Biden's Student Debt Cancellation Scheme Is a Trainwreck

The floundering student loan forgiveness scheme looks poised to go down in defeat, but Americans will feel the consequences for years.

In May, Mayor Melvin Carter of St. Paul, Minnesota, posted a screenshot of his student loan balance: $0.00.

“Thank you, Mr. President!” he wrote.

President Joe Biden had not, of course, paid off the mayor’s student loans.

Carter’s debt relief came courtesy of U.S. taxpayers, who have been shouldering the burden of these debts following Biden’s renewed effort to “cancel” hundreds of billions of dollars in student loans.

Carter, who in 2021 received a salary of $132,200, according to GovSalaries (more than double the national average), did not bother to thank taxpayers.

The fact that working-class taxpayers are now on the hook for the student loans taken out by highly educated and financially successful people, including mayors of major U.S. cities(!), confirms what policy analysts warned way back in 2020: Student debt “cancellation” makes income inequality worse.

“Any policy that is a universal loan forgiveness policy or a capped forgiveness policy — say, forgiving debt up to $50,000 — is going to give most of the dollars in forgiveness to upper-income individuals,” said Constantine Yannelis, an associate professor of finance at the University of Chicago’s Booth School of Business and the co-author of The Distributional Effects of Student Loan Forgiveness.

It is odd that the Biden administration, which talks about the importance of fighting income inequality, would embrace such a regressive policy. But one could argue that that is not even the worst part of the debt cancellation scheme.

Adding $160 billion (the most recent estimate of Biden’s loan forgiveness scheme) more to the snowballing national debt is an act of fiscal recklessness. And that doesn’t even include the $195 billion price tag from the loan payment “pause” that began in the spring of 2020. 

As economist James Buchanan was fond of pointing out, financing government outlays by deficit spending is akin to “chopping up the apple trees for firewood.” You will harvest some gains today but at a great cost: a smaller orchard.

There are other potential unintended consequences. People familiar with the third law of demand will contend that lower-quality education is all but certain to follow loan debt forgiveness. And then there’s the matter of perverse incentives. Will future borrowers even bother to pay back their loans if Uncle Sam is waiting in the wings to pick up the tab?

And let us not forget Biden’s brazen contempt of the Supreme Court.

It’s well known that the Supreme Court struck down Biden’s student loan forgiveness scheme, ruling that the secretary of education lacked the authority to “transform” the system in this matter without Congress. This didn’t stop Biden.

“The Supreme Court tried to block me from relieving student debt. But they didn’t stop me,” the president recently bragged. “I’ve relieved student debt for over 5 million Americans. I’m going to keep going.”

This boast does not sit well with Biden’s talking point that “nobody is above the law,” and it demonstrates a gross disregard for the Constitution. Yet one could argue that perhaps Biden really does believe that the high court was wrong in its ruling.

The problem is Biden himself has conceded that he lacked the authority to forgive tens of thousands of dollars of student loan debt without Congress. (So did former House Speaker Nancy Pelosi [D-CA].) During the first months of Biden’s presidency, at a town hall meeting in Wisconsin, Biden explained why he wasn’t going to embrace Sen. Elizabeth Warren’s (D-MA) loan debt forgiveness plan, which called for up to $50,000 in student loan forgiveness.

“I don’t think I have the authority to do it,” Biden explained, adding that his campaign plan called for more “modest” forgiveness — up to $10,000.

Biden’s press secretary at the time, Jen Psaki, noted that the president “would welcome the opportunity to sign a bill sent to him by Congress.”

Congress passed no such bill, though Biden at least once falsely claimed that he obtained approval from Congress. And the Supreme Court struck down Biden’s student loan order.

Yet instead of admitting he lacked the authority to forgive these debts unilaterally, Biden doubled down on his efforts through his Save on a Valuable Education Plan.

This prompted a pair of federal judges, just two weeks ago, to slap down Biden’s debt forgiveness scheme once again. The matter now seems headed to the Supreme Court — again.

All of this reveals the great danger of a system built on legalized plunder, a term coined by the 19th-century economist Frederic Bastiat, who noted that the state’s transgressions of property rights were often rooted in “false philanthropy.”

The phrase perfectly describes Biden’s student loan forgiveness scheme, and it shows how politics has effectively become little more than a spoils system in which politicians use the general fund to reward favored constituencies, thereby cementing their own power.

It’s true that sometimes this plunder helps certain people — just ask Mayor Melvin Carter. But such schemes come with great costs, which is why the Founding Fathers placed strict limits on the federal government.

Biden’s floundering student loan forgiveness scheme looks poised to go down in defeat, but if it serves to remind America of the importance of fiscal restraint and the reasons we have a limited government in the first place, maybe it will have at least done some unintended good.

This article originally appeared on The Washington Examiner.