Tag Archives: student loans

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Rep. Suzanne Bonamici: No Friend of Working Families

U.S. Rep. Suzanne Bonamici, D-OR, is thrilled with President Biden’s actions cancelling student loan debt. She shouldn’t be. 

Even though she has a bachelor’s degree and a law degree from the University of Oregon, it’s clear she’s no economist. And even though she’s a member of the House Progressive Caucus and tries to package herself as an advocate for the common man (and woman), her support for student loan forgiveness suggests she’s no friend of working families either.  

That’s because, for one, the billions in student debt aren’t, in fact, being cancelled. The loans will still be paid off. The issue is by whom?

“The idea that the government is footing the bill for this policy is a bit misleading,” the American Institute for Economic Research points out.   “The cost of the program does not fall on the government. It falls on those who miss out on expenditures that would have otherwise occurred, those who pay higher taxes as a result of the program, those who pay higher interest rates or are crowded out due to additional government borrowing, or those who see the purchasing power of their dollars reduced more than usual.”

Even though the Supreme Court ruled that the Biden administration overstepped its authority in 2022 when it announced that it would cancel up to $400 billion in student loans, Biden has since been rolling out a series of debt forgiveness alternatives using a variety of executive actions.

Biden’s ingenuity in coming up with more loan repayment exceptions seems to have no bounds.  

On April 8, 2024, the White House announced an initiative that would:

  • forgive interest balances built up to date for 25 million borrowers, with 23 million likely to have all of their balance growth forgiven.
  • automatically cancel debt for borrowers eligible for loan forgiveness under several loan programs.
  • cancel student debt for borrowers who entered repayment over 20 years ago.
  • cancel student debt for loans associated with institutions or programs that lost their eligibility to participate in the Federal student aid program or were denied recertification because they cheated or took advantage of students.
  • cancel student debt for borrowers experiencing hardship paying back their loans.

While there’s no question student debt has become a burden for many Americans, Biden’s escalating efforts to relieve borrowers of obligations to repay student loans will add to the government’s annual deficits and the national debt. In other words, current student loan holders may escape repayment, but future taxpayers will have to pay the bill since Biden isn’t proposing any new revenue collections to cover the cost.

On April 11, the University of Pennsylvania’s Penn Wharton Budget Model estimated that Biden’s April 8 plans, if they are implemented, will cost the government $84 billion, in addition to the $475 billion that Penn Wharton previously estimated for Biden’s plans.

Rep. Bonamici must not care about that.  

Biden’s student debt forgiveness policies also raise serious questions about fairness. For example, according to Penn Wharton, eliminating student debt for borrowers in repayment for more than 20 years (or for more than 25 years with graduate debt) will provide debt relief for about 750,000 individuals residing in households that, on average, earn $312,977 in annual household income.

There’s also inequity in Biden’s plan to cancel up to $20,000 in interest for borrowers who have accrued or capitalized interest on their loans since entering repayment.  Low and middle-income borrowers enrolled in the SAVE Plan or other income-driven repayment (IDR) plans would be eligible for their entire interest balance since entering repayment to be cancelled if they make:

  • $120,000 or less per year individually or as married filing separately
  • $180,000 or less per year as a head of household, or 
  • $240,000 or less per year as married borrowers who file joint taxes.

Real median personal income in the United States was only $40,480 and the national median household income was just $74,580 in 2022. In other words, many college educated borrowers in Bonamici’s district who are eligible for relief under Biden’s plan are hardly struggling. And despite her assertion that she’s “standing up for working families,” many of her constituents with much lower incomes will end up covering the bills of their better-off neighbors.

Then, of course, a lot of Bonamici’s responsible working family constituents have probably made sacrifices to pay down their student loans, foregoing vacations, nice cars and restaurant meals. They will get no benefits at all from Bonamici’s generosity. 

Tough beans for them, I guess.

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It’s Not the College Grads Who Need Help; It’s the Dropouts

Most of the discussion about the wisdom and impacts of President Biden’s college loan cancellation announcement is focusing on college graduates.

I maintain that college graduates, certainly including couples with annual income of $250,000, are in the strongest position to pay back their student loans. The students who got screwed the most are those who took out loans and failed to graduate. They got stuck with the costs of college, but none of benefits of a college degree.

Accordion got the Social Security Administration, men with bachelor’s degrees earn approximately $900,000 more in median lifetime earnings than high school graduates. Women with bachelor’s degrees earn $630,000 more. Men with graduate degrees earn $1.5 million more in median lifetime earnings than high school graduates. Women with graduate degrees earn $1.1 million more.

An estimated 38.6% of the 43 million student debtors in the United States — roughly 16.6 million people — have debt but no degree six years after first entering college, according to National Center for Education Statistics (NCES) data. 

At the University of Oregon, 27.4% of the students seeking bachelors degrees in the class of 2015 had still not graduated 8 years later.  Of these 1,730 students, 25 were still working towards their degree, 1,148 had transferred to a different institution, and the remaining 556 are assumed to have dropped out. 

At Oregon State University,  there were 6,316 bachelors degree candidates in the class of 2015 . After 8 years, just 63.8% of this class had eventually their degree. Of the remaining 2,288 students, 79 were still working towards their degree, 1,406 had transferred to a different institution, and the remaining 802 are assumed to have dropped out. 

The institutions with the highest dropout rates are historically black colleges and universities (HBCUs). HBCUs have an average graduation rate of just 35%, according to Best Colleges.  

When The Journal of Blacks in Higher Education surveyed 64 of 100 historically black colleges and universities, only 5 of those schools surveyed graduated more than 50 percent of their students:

Spelman College, 69 percent graduation rate;
Howard, 65 percent;
Hampton, 59 percent;
Morehouse, 55 percent;
Fisk University, 52 percent.

At half of the HBCUs surveyed, the black student graduation rate was 34 percent or lower. And there were seven HBCUs in which fewer than one in five black students earn a bachelor’s degree within six years.

Johnny C. Taylor Jr., president and CEO of the Thurgood Marshall College Fund, a Washington D.C.-based, nonprofit organization that represents 47 public HBCUs, attributes much of the high non-completion rate to the HBCUs accepting a lot of students with low standardized test scores and GPAs, students encountering time-management and behavioral issues, and a lack of financial literacy.

Some black students failing at HBCUs, just like some other college dropouts, would also be better off if they had chosen, instead, two-year schools, one-year associate’s degree programs, community colleges, trade schools and the like.

“It seems we’re telling our kids that if you don’t go to a four-year school,” Taylor said, “then you are wasting your mind.”

In a recent interview with Newsweek, Sen. Kevin Cramer (R – North Dakota) took a dim view of college dropouts and was disinclined to give them any help with college debt. “If you look at the statistics of freshmen who don’t finish college, but they take out student debt in order to experiment with college—if you start forgiving that first $10,000 for people, that just enhances these reckless decisions,” he said.

I disagree. With no degree, they’re the ones least able to benefit from their college experience and the most likely to need a leg up now.

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Forgiving Student Loan Debt: Just Don’t Do It

A lot of progressive Democrats seem to think an aggressive cancellation of federal student loans by President Biden will generate a big bump in support for their party in the upcoming midterms.

They’re dreaming.

The most outspoken progressives are pushing for cancellation of $50,000 per borrower.  Biden has said “No way” to that amount, but appears to be amenable to cancelling $10,000.

“…finding ways to provide relief to students to make sure that these working-class, working families are getting relief is more important than tax cuts to millionaires, billionaires, and corporations,” White House press secretary Jen Psaki said Thursday.

Forgiveness of up to $10,000 per person would cost the federal government about $373 billion. according to the Brookings Institute, while forgiveness of up to $50,000 per borrower would cost an estimated $1 trillion.

Biden has already been taking action to eat away at student loan debt in a kind of stealth program by doing it piece by piece. CNN recently reported that the Biden administration has expanded existing loan forgiveness programs for borrowers who work in the public sector, were defrauded by for-profit colleges and are permanently disabled. These measures, CNN said, brought relief totaling more than $17 billion.

On May 5, Biden’s Education Department said it would cancel the loans of 28,000 student borrowers who attended the Marinello Schools of Beauty, a now-defunct for-profit chain of cosmetology schools, between 2009 and its closure in 2016. The relief, which will even go to those who haven’t applied for relief, could cost the federal government $238 million.

Biden has also been pausing student loan payments, the most recent extension moving the expiration date to August 31, 2022. Lest you think these pauses are free, the Committee for a Responsible Federal Budget says they are costing the government about $4 billion a month, 

According to the Oregon Department of Justice:

  • The average Oregon student loan borrower owes over $38,000 by the time they graduate 
  • Oregonians have more than $20.5 billion dollars in student loan debt
  • An estimated 85,000 Oregonians are currently behind on their loans.

So what are the downsides to helping out all these folks? Don’t people love free money?

People who made tremendous sacrifices by working their way through college, rather than taking on student loan debt, and students who have sacrificed to repay their student loans, aren’t likely to take kindly to loan forgiveness by the Biden administration now. More likely, they will resent such action and take it out on Democrats.

A lot of student loan debt is also held by people who are in a position to pay it off because they are in high-paying positions, sometimes because they borrowed money to attend graduate school. Low and middle-income Americans aren’t likely to appreciate these folks getting off the hook.

Student loan forgiveness would also be likely to tick off a lot of Americans who never went to college at all, particularly those who skipped college because of the cost. Aren’t many of these folks supposed to be  part of the Democrats’ base.

David Bahnsen, the author of Crisis of Responsibility, has argued convincingly in The Dispatch that the government created the problem in the first place when it decided to subsidize student debt. “The injustice is the runaway inflation in the cost of higher education disproportionate to the benefits it provides,” he wrote. “That dynamic is a direct result of the very existence of the loan market college administrators have so exploited. That subsidy has facilitated a reckless allocation of resources to the absurd and the indoctrinating—dormitory amenities for recruitment purposes, exorbitant “diversity” departments—but it has not facilitated a greater experience for college students.” 

Left-leaning Brookings has asserted that that if the government really wants to spend a ton of money on something to advance the progressive agenda, there are a lot of better things to do than forgive student loans. “Increasing spending on more targeted policies would benefit families that are poorer, more disadvantaged, and more likely to be Black and Hispanic, compared to those who stand to benefit from broad student loan forgiveness,” Brookings said.  “Indeed, shoring up spending on other safety net programs would be a far more effective way to help low-income people and people of color.”

And then, of course, there’s the question of what to do about students who take on college debt after the loan forgiveness cohort? Talk about a conundrum.

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Want to skip out on paying back all your student loans?

Now that you’re out of college, want to skip out on making those pesky student loan payments until all your debts are paid off? No problem.

Under a program that reverses John F. Kennedy’s “Ask not what your country can do for you, ask what you can do for your country”, loan forgiveness is available under the Public Service Loan Forgiveness (PSLF) program created by Congress in 2007. Under this law, signed by President George W. Bush, once people holding full-time public jobs have completed 120 payments on their federal direct loans, the remaining balance can be forgiven, with no cap.

No longer in vogue?

No longer in vogue?

The list of qualifying public sector jobs is longer than my arm.

That’s because qualifying employment is “any employment with a federal, state, or local government agency, entity, or organization…”, including work for a qualifying not-for-profit employer  “if it provides certain public services, such as emergency management, military service, public safety, or law enforcement services; public health services; public education or public library services; school library and other school-based services; public interest law services; early childhood education; public service for individuals with disabilities and the elderly.”

Good grief. Who isn’t qualified?

What supporters of loan forgiveness conveniently forget is that forgiving loans costs money, something that can’t be ignored when the the national debt exceeds $17 trillion.

Forgiving college loans also likely makes students less sensitive to tuition costs and schools more likely  to encourage students to borrow for increasing college costs national debt, rather than pushing schools to figure out how to become more affordable.

The rationale for the creation of the program was that people in public service jobs make less money than those in the private sector, so government needs to add perks to make public service jobs more appealing to the well-educated.

The problem is that government salaries are not all necessarily lower than those in the private sector for comparable jobs, people in the public sector tend to have more generous retirement benefits and attempting to drive educated people to public sector jobs may not be the best use of American talent. At its root, the loan forgiveness program assumes that public sector jobs are inherently more valuable to the country, justifying foisting the unpaid portion of student loans on the American taxpayer.

Another argument made for this loan forgiveness program is that it stimulates the economy because it puts more money in American’s pockets instead of in loan repayment.

A Freakonomics post made hash of that argument, noting:

  1. If we are going to give money away, why on earth would we give it to college grads? This is the one group who we know typically have high incomes, and who have enjoyed income growth over the past four decades.  The group who has been hurt over the past few decades is high school dropouts.
  2. If you want stimulus, you get more bang-for-your-buck if you give extra dollars to folks who are most likely to spend each dollar, like poor people.
  3. People who support this are a bunch of kids who don’t want to pay their loans back. And worse: Do this once, and what will happen in the next recession? More lobbying for free money…?
  4. Much of the rhetoric in support of loan forgiveness is, “Give free money to us, rather than corporations, millionaires and billionaires.”  Why give money to college grads rather than the 15% of the population in poverty?

Finally, a good case can be made that we have too many people in the public sector and that the last thing we need to do is incentivize adding more.

Congress should abolish this loan forgiveness program, not expand it.