Student Loans

Joe Biden's Incoherent Student Loan Logic

Plus: Fewer cops, less crime; free beer; and more....

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After Friday's defeat at the Supreme Court, President Biden announced two new student loan forgiveness plans. But one older policy should have your attention. | Michael Reynolds - Pool via CNP/ZUMAPRESS/Newscom
(Michael Reynolds - Pool via CNP/ZUMAPRESS/Newscom)

In the hours after Friday's Supreme Court ruling that struck down his attempt to forgive large amounts of federal student debt, President Joe Biden promised two new actions to ease borrowers' burdens. The president's next steps and his rhetoric suggest that little has changed in his flawed logic regarding student loan forgiveness—which has always seemed to have been more about electoral politics than serious policymaking, despite the huge price tag.

Going forward, Biden's student loan plan will include the two steps announced Friday and one lingering element from his earlier proposal that wasn't part of the Supreme Court's review.

First, Biden has invoked a different federal statute in another attempt to unilaterally forgive some student debt. Under powers contained in the Higher Education Act of 1965, Biden intends to direct Secretary of Education Miguel Cardona to "compromise, waive, or release loans under certain circumstances." That will be a federal ruling process, and those tend to take a while—the White House says the first step is a virtual public hearing on July 18—and it is unclear how much debt could be forgiven this way, who would benefit, or what the cost to taxpayers will be.

In the meantime, federal student loan payments will come due again in October after being paused since the COVID-19 emergency was declared in March 2020. But borrowers will be able to ease back into paying what they owe: Biden also announced Friday a 12-month "on-ramp" process during which missed payments will not accrue penalties and won't result in delinquent borrowers having their credit scores dinged.

When they do restart, those monthly payments will be lower than before the pandemic for many borrowers. That's due to the third part of Biden's plan, which caps monthly payments at 5 percent of a borrower's discretionary income—which the Department of Education defines as income that exceeds 150 percent of the federal poverty guidelines. In practice, that means a single borrower with no children starts making payments on income that exceeds $20,400. Additionally, outstanding loan balances will be forgiven after 10 years for those who borrowed $12,000 or less, with a maximum payment period of 20 years no matter how much was borrowed.

That part of the plan isn't new, but the Department of Education finalized those rules on Friday just after the Supreme Court's ruling. "It will cut monthly payments to zero dollars for millions of low-income borrowers, save all other borrowers at least $1,000 per year," Cardona promised.

The consequences of capping monthly payments and also capping the length of time a loan can be in repayment should be fairly obvious: A lot of loans will never get paid back in full. "On average, borrowers (current and future) might only expect to repay approximately $0.50 for each dollar they borrow," the Brookings Institution concluded in an analysis last year.

That's going to create some major perverse incentives in the already screwed-up student loan marketplace. Brookings warns that Biden's income-based repayment plan will result in "tuition inflation" and "increased borrowing," particularly by students in pursuit of "low value, low earning" degrees.

The amount that isn't repaid by borrowers will ultimately be covered by taxpayers, and it's going to be expensive. The Department of Education estimates that Biden's income-based repayment program will cost $138 billion over 10 years, but that doesn't take into account the increased demand for federal student loans that is likely to result from making those loans significantly cheaper for borrowers. The Congressional Budget Office says the real price tag will be $230 billion, while the Wharton Budget Model says it will cost $360 billion.

While Biden charges headlong into a disastrous, expensive rewrite of repayment requirements that will encourage more students to make irresponsible decisions about college, the White House remains intent on blaming congressional Republicans—who have had nothing to do with any of this. "Republican elected officials and special interests stepped in," Biden claimed on Friday, blaming those groups for "literally snatching from the hands of millions of Americans thousands of dollars in student debt relief that was about to change their lives."

That's not what happened at all. Even if you're going to grant Biden wide license to describe the lawful majority on the U.S. Supreme Court as "Republican elected officials" and forgive the inaccurate use of "literally," this still makes no sense. The Supreme Court didn't rule on the merits of student loan relief. The court simply said that Biden did not have the authority to do student loan relief without including Congress, as Reason's Emma Camp explained Friday:

Roberts further asserted that only Congress could authorize such extensive student loan forgiveness. He even cited former Speaker of the House Nancy Pelosi (D–Calif.), who told reporters in 2021, "People think that the President of the United States has the power for debt forgiveness. He does not. He can postpone. He can delay. But he does not have that power. That has to be an act of Congress."

This is not, as Cardona suggested on Friday, a case of the Supreme Court substituting itself for Congress. The court is quite literally saying that Congress should get involved.

Only slightly less absurd is Biden's use of the pandemic-era Paycheck Protection Program (PPP) as a rhetorical foil for student loan forgiveness. "Think about this: We all supported the Paycheck Protection Program….Some of the same elected Republicans, members of Congress who strongly opposed giving relief to students, got hundreds of thousands of dollars themselves in relief—members of Congress—because of the businesses they were able to keep open."

The White House's use of that argument has never made much sense—as I've written before—but it reached new heights of ridiculousness last week, after an inspector general report showed that the PPP was riddled with fraud. The Biden administration is seriously trying to argue that one expensive failure of a government program should justify another expensive failure of a totally unrelated government program. The PPP should not be a model for anything going forward.

The only way any of this makes sense is to understand that student loan forgiveness has always had more to do with politics than policy. It's a taxpayer-subsidized handout to college-educated Americans—a group that generally votes Democratic—and a convenient wedge issue for Biden to use in hackneyed attacks on Republicans.

The Biden administration may have lost at the Supreme Court last week, but the defeat clearly hasn't inspired any reconsideration of a policy that is unnecessary, expensive, and likely ruinous to the next generation of student borrowers.

FREE MINDS

After a wealthy, white Minneapolis suburb hired a black police chief, half the cops quit. Then crime dropped.

Writing in The New York Times, Radley Balko says what's happened in Golden Valley, Minnesota, should challenge some assumptions about the relationship between policing and crime—particularly when compared with the dysfunction on display in nearby Minneapolis, as detailed last month in a Justice Department report. Here's Balko:

Amid spiking nationwide homicide rates in 2020 and 2021 and a continuing shortage of police officers, many in law enforcement have pointed to investigations like these—along with "defund the police"-style activism—as the problem. With all the criticism they are weathering, the argument goes, officers are so hemmed in, they can no longer do their job right; eventually they quit, defeated and demoralized. Fewer police officers, more crime.

Lying just below the surface of that characterization is a starkly cynical message to marginalized communities: You can have accountable and constitutional policing, or you can have safety. But you can't have both….

In accord with that view, some academic studies have found that more police officers can correlate with less crime. But the studies don't account for factors that the Minneapolis report highlights—the social costs of police brutality and misconduct, how they can erode public trust, how that erosion of trust affects public safety—and they don't account for the potential benefits of less coercive, less confrontational alternatives to the police. We don't have as many studies that take those factors into account, but to see the effects in real time, you need only step over the Minneapolis city line.

FREE MARKETS

After Bud Light was toppled from its longstanding perch as America's best-selling beer by Modelo—and a conservative-led boycott—brewer InBev tried to lure customers back over the holiday weekend. It used one of the oldest plays in the marketing book: really cheap beer.

Those $15 rebates are being offered to customers who buy cases containing at least 15 beers, and the result could be practically free Bud Lights for your Fourth of July cookout, reports Barron's, which adds that the company hopes the promotion "may be too hard to turn down."

The New York Times dispatched a writer to the hamlet of LeMoyne, Pennsylvania, to see how it's going over with shoppers at Glenn Miller's Beer & Soda Warehouse—where, full disclosure, your trusty correspondent was once a regular customer. "At this point, it's cheaper than some of the cases of water we're selling in the back," Andy Wagner, the store's manager explains. One might add that the taste is rather similar too.

"I've seen longtime Bud Light customers trying other beers," Wagner adds. "If they find something they like, they may not come back."

QUICK HITS

• Blame the Federal Aviation Administration for another holiday weekend plagued by air travel problems.

• A sixth consecutive night of riots has rocked France, in response to the police killing of a 17-year old. In L'Haÿ-les-Roses, a town near Paris, protesters rammed a vehicle into the mayor's home, then set the car on fire.

• The Washington Post reports that then-President Donald Trump tried to "cajole" Arizona Gov. Doug Ducey into overturning the state's presidential election results. Trump's vice president, Mike Pence, claimed Sunday that there was "no pressure involved" in the phone call to Ducey, which Pence characterized as a "check-in."

• The Biden administration is studying geoengineering as one possible method to slow global warming.

• Thousands of hotel workers in southern California have gone on strike.

• Joe Biden is "very open-minded" about using psychedelics in medical treatment, according to Frank Biden, the president's youngest brother.