Well, this past week, things got dumb REAL fast. Like Warp Speed fast (and if you think I’m insinuating a certain project the government got into in 2020 was infuriatingly dumb… bonus points to you).
In a move that was as predictable as it is shortsighted, this past week the White House announced a plan to forgive (meaning - transfer) up to $20,000 of student loan debt for borrowers making less than $125,000 a year (or $250,000 if they file as head-of-household). $10,000 would be available for those that did not receive Pell Grants (student loans for those making within a certain threshold of the poverty limit).
As with all things nowadays, this set-off a fierce debate. Why should those that were responsible and paid off their student loans (or had not taken out loans in the first place) be forced to pay for other's debts that were deemed worthy by the government (or at least the executive branch)? Where is the justice in a person holding only a high-school diploma having to share the debt burden of a recent law school grad?
These, amongst many others, are perfectly fair and legitimate questions… which then seemed to get overwhelmed by an incredibly poor counter argument which was posed by people on both sides of the political spectrum…
How can you oppose Student Loan forgiveness when you either took out or supported PPP (Payroll Protection Program) Loans? Those were largely completely forgiven! Some people that took them out didn’t even need them! This is the same thing and if you supported PPP loan forgiveness and don't support paying back school loans then you are a hypocrite!
No. Wrong. I dismiss this argument because it lacks the proper context describing what the PPP was and its purpose. Let's dig in.
Let’s start with a defense of the indefensible PPP. We need to do that because the ignorance shown with regards to that program has been wild. The Payroll Protection Program was a hastily established program from the US Government providing low-interest loans and grants to small businesses that were adversely affected by the COVID-19 lockdowns. Due to the completely foreseeable economic devastation wrought by the insane COVID-19 response (1500-Days to Slow the Spread), the United States Congress authorized a program by which small businesses could request loans from the government to assist them with paying employees and operational costs. This was done (a) to prevent businesses from completely shutting their doors and (b) to prevent overwhelming the system with unemployment claims. This was especially tricky for small businesses as the government, in their infinite wisdom, had also decided to boost unemployment benefits by $600/week. Meaning many employees WANTED to lose their job. As long as a business could prove that the loan provided went directly to these specific purposes and that your business retained 100% of your staffing levels, the loan would be “forgiven,” otherwise it would be converted to a long-term low interest loan.
If you are a business, even one that is not being affected much by the lockdowns (although many were in unseen ways), it was a smart business move to take out a PPP loan. Even if you had no intention of using that money for payroll. Why? Because it was a guaranteed, low-interest loan from the government that offered much better rates than most other small business loans. Did a lot of small businesses take advantage of this that may not have needed it? YES! But it is important to recognize that they were incentivized by the government to take out these loans due to a hastily written bill that made it a solid business decision.
Asking if one approves of the Payroll Protection Program while ignoring the circumstances that brought it about is tantamount to lying about the program. Do I support the government giving out grants and loans to struggling businesses? No, I don’t. But that ignores the fact that the reason that these businesses were struggling was a direct consequence of lockdowns and enhanced unemployment benefits. With that caveat in place, YES, it is the government’s duty to ensure as many of these businesses remain solvent as possible. But, more importantly, DON’T SHUT DOWN A COMPLEX ECONOMY YOU BARELY UNDERSTAND, IDIOTS!
The PPP was stupid. But the PPP was necessary stupidity. And because the government set it up hastily, it was ripe for abuse (although we can certainly squabble on what that abuse was).
When borrowers met the requirements as established by the government for loan forgiveness, then they should have been forgiven. Period. There is ZERO hypocrisy in people following the rules of a badly designed program and receiving any gains that were there to be had.
Here is where there is a fundamental disconnect with this argument and the student loan “forgiveness” debate. There was never an agreement between the government and student loan borrowers with regards to loan “forgiveness” when student loans were established. This is not an apples to apples comparison. If people took out a student loans and it stated if the borrower was fully employed for 10 years after graduation a certain portion of the loan will be forgiven, then we would have a relatively equivalent argument. But this is not the case.
All government actions should be seen through a lens of incentives and deterrents, as at their very core, this is what they are. The government (or society) seeks to incentivize certain behaviors while deterring others. So when evaluating a policy it is helpful to ask - What behavior does this policy seek to incentivize? What behavior does this policy seek to deter? And finally does the cost of this policy weigh out properly against the behavior changes it seeks?
With regards to the PPP, it sought to incentivize small businesses to keep their doors open and retain employees on their payroll. The cost was substantial, but arguably it could have saved money if it prevented a more substantial amount of the population from going onto enhanced unemployment. This is a decent behavior goal with arguably lower potential costs than the long term effects of thousands of small-businesses closing their doors. Would there have been other ways to achieve these means that were more effective? Possibly, but this is always a risk in hastily devised laws.
The student loan “forgiveness” incentivizes a whole host of poor behaviors. But let us examine the perceived good behaviors one might argue this provides (and I'm trying to avoid straw-manning this argument, I promise).
College is now $10,000 (or $20,000) cheaper, so more people will go to college, and more advanced education is a worthy goal. One could possibly argue that it makes college more affordable for students, but the issue with this argument is that if it makes college more affordable (a claim I find to be dubious), it only does so for those that have already made the decision to go to college and take out student loans. There is nothing in the proposal, at least initially, that appears to affect any new students. If you take out a student loan today there is no guarantee that any portion of your student loan will be forgiven. You may be left on the hook for the whole amount and resentful at those who started college one year prior to yourself who got a sweet deal from the president. Furthermore, if there is the perception amongst borrowers that a portion of their student loans will in the future be “forgiven” they will be incentivized to take out larger loans (as they would be more able to pay them back). And if people think they can take out larger loans, guess who is going to charge higher tuition? This will potentially be an indirect tax subsidy to the colleges in the country who most definitely do not need it.
This is lifting the burden of debt from young college graduates and students that are starting their adult lives. It is not society’s role to lift the burden from students that have taken out student loans. Surely there are some that are struggling with the burden of student loans, but that has always been true. The way to solve that is not to “forgive” student loan debt, but rather to make a college degree less of a barrier of entry to professional life in this country. I spent roughly $35,000 (before we even start adding the interest) on a fancy piece of paper that, over 20 years since I received it, still sits in the cardboard roll it was sent to me in. But I had to get that fancy piece of paper. It granted me access to Information Technology field positions I’ve had since I earned it. Did those years in college make me smarter? Doubtful. Could I have learned as much by actively being in the workforce? Undoubtedly. For many of the career fields of today we are requiring college degrees when a high school degree (or less) would suffice. Less demand for colleges would lead to lower tuition costs as colleges competed for students.
And now onto the poor behaviors this incentivizes.
This action would incentivize borrowers to take out more student loans. If the perception is that if you vote the correct politician into office, your loan debts will disappear, you will be more likely to take out student loans to pay for college rather than attempt to pay by cash or as you go. I’m not arguing against student loans, but rather the taking out of larger and larger loans under the assumption that they may not have to be paid off at some later point in time. The more and more people take out these loans, the larger and larger the incentive becomes for politicians to “forgive” those loans to gain constituent's votes.
Incentivize voters to vote for the politicians that will give you more free stuff. That is a tough habit for people to break, and politicians on both sides of the aisle love to play this game. The issue with this is manifold but one of my primary issues with it is that it slowly deteriorates personal freedom. You become indebted to the politicians that will continue to keep your gravy train on its biscuit wheels…. It is why Social Security and Medicare are on one way trains to insolvency. No politician wants to be the one who takes away the benefit another provided.
Which leads us nicely to this behavior that is incentivized by forgiving student loans. It incentivizes borrowers who have had their debt “forgiven” to unwittingly inflate the economy. Consider this simple scenario: A recent graduate is making $1000/week and has $100/week committed to paying off student loans. Once that loan is “forgiven” those $100 will go somewhere. They can go into the stock market. Or they can go towards consumer goods. But regardless of where they go, they are dollars that are being spent on a finite amount of goods. Limited supply with increased demand leads directly to inflation. If those funds remain paying down debt, they are unable to participate in the consumer economy which prevents them from generating inflationary pressures.
I am of the belief that this debt “forgiveness” will eventually be prevented from occurring. It just isn’t clear to me that the executive branch has broad power to “erase” debt. Even when debt is “forgiven” by the judicial branch in the form of bankruptcy, it is important to note that these debts don’t just vanish. Other entities are just prevented from collecting a portion or all of the debt they are owed. How this becomes the purview of the executive branch is unclear. And I feel bad for any current borrowers that are counting on this forgiveness as they are going to feel pretty angry when and if it doesn’t come to pass.
Luckily for them I see no end to the student loan repayment moratorium. This is a de facto loan forgiveness and it has the same inflationary pressures as the “forgiveness” does.
And to those that would tell me that Biden announced that the moratorium was definitely ending in December. Forgive me if I don’t take him at his word. I believe he said this inflation was transitory. C’mon Man!
And in some late breaking news... the debt "forgiveness" keeps on giving... SMH
Biden Uses Little-Known COVID Waiver To Write Off $9B In Student Loans For 150,000 Government, Nonprofit Workers | The Daily Wire