President Biden’s unprecedented move to "cancel" half a trillion dollars in college loan debt is a reckless boondoggle as a vote-buying scheme.
It will add to near-term inflation, reward stupidity in borrowing, fuel future tuition price hikes, and further enrich greedy gluttons of government largesse: colleges and universities. The schools, in fact, should be forced to ante up for some of this tab, themselves.
Plus, one day it will be ruled unconstitutional: only Congress has the power of the purse.
Biden officials first pegged the cost of this massive giveaway at $240 billion over 10 years. The non-partisan Committee for a Responsible Federal Budget says the "gallingly reckless" program will more likely cost $500 billion, and the Penn Wharton Budget Model, a source well regarded by policymakers, forecasts $1 trillion.
Indiscriminately, this sweetheart sop grants $10,000 to $20,000 of relief, even if you borrowed stupidly — say, you took $120,000 in loans to get a Ph.D in 18th century Russian literature.
Bailing out stupidity invites a "moral hazard," which we heard about a lot in the bank bailout of 2009: if you bail out a troubled borrower too easily, you encourage him to keep making bad decisions. Does anyone remember TARP, the Troubled Asset Relief Program?
The media raised no such concerns for this bailout.
The U.S. government risked $700 billion in the bank rescue, and it had recovered the full amount and turned a profit of $109 billion by August 2022, Propublica reports.
By contract, the Biden plan will run a net loss of up to $1 trillion that will be covered by taxpayers, including those who paid off their loans and those who never went to college at all.
Universities and colleges benefited mightily from these supposedly usury college loans.
In the past 15 years, the price of tuition at public four-year schools is up 180%; at private universities the cost is up 124%.
Prices in the economy over all rose only 28% in the same 15-year period. In fact, college costs have risen more than four times as fast as the inflation rate for 50 years!
That torrid rise owes largely to an overabundance of easy money.
The student debt market now totals $1.75 trillion, and this Biden giveaway will add half a trillion dollars of headroom for more loans, effectively, fueling future tuition hikes.
Colleges and universities keep raising prices, in spite of huge endowments: almost $700 billion in total, including $53.2 billion at Harvard. They got even greedier in the COVID-19 lockdowns, shutting down their campuses and holding classes only online for a year or more, yet charging the same high tuition prices for this lesser experience.
Furthermore, the schools scored an enormous windfall in the Covid crisis.
They take in $670 billion a year in tuition and fees, and they lost 6.6% of their students from the fall of 2019 to the fall of 2021, a revenue hit of $45 billion in two years. But the schools got more than double that sum in COVID-19 aid, in just one year’s time.
It started in March 2020 with $14 billion for HEERF, the Higher Education Emergency Relief Fund, plus $16 billion “expeditiously provided” in the spring, and $22.7 billion in December 2020 for HEERF II, and, just 18 days after that, an extra $21.2 billion. Then came HEERF III in March 2021 for $39.6 billion.
That is $113.5 billion to offset a $45 billion decline in tuition revenue. Nice arbitrage.
Clearly, these schools can afford to help out in this half-trillion-dollar handout. Yet President Biden, a bad bargainer, granted this gift without asking anything of them; why not pressure them into forgoing any tuition increase for the next two years?
The answer is because, since the 1970s, universities have indoctrinated their students in social activism, socialist ideology, and the evils of capitalism, churning out naïve voters for the Democratic Party.
Now, with a hundred billion in COVID-19 aid and half a trillion in "forgiven" college debt, Biden and the Democrats are paying the schools to keep ’em comin.'
Dennis Kneale, @denniskneale on Twitter, is a writer and media strategist in New York. Previously, he was a senior editor at The Wall Street Journal, the managing editor of Forbes, and an anchor at CNBC and Fox Business. Read Dennis Kneale's reports — More Here.
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