America Will Feel the Consequences of Biden’s Student Debt Cancellation Plan for Years to Come

In May, Mayor Melvin Carter of St. Paul, Minnesota, posted a screenshot of his student loan balance: $0.00.

“Thank you, Mr. President!” he wrote.

President Joe Biden, of course, had not paid off the mayor’s student loans.

Carter’s debt relief came courtesy of American taxpayers, who shouldered the burden of those debts after Biden’s renewed efforts to “cancel” hundreds of billions of dollars in student loans.

Carter, who in 2021 was paid $132,200, according to GovSalaries (more than double the national average), didn’t bother to thank taxpayers.

The fact that working-class taxpayers are now responsible for the student loans taken out by highly educated and financially successful people, including the mayors of major American cities (!), confirms what policy analysts warned in 2020: “cancelling” student debt worsens income inequality.

“Any universal or capped debt forgiveness policy—for example, debt forgiveness up to $50,000—is going to give most of the forgiveness dollars to high-income people,” said Constantine Yannelis, associate professor of finance at the University of Chicago Booth School of Business and co-author of The distributional effects of student loan forgiveness.

It is strange that the Biden administration, which talks about the importance of combating income inequality, is adopting such a regressive policy. But one could argue that this is not even the worst aspect of the debt cancellation program.

Adding $160 billion (the most recent estimate from Biden’s loan forgiveness program) to the growing national debt is an act of fiscal recklessness. And that doesn’t even include the $195 billion due to the “pause” on loan payments that began in the spring of 2020.

As economist James Buchanan liked to point out, financing government spending through deficit spending is like “cutting down apple trees for firewood.” You’ll reap some benefits today, but at a high price: a smaller orchard.

There are other potential unintended consequences. Those familiar with the third law of demand will argue that debt cancellation will inevitably lead to a decline in the quality of education. And then there is the question of perverse incentives. Will future borrowers bother to repay their loans if Uncle Sam is waiting in the wings to foot the bill?

And let’s not forget Biden’s shameless contempt for the Supreme Court.

It is well known that the Supreme Court struck down Biden’s plan to cancel student loans, ruling that the Secretary of Education did not have the authority to “transform” the system in this area without Congressional intervention. That didn’t stop Biden.

“The Supreme Court tried to stop me from paying off student debt. But they didn’t stop me,” the president recently boasted. “I’ve paid off student debt for over 5 million Americans. I’m going to keep going.”

This boast is at odds with Biden’s rhetoric that “no one is above the law” and shows a blatant disregard for the Constitution. Yet one could argue that Biden may be convinced that the Supreme Court was wrong in its decision.

The problem is that Biden himself has acknowledged that he doesn’t have the authority to cancel tens of thousands of dollars in student loan debt without Congressional intervention. (As did former House Speaker Nancy Pelosi (D-CA).) In the early months of Biden’s presidency, at a town hall in Wisconsin, Biden explained why he wouldn’t accept Sen. Elizabeth Warren’s (D-MA) debt cancellation plan, which would forgive up to $50,000 in student loans.

“I don’t think I have the authority to do that,” Biden said, adding that his campaign plan called for more “modest” debt forgiveness – up to $10,000.

Biden’s press secretary at the time, Jen Psaki, noted that the president “would welcome the opportunity to sign a bill that was sent to him by Congress.”

Congress has not passed any such bill, even though Biden has at least once falsely claimed to have congressional approval. And the Supreme Court struck down Biden’s student loan order.

But instead of admitting that he lacked the authority to cancel those debts unilaterally, Biden doubled down on his “Saving on a Valuable Education” plan.

That prompted two federal judges just two weeks ago to once again reject Biden’s debt forgiveness plan. Now the case appears headed to the Supreme Court — again.

All of this reveals the great danger of a system based on legalized plunder, a term coined by the 19th-century economist Frédéric Bastiat, who noted that state transgressions of property rights were often rooted in “false philanthropy.”

This phrase perfectly describes Biden’s student loan forgiveness program, and shows how politics has effectively become a spoils system in which politicians use the general fund to reward their favored constituencies, thereby consolidating their own power.

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It’s true that this plundering sometimes benefits some people—just ask Mayor Melvin Carter. But such projects come at a high cost, which is why the Founding Fathers placed strict limits on the federal government.

Biden’s embattled student loan forgiveness plan appears doomed to failure, but if it serves to remind America of the importance of fiscal restraint and why we have limited government in the first place, perhaps it will have done at least some unintended good.

Jonathan Miltimore is a senior content strategist at the Foundation for Economic Education and a senior writer at the American Institute for Economic Research..