Commentary: Michael Graham – What to Know About the $300 Billion College Debt Bailout

President Biden has announced plans to have taxpayers cover $300 billion in unpaid college debt for millions of borrowers. Under the proposal, the administration would pay $10,000 to individuals earning $125,000 or couples earning $250,000. Qualified Pell Grant borrowers from households earning less than $125,000 will receive $20,000.

And thanks to a provision of the Democrats’ US bailout last year, that income is tax-free.

Here are some basics about Biden’s proposal.

Canceling university debt will cost taxpayers

According to new analysis by the Penn Wharton Budget Model, a nonpartisan group from the Wharton School at the University of Pennsylvania, absorbing student loan debt could cost up to $900 billion.

Penn Wharton estimated that a one-time discount of $10,000 per borrower would cost about $300 billion if the policy was limited to people with incomes below $125,000.

The total outstanding federal college loan debt is approximately $1.7 billion.

Forgiveness dollars largely go to the wealthy

Penn Wharton also reports that “between 69 and 73 percent of any debt forgiven would accrue to households in the top 60 percent of the U.S. income distribution.” Part of the reason is that fewer than four in 10 Americans have a college degree. Another reason is that wealthier families are more likely to send their children to college.

And a recent report from the University of Chicago’s Becker Friedman Institute for Economics shows that canceling student debt would send nearly $6 in relief to the top 20% for every $1 that went to the bottom 20%.

The burden will return

Pouring hundreds of billions of tax dollars into the flames of college loan debt won’t snuff out the arsonists, according to the Committee for a Responsible Federal Budget.

“We estimate that, absent further federal financial aid reforms, outstanding federal student loan debt would return to the current level of $1.6 trillion relatively soon after cancellation” , writes the group. “With conservative assumptions, we find debt would return to (current levels) four years after $10,000 per borrower is written off.”

And as Liberal Sen. Patrick Leahy, D-Vermont, said, colleges and universities can be expected to raise their prices to absorb the billions of new federal dollars pouring into the system.

It may be illegal

There is no “Presidential Student Debt Forgiveness” law, and legislation is unlikely to get 60 votes in the Senate (even a House majority is in question). So where did Biden get the authority for a presidential college loan pardon?

According to most knowledgeable sources, he didn’t.

“People think the President of the United States has the power to cancel the debt,” House Speaker Nancy Pelosi said last year. “He doesn’t. He can postpone, he can delay, but he doesn’t have that power.

Pelosi argued that student loan forgiveness can only be accomplished by “an act of Congress.”

The Ministry of Education explored the issue and also found that the executive branch lacked the power to absorb these debts from borrowers.

If Biden has declared a one-time debt forgiveness, he will almost certainly be blocked by the courts. This leads many observers to suggest that this is a pre-midterm political stunt, not an education policy.

There’s another plan

It’s called the Fresh Start initiative, and it would give 7.5 million people who have taken out loans but haven’t made their payments an extra year, after the ’emergency’ ends. COVID-19, to find a payment arrangement without any payment. or penalties due. Their credit records would be wiped and, as the Washington Post reports, “Defaulted borrowers will also regain access to federal student aid. The department generally bars these borrowers from taking out new student loans, but the administration is easing the restriction to help people complete their education.

Michael Graham is editor at InsideSources.com.

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