President Biden announced last week that he will unilaterally forgive $10,000 in student debt for those making less than $125,000 annually. Pell Grant recipients will receive $20,000 in debt repayment funds if their income is below the $125,000 threshold. Administration officials claim that no individual or household in the top 5% of earners get any financial assistance from the program.
Well….
1. As we have learned to expect from the administration that was supposed to be a breath of fresh air after all those Trump lies, we cannot get an honest statement of what the Biden loan forgiveness vote-buying scheme will really cost. The official number has been $300 billion. The National Taxpayers Union Foundation issued an analysis earlier this week estimating that the student loan erasure will add nearly $330 billion to the deficit over the next decade. The Committee for a Responsible Budget puts the cost of the handouts at between $440 billion and $600 billion. The University of Pennsylvania’s Wharton School of Business estimates that the program will cost up to $1 trillion. Biden’s paid liar and unofficial village idiot (but she’s the first village idiot to be “of color, female, and a lesbian, and that’s what counts), White House Press Secretary Jean-Pierre, explains with her typical precision, “All of this as when it comes to costs will also depend on how many of the loans canceled were actually expected to be repaid.”
What do we call organizations that commit to a huge expense without knowing what it will cost…
2. …Or how it will be paid for? Administration officials say the program is “fully paid for” through “deficit reduction,” as the government will be spending less money that it did when it was leaking trillions in ad hoc federal spending to combat the Wuhan virus. Thus we are hearing doubletalk like this, from Bharat Ramamurti, the deputy director of the National Economic Council (and he is, I believe, the first deputy director of the National Economic Council of Indian descent!):
It is paid for and far more by the amount of deficit reduction that we’re already on track for this year,” said Bharat Ramamurti, the deputy director of the National Economic Council. “Like I said, we’re on track for $1.7 trillion in deficit reduction this year. That means, practically speaking, compared to the previous year, 1.7 trillion more dollars are coming into the Treasury than are going out. And we’re using a portion of that — a very small portion of it — to provide relief to middle-class families, consistent with the President’s plan.
Deficit reduction doesn’t pay for anything, of course, and the fact that Biden officials engage in this kind of cynical deceit is signature significance for untrustworthy public servants. Of course, it might be that this guy really believes that when you spend more than you bring in but by less than the previous year that means you’ve made money, in which case he’d be an idiot.
3. Speaking of idiots, here was Kamala Harris’s deft explanation of why the bail-out was good policy:
Well, let’s start with this. First of all, a lot of the same people who are criticizing what we rightly did in following through on a commitment that we made to forgive student loan debt, are the same people who voted for a tax cut for the richest Americans. So when we look at who is benefiting from this, 90% of the people who are going to benefit from student loan forgiveness make under $75,000 a year. And that debt has been the reason that they’re unable to start a family, buy a home and pursue their piece of the American dream.
The Veep starts with the irrelevant whataboutist deflection because it apparently is #1 on the administration’s talking points list that has obviously been widely distributed. As for the logic of the rest: victims of loans sharks , drug debts and gambling debts also suffer consequences from them. Why not a handout to them too, so they can “start a family, buy a home and pursue their piece of the American dream”?
On the related issue of whether Harris’s incurable blathering malady justified Julie Principle status, here was her statement before today’s Artemis 1 launch that was ultimately scrubbed this morning:
We have people who have been working for decades to do the work that has been about America’s leadership in terms of space exploration, and today is very much on that path about showing the great work that happens…how exciting is that?
Rarrit!
4. The White House has promised that paid-for student loans will not be considered taxable income at the federal level. However, at least thirteen states including New York are considering treating the discharged debt as taxable income—which, in all fairness, it should be.
5. Prof. Turley wrote about perhaps the worst aspect of the bail-out: it’s unconstitutional and an abuse of Presidential power that creates as dangerous precedent. He notes in part,
When Madison described the essence of his constitutional vision of the separation of powers in Federalist 51, he declared “Ambition must be made to counteract ambition.”
No branch is supposed to have enough power to govern alone. Once power becomes concentrated in the hands of a president, citizens are left only with the assurance that such unchecked power will be used wisely – a Faustian bargain the framers repeatedly warned us never to accept.
The Madisonian vision has long been on the decline in Congress. One of the lowest points was the State of the Union address by former President Barack Obama when he announced that he intended to go it alone in achieving his policy goals, refusing to yield to the actions of Congress. One would have expected an outcry, or at least stony silence, from a branch that was being told it would be circumvented. Instead, there was rapturous applause that bordered on a collective expression of institutional self-loathing.
Now these members are applauding a president waiving a trillion dollars unilaterally because he knew that he could not get such a massive waiver from Congress. It is precisely what the Framers sought to avoid in a system of shared powers. Yet, even law professors are denouncing our constitutional system as the evil that must be attacked to achieve social justice. The embrace of such concentration of authority in a single politician is precisely what the condemned “constitutionalism” is meant to avoid.
For those who claim to be fighting for our constitutional system and democracy, this may be a good place to start.
6. I assume that we are seeing no action from Republicans as the Executive usurps Congressional powers because the party is led by unprincipled cowards who are afraid to anger the “hooray for free stuff” voting block.
7. From CNN: “Some critics of the Biden administration’s student debt relief worry about the precedent it sets. If the government creates an expectation that debts are likely to be forgiven, universities won’t hesitate to raise tuition. Students may take on more debt, expecting some of it will eventually be wiped clean.”
Gee, why would anyone predict that?
Ethics Alarms 
“One would have expected an outcry, or at least stony silence, from a branch that was being told it would be circumvented. Instead, there was rapturous applause that bordered on a collective expression of institutional self-loathing.”
They want to be able to rubber-stamp their party’s agenda and have it signed by said party’s leader, but, failing that, have no problem undermining their own branch of government when it serves their purpose. Let a President from the opposing party do that, though.
Am I missing something here? Married households are eligible up to $250,000 in annual income. That’s got to be close to the top 5% of income earners. It literally is nurses and paralegals paying the debt of doctors and lawyers. Maybe not late in their careers, but for the first half at least.
The median student borrower carries just about $17K in loans. The current fixed rate for federal student loans for undergraduates is 4.99%*. If I recall my Capital Recovery Factor formula correctly, that’s a ten year payoff at a monthly payment of about $180.
Meanwhile, compared to last year, rent has gone an average of 13.4%, food has gone up 13.1%. If a couple was spending $900 in rent and $500 in food in 2021, the Democrats’ inflationary economics have already overshadowed what they had been paying in student loans, so forgive me if I don’t buy that student loans were the reason they weren’t buying homes or starting families.
Why are we paying these people. Firstly, we have Jane Yellen our esteemed Treasury secretary say she did not anticipate all the inflation associated with spending nearly 2 trillion dollars in the first 18 months of the administration while simultaneously lamenting the supply issues that were impacting the economy. Next, we have Jerome Powell, the head of the Federal Reserve jacking up interest rates to cool off consumer spending while Gross Private Domestic Investment which would increase supplies and dampen inflation stagnates because of the higher interest rates and increased regulations. Now let’s provide some $300B to $1T more to a select group of consumers to allow them to increase aggregate demand in the form of higher consumer spending which will effectively cause them to bid prices up for all goods and services.
Biden claims there is no recession because the job market is still a “strong”. Yes, there are more jobs available than there are unemployed but that is only half the picture. The civilian labor force is down 2.3 million people since 2019 despite overall increases in population. If those 2.3 million people suddenly decided to look for work, then the unemployment number would be far higher; some estimates are about 8%. If we factor in the number of unemployable young males and females who reside in inner cities who have never been in the labor force the unemployment figures would paint a much different picture.
Consumer spending is affected by existing debt, interest rates and perception of wealth and future income. When we jacked up the minimum wage with no corresponding increase in productivity minimum wage earners felt wealthier (wealth effect) and felt they could now afford more things and the increase in discretionary income (income effect) allowed them to spend more. Businesses not immediately affected by the mandated increases in wages saw sales grow and because they could not replenish supplies, they hiked prices resulting in higher nominal profits. This created a similar wealth and income effect in businesses, so they sought to expand their workforce to capture more of this new-found wealth among their consumers. Unfortunately, because far too many opted out of the labor market due to extended pandemic benefits and those who remained were marginal at best productivity was flat. This is evidenced by the stagnant stock market Higher demand for quality workers permitted employed workers to job hop which led to increasing wage rates for those not at the bottom of the wage scale. (I might point out that this may be relevant in the quiet quitting post)
So, now we are going to improve the balance sheets of college grads by wiping out some amount of debt. The wealth effect which is a psychological manifestation, will engender more spending and the increase in discretionary spending will permit more spending resulting in even more consumer demand and inflation. Unfortunately, now the businesses are beginning to see that the profits that came from the big infusion of government spending are waning and any ability to generate profits by substituting capital equipment for higher cost/lower productivity labor is being stymied by the FED whose interest rate hikes do not discriminate between investment that produces supplies that help increase employment and dampen inflation and consumer spending that reduces the available supplies which drives prices up.
Inflation is a hidden tax when government polices create the conditions for it to exist. The government gets higher tax revenues when wages rise, and the deficit appears to fall. Ignore the talk about deficit reduction. Spending like a drunken sailor and then cutting back slightly does not make you a deficit hawk.
Because the purchasing power of those dollars buy less and less, the costs of government programs rise and the consumer’s standard of living falls. The people who benefit are those who are insulated from the problem of creating value (public sector workers) and the recipients of the government largess, at least in the short term.
The rest of us are just being played. Or at least they think they are playing us.
Nicely done, Chris.
jvb
Thanks, JVB
I don’t know what these people are thinking. They know better. I can only conclude that the politics of degrowth and climate issues are so entrenched that they are purposely trying to reduce our economy to subsistence levels. None of those creating the subsistence economy will be affected by it. They will have first access to the remaining fossil fuels, the best food, and most luxurious housing. All at our expense. We have seen this movie before.
I heard not too long ago that in a few years Americans will own nothing and like it. Well, we know who will own and control the assets that allow for a comfortable life. Nothing says slavery like having to acquiesce to demands of another if you want to have access to food, shelter, transportation and the like. We are beginning to see how the process will work when some seek to destroy people economically. Say something the masters do not like, and they will work to take away your means to enjoy life.
The student loan payoff mess is illustrated clearly for me by the contrasting stories of my daughter and one of her close friends from high school. Both these girls chose to go to a local community college for their first two years. Shortly after their graduation from community college, my daughter was diagnosed with non-Hodgkins lymphoma. She spent the next year and a half going through chemotherapy and recovery, emerging cancer-free and with a new career goal: nursing. In the meantime, her friend had moved away to attend a state university, and, despite the protestations of her parents, she took out student loans to finance her newly adopted college lifestyle. My daughter went on to nursing school, which we were able to cover without borrowing. She graduated and immediately went to work in her new career, debt-free. Her friend, in the meantime had spent her days at university parting and occasionally attended classes. She ended up on academic probation for a few semesters and eventually flunked out. This apparently brought her to her senses, and she moved back in with her parents, taking a series of part-time jobs to begin repaying her student loans. This girl was an experienced equestrian who was raised around horses and eventually took a job working at a large boarding stable and now manages that facility. Now her loans will be forgiven, and my daughter will, like the rest of us, be paying for them. I think kids like her are an often-overlooked segment of student loan borrowers, who incur these huge debts with not even a worthless degree to show for it.
If the government gives you money. That is income and should be taxed as such. When the government gives me back overpaid taxes, that amount is considered income for the next year. Each month my social security check, which returns the money I paid into the system is taxed.
Student loans are, in fact, not money given by the government It is money given by a third party, usually a private institution. Therefore it is income-taxable income.
Normally it would be taxable income. However, the 3rd stimulus bill last year (American Rescue
Act), specifically stated that student loans cancelled from 2021 through 2025 would not be taxable.
There are some states who, I believe, are not conforming to this, just as there were some states in 2020 who didn’t conform to $10200 of unemployment being non taxable. However, I believe each state has to specifically act to do so.
I remember seeing that clause when the act passed, but at the time there was no student loan cancellation on the horizon.
Is there any information regarding whose loans will be forgiven? Are only those loans which are now in the repayment stage – meaning the borrower no longer meets student eligibility. Or are all outstanding loan balances to eligible. If the former, what do s Biden telling those currently enrolled and not yet required to start repayment? If the latter will those students be barred from from additional borrowing? Otherwise, the colleges can simply hike up fees which students will need increased borrowing.
This question needs to be posed to all those undergrads and grad students who are not yet paying back their loans. They may just find out they have been duped.