President Biden has announced a plan to forgive up to $10,000 in college student loan debt for individuals earning up to $125,000 a year and households that make up to $250,000.
Individuals who received federal Pell Grants, which are awarded to more financially needy students, can have up to $20,000 in loans forgiven.
All told, the debt forgiveness will cost an estimated $300 billion.
Yes, student loan debt is significant. The New York Times reports, “Across the United States, 45 million people owe $1.6 trillion for federal loans taken out for college—more than they owe on car loans, credit cards or any consumer debt other than mortgages.”
But there are many problems with this plan.
It is profoundly unfair to former college students who have fulfilled their obligations and paid back their loans, or avoided significant debt by saving for college and working while they were in school, or earned scholarships, or chose an institution that was more affordable.
Who could blame a former student who just finished their last college loan payment for being irate that one of their old classmates who has not kept up is getting a $10,000 break on their loan?
Senator Elizabeth Warren, a supporter of student debt relief, tweeted the Biden plan “will directly help hard-working people who borrowed money to go to school because they didn’t come from a family that could write a big check.”
Well, there are millions of hard-working people in the country who have plenty of debts other than student loans who could use some help. Why target the aid to middle-income earners who already have an upper hand because they have a college degree?
The loan relief also lets colleges off the hook.
The Georgetown University Center on Education and the Workforce estimates that between 1980 and 2020, the average price of an undergraduate degree increased 169 percent, far greater than the rate of inflation for other goods and services.
Meanwhile, many institutions, especially prestigious private colleges, have built enormous endowments. According to U.S. News and World Report, the universities with the top ten college endowments have assets totaling $210 billion.
Most schools have much smaller endowments—the average for the 351 schools ranked by the magazine is closer to $1.5 billion. That is still an enormous amount of money in the bank earning interest for the schools, while they saddle students with massive debt.
Meanwhile, there is the legitimate question of whether President Biden, or any President, has the power to just eliminate debt. House Speaker Nancy Pelosi raised that question last year.
“People think that the President of the United States has the power for debt forgiveness; he does not,” Pelosi said in July 2021. “He can postpone, he can delay, but he does not have that power. That has to be an act of Congress.”
Economics 101 teaches college students that there is no such thing as a free lunch. That is an important life lesson, and it should also student loans.