including the Latin American immigrant community – wants to work and provide for their families. But if the federal government keeps spending money we don’t have -raising taxes on more and more Americans, and the role of the government begins to be present more and more in our lives- we should not be surprised if there is less economic freedom and less opportunity for the Hispanic community in this country,” continued the LIBRE president.
This new government spending could cost an estimated $519 billion, according to an updated estimate by the Penn Wharton Budget Model, a group of economists and data scientists at the University of Pennsylvania who analyze public policies and their economic and fiscal impacts.
An analysis published by El American’s Juan Felipe Velez reads: “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 2,000.”
In short, Biden’s forgiveness equals a lot of money, an expense that weighs even more heavily considering the difficult economic context facing the country with the highest inflation in the last 40 years, and considering that the measure disproportionately benefits people who are financially solvent.
“If we want this to change, we have to eliminate – or at least – diminish the role of the government when it comes to student loans,” Garza told El American. “Plain and simple, it’s not fair for the taxpayer to pay for the student loans of a small minority of the American population, while the rest of the population (including those who did not attend a college or take out student loans) pay for the bill.”
And the working class -especially Latinos- are going to pay that bill
In 2021, the White House reported that the pace of Hispanic business start-ups in the U.S. increased by 23% over pre-pandemic levels, a figure that demonstrates the strong impact of Latino entrepreneurial activity on the American economy.
In June 2022, a research commissioned by QuickBooks showed that up to 4 million Latinos want to start new businesses. Among the reasons cited in the study was that many Hispanics want to be their own bosses, one in three said that the lack of other opportunities motivated them to start a business, and 28% felt that entrepreneurship is the best way to make full use of their skills.
Surprisingly, however, 44% said they wanted to diversify their income to mitigate the effects of inflation on their finances. In other words, just under half said they wanted to become entrepreneurs to dodge the inflationary bullet.
30/11/2020.- Nov. 27 photo showing a customer shopping at Back of the Yards Coffee, a Hispanic-owned coffee shop in a neighborhood with a growing Latino population on the south side of the city of Chicago, Illinois. (EFE)
Obviously, entrepreneurship in an inflationary and recessionary environment makes the process of starting a business harder, which is difficult enough as it is. And with the cancellation of student debt and the recently enacted “Inflation Reduction Act” -that, paradoxically, will increase significantly public spending and will not reduce inflation- the economy will suffer even more.
This becomes relevant because the problem of the forgiveness is not only limited to the problem of increasing public spending in the present, but in its future impact, which will affect both old and new entrepreneurs as well as the working class in general.
Daniel DiMartino, a fellow of the Job Creators Network, in conversation with El American said “the first thing” he believes is that “a lot of people are not reporting on this issue, student debt forgiveness, that the $10,000 is not the main measure of the executive order. The main thing is that they changed the rules on what’s called Income-Based Repayment (IBR), which are student loans that are pay back in proportion to your income.”
“Before what people did – and this is for future lenders, not just past lenders – was that they had to pay 10 % of their income above 150-125 % of the poverty line. Anything over that 10% and then after 20 years they would forgive your debt if you had any left over. Now you only have to pay 5% of your income above 225% of the poverty line,” DiMartino explained. “In other words, a person who earns an average salary of $55,000 a year, 20 years after will only have paid $25,000 in loans, even if he or she has borrowed $200,000. So there is a gigantic incentive to borrow a lot of money and never pay it back.”
Consequently, DiMartino points out that “this is going to generate a lot of future expenses and a decrease in income,” in addition to “heavily subsidizing careers” that produce “little money and it is basically a tax on careers that earn much more money.”
The fellow of the Job Creators Network explained that the incentives are very contradictory, since they benefit people, perhaps more affluent, that study careers which will not produce much money and that they do for pleasure such as English, history or social sciences. On the other hand, it punishes, to a certain point, those who study to improve their socioeconomic situation, which is the case of many Latinos who, with a lot of effort, go to universities not only to learn, but also to obtain work-economic opportunities for their future and that of their families.
Feb 28 photo showing the façade of Puebla Mexican Food located inside the Essex Market, the largest market in New York in the Bowery neighborhood in lower Manhattan. (EFE)
So what is the solution to this student debt?
DiMartino agrees with Garza that part of the solution to this problem is for the government to stop meddling in the issue and stop increasing government spending unnecessarily and unfairly.
“Ninety percent of current university loans are from the state and are already subsidized. The interest rate on an undergraduate loan is barely 5%, no company, even with collateral, can get a 5% loan, this is a loan without collateral that the Government is giving already subsidized and we are forgiving that debt,” DiMartino explained.
“The solution is that the Government has no reason to subsidize the student debt, it should be a private system where banks can (…) give lower rates to people with better grades, which give higher rates to people who probably won’t pay much more in the future, and so people pay the true cost of the returns of their education and take risks that are real. Not subsidized risks from the state that generate these bad incentives,” he continued.
The Job Creators Network fellow also commented that, if the government stops intervening with student debt, lower income people will not be affected. In fact, they could benefit more because what the Biden Administration is now promoting is to increase public spending to forgive the debts of the most privileged people in society and not those who have no possibility of accessing higher education.
“That’s very, very wrong,” DiMartino said.
In short, what the president has just done, with the stroke of a pen, is to go against the working class of the country. Especially minorities, such as Latinos, and win over the privileged class, all this with the slightest concern for the economic context and months before elections that, according to the polls, will not be favorable for the governing party. A decision considered by many as an electoral blackmail that will be costly for Americans and, most of all, for Latinos.
Emmanuel Alejandro Rondón is a journalist at El American specializing in the areas of American politics and media analysis // Emmanuel Alejandro Rondón es periodista de El American especializado en las áreas de política americana y análisis de medios de comunicación.
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