The Biden Student Loan Forgiveness Plan

Folly? Good Policy? How will Republicans React?

On August 24, 2022, President Joe Biden announced a plan to eliminate some student loan debt. In the President’s announcement, the United States Government would forgive up to $20,000.00 in loans from those who received Pell Grants and forgive up to $10,000.00 in loans from those who did not receive Pell Grants for those earning less than $125,000.00 a year. Student loan repayments will be frozen until December 31, 2022. The conservative and libertarian movements are sounding off about the correctness of the policy. I will discuss the politics and ramifications of Biden’s decision – and the failure of Republicans to address this issue adequately.

The history of debt relief is ancient. When I was at the Museum of the Bible in Washington, DC, I was struck by the discussions about the jubilees through history and the ties between debt and slavery in ancient and Medieval times. Biblically speaking, forgiving debt is moral, and usury is sinful. These translate to today, despite modern finance, with a whole set of philanthropy around paying medical and educational debts for victims and survivors of crimes and circumstances. Other than debt relief being a general social good, there are three significant vectors of criticism the Biden Administration is effectively neutering: from the right, left, and populists.

The Biden Administration is effectively countering major criticisms from its base and quelling independents. Very few policy decisions have an extensive impact on the daily lives of Americans. One of which is the growing costs of education. Despite some conservative pundits' desired social acceptance of blue-collar work, many Americans still go to college, and many of those accumulate some debt in the process. Debt forgiveness is fundamentally a populist position.

While the debt relief program proposed by the Biden Administration does not address education price inflation, it does address the personal financial impact of student loan debt. Effectively, this is money in the pocket of those with student loan debts plus the freeing from some or all debt burdens and the subsequent difficulties in securing other loans that come from having large credit lines.

Conservative pundits are correct in pointing out that the student loan debt relief program is a payoff of a particular voting block and a massive wealth transfer. Student loan relief directly improves the financial well-being of working college attendees, especially those underemployed. While young persons tend not to vote, this under-40 block of eligible voters will remember that time that Biden bailed them out. The conservative punditry is painting this as a wealth transfer, and that’s right. But from whom?

The Federal Government primarily taxes Americans through income tax and taxes on payroll and companies. It’s important to dig into the numbers. According to the US Census Bureau, the median income is just over $44,000.00 (we’re rounding for the sake of ease). To crack an annual Federal tax bill of $10,000.00 a year, a salaried W-2 income earner would need to earn around $77,000.00 (this is after FICA). $77,000.00 is also about the top 25% of individual income earners.

The tax burden from this stimulus is from the highest income earners, those paying capital gains, corporate taxes, and other federal taxes. While this shouldn’t fill people with warmth and reassurance, it’s an important note, particularly for Republicans. While most revenue to the IRS goes into the Treasury’s general current account, the tax burden is not on the middle-class taxpayer. This is a contradiction that America's pipefitters and foundry workers are subsidizing upper middle-class financial mistakes; it’s often the employers of these college graduates who are paying for this wealth transfer.

This is a crucial consideration for criticism and political rhetoric. Another critical point is that the Democrats, particularly the Biden Administration, outmaneuvers their opponents by never addressing criticism head-on but changing the narrative by advancing the policy football downfield. Republicans are particularly flatfooted on this rhetoric, with few adequately addressing the problem appropriately.

Republicans must focus on defining that this wealth transfer is bad and leaves the universities without adequate consequences for constant inflation. The problem with the tax-based narrative is that most middle-class taxpayers are very aware of how much they pay in taxes already, and many, particularly younger people, are indifferent to the moral hazard of such payoffs. Furthermore, calling it ‘socialism’ without defining what that means and that it is terrible risks promoting the concept of socialism as a sound policy framework. Universities need more aggressive regulation, and the Republican Party should embrace a more hardline regulatory attitude toward higher education.

Universities will raise tuition absent pushback by the Federal Government, especially after any loan forgiveness.

One of the cornerstone reasons for possible blowback lies within college graduate demographics. Most college graduates are women. Women vote more than men and stay single longer each year; thus, student loan alleviation directly improves the natural desire to increase one’s savings and quality of life. Any particularly callous-sounding argument will alienate them despite our best hopes for logic and reasonable argumentation. In fact, single female college graduates are probably the least sympathetic to arguments about unfairness toward the more male working class. Despite some efforts to normalize and idealize the trades, even conservative women largely treat these jobs as lower class.

There is a good chance the judiciary will hold up any executive branch student loan relief. The case may go to the Supreme Court concerning the “Necessary and Proper” Clause of the US Constitution. Republicans must present their own solutions, including one-time endowment taxes for universities and added regulation. However, it is doubtful for that to happen, given the tendency for Republicans to roll over for institutions and corporations.

In politics and policy, there’s what works, what’s good, and what is correct. While this may not be a correct or even a constitutional policy, this is good politics. Government-induced problems such as student loans and out-of-control school prices beget government solutions. The approach looks productive, and the opposition looks callous. Appearance is vital in electoral politics. The government should do no harm, and this particular policy is perhaps the single largest that the Biden Administration can execute that positively improves the quality of life for millions.

Republicans are either bad at playing good politics or good at playing bad politics.

The Democrats’ ability to stave off a Republican red wave in 2022 increases each day – Biden bounced back in the polls to the low-40s in approval rating and is now promising bailouts of his own. Republicans need to get serious about these grave social ills.