KEY POINTS

• U.S. Government to forgive $10,000 in student loan debt or up to $20,000 for those with Pell Grants.
• Americans who had to strive, sacrifice, save, and pay off their student debt are left behind. 
• Lautz recently estimated that Biden’s plan could cost the average taxpayer more than $2,000. 
• Out of the 46 million Americans with student debt, 45.4 million hold federally-backed loans. The total amount of student loan debt sits at a whopping $1.75 trillion.

President Biden said on Wednesday, Aug 24th, that the United States government would forgive $10,000 in student loans, or up to $20,000 for those with Pell Grants, for millions of former students in America. So, finally, he is acting on his promise in the 2020 campaign. However, it’s not without its consequences. 

While the Biden Administration ultimately pushed this forth to garner support for Democrats in the November congressional elections, it may have dire consequences for the economy. Many economists have suggested a move like this is inflation fuel, and many GOP Congress members question if the president even had the legal authority to cancel these debts. 

Biden stated, “I will never apologize for helping working Americans and middle class, especially not to the same folks who voted for the $2 trillion tax cut that mainly benefited the wealthiest Americans and the biggest corporations.” 

Many compared this move to socialism. Forgiving this debt is a middle finger to everyone who had to sacrifice it all for college, all of the students who fulfilled their obligations as they were supposed to and paid their debts. All Americans had to choose other career paths because taking on that debt was out of the question. 

This decision to forgive student loan debt is utterly reckless and displays how Biden is picking and choosing with our citizens. He only wants to help those who can help him (and the other democrats) keep a comfy spot in our government. Unfortunately, the taxpayers will be hit by this, and they’ll feel it. 

Lautz recently estimated that Biden’s plan could cost the average taxpayer more than $2,000. 

Unfortunately, the administration cannot wave a magic wand and make all this debt disappear. Furthermore, this one-time forgiveness does nothing to address the root of education costs and student borrowing.

The federal government backs most student loans, AKA; the taxpayers are responsible. Lenders still get their money, and taxpayers are now stuck with it instead of the person who promised to pay off this bill. When a borrower willingly takes out a loan, they should be responsible for repaying it. 

Apart from being blatantly unfair, you can’t ignore economic ramifications. Inflation touches everyone, whether you care about it right now or not. Stimulus checks were exciting to receive initially, but you are paying for those checks right now through the inflation tax. There is no such thing as a free lunch. 

The Bigger Picture

Forty-six million Americans currently have outstanding student debt. Out of that 46 million, 45.4 million are holding federally-backed loans. The total amount of student loan debt sits at a whopping $1.75 trillion. 

In 2020, the government stopped defaults and allowed borrowers to pause payments because of the pandemic. However, around 11.1% of student loans were 90+ days delinquent or were already defaulted. This does not include the number of individuals in deferment and payment programs that were not technically counted as delinquent. 

Biden claims we are still recovering from the pandemic and the economic disruption is caused. On the other hand, we repeatedly hear that the economy is “strong” from the Biden administration.

The same people promising to fix this problem are the ones who initiated it in the first place. If the government hadn’t guaranteed all of these loans, lenders would not have been loaning out trillions of dollars to college students.

The Problem with Student Loan Forgiveness

Loan forgiveness will likely raise the cost of college even higher. The availability of student loans drove tuition fees, and studies show that the increase of government-backed student loan money into the university system can be directly linked to surging college education costs. 

Loan forgiveness is great for colleges and universities, as administrators will quickly realize that they can raise tuition because these students will borrow the money knowing that they won’t have to repay it. 

Another famous phrase we’ve all heard is, “you give an inch; they take a mile.” This presents the other problem with student loan forgiveness, as it will become expected. Nobody is going to work to avoid going into debt. Instead, the mindset will be “take the debt; it will be forgiven anyway.” 

Let’s also mention how the US government doesn’t have any money. So it needs to borrow billions to pay for loan forgiveness schemes, and taxpayers will inevitably pay that borrowed money back in the form of skyrocketing taxes or inflation, or worse, both. The picture becomes very clear when you understand the mechanics of loan forgiveness. There’s a solid reason why so many are worried about the inflation that comes with this forgiveness.

Individuals who default on payments or don’t pay their debts are a gain to the borrower and a loss to the lender. The extra money the debtor saves on costs and now has to spend is offset by the money the lender will not have to spend. When the government backs loans, things shift. Borrowers get the extra money because they don’t have to repay the loans. Lenders get their money because the “government” pays the balance owed. The government has to borrow that money from taxpayers. 

We will likely see the impact of this decision unfold via inflation, taxes, and higher consumer prices. While student loan forgiveness is particularly popular, no one likes lousy economics.