By Jim Geraghty
Wednesday, April 27, 2022
If you borrow money and sign a contract promising to pay
it back, then you must pay it back, or you will suffer serious long-term
financial consequences. Or at least, that’s the way it used to work until
Democrats decided they could win a lot of votes by just waving a magic wand and
declaring that people didn’t have to pay their student debt back.
Sure, you could always find some smarter-than-usual jerk
who hid certain assets, declared bankruptcy, and walked away from massive debts
with limited impact on his lifestyle. For the overwhelming majority of
Americans, however, the system was not particularly pleasant, but it was clear
and fair: If you take out a loan to buy a house, you must pay it back over
time, with interest. If you take out a loan to buy a car, you must pay it back
over time, with interest. If you take out a loan to pay for a college
education, you must pay it back over time, with interest. You signed a
contract. You knew the terms going in — or at least you were supposed to know
them. You’re supposed to read the documents you sign. You knew the payments you
were going to have to make and when you would have to make them. If you don’t
want to deal with the financial pressure of debt, don’t take out the loan.
Joe Biden is on the verge of crossing out that part of the
social contract with a red pen and declaring that taxpayers will pay back those
debts instead — or at least a significant chunk of them for his
preferred demographics:
The president shared his plans
during a 90-minute White House meeting Monday with members of the Congressional
Hispanic Caucus, participants in the exchange tell CBS News. The move could
affect more than 43 million borrowers who hold more than $1.6 trillion in
federal student loan debt, the second-largest debt held by Americans, behind
mortgages.
Rep. Tony Cardenas, Democrat of
California, who attended the meeting, said the president is open to forgiving
debt for college students regardless of whether they attended a public or
private institution.
Cardenas said he reiterated to Mr.
Biden that the Hispanic Caucus supports executive action that would forgive at
least $10,000 in college debt if Congress can’t pass legislation doing so.
In response, Cardenas said the
president “smiled and said, ‘You’re going to like what I do on that, I’m
looking to do something on that and I think you’re going to like what I do.'”
The federal government has postponed repayments of
student loans seven times since the start of the pandemic; no one has been
required to pay back a student loan since March 13, 2020. Interest rates on
those loans during this period dropped to zero, and collections on defaulted
loans stopped.
The total outstanding balance for federally owned student
loans — including the defaults — in December 2021 was $1.38 trillion.
·
Forgiveness of $10,000 per borrower would
forgive a total of $321 billion of federal student loans, eliminate the entire
balance for 11.8 million borrowers (31.1 percent), and cancel 30.5 percent of
loans delinquent or in default prior to the pandemic forbearance.
·
Sixty-seven percent of student loan borrowers
are under 40, however only 57 percent of balances are owed by those under 40,
showing that those with larger balances are more likely to be older (likely due
to borrowing for graduate school). Under each of the considered policies
(forgiveness at the $10,000 or the $50,000 level, with and without income
caps), over 60 percent of forgiven loan dollars benefit those under 40 years
old.
·
Despite being 25 percent of the population,
borrowers who live in high-income neighborhoods hold 33 percent of federal
balances, while borrowers residing in low-income areas hold only 23 percent of
balances.
·
Under a $10,000 forgiveness policy, 33 percent
of forgiveness would go to majority minority neighborhoods while 67 percent
would go to majority white neighborhoods.
·
Increasing the forgiveness amount increases the
share of total forgiven debt for higher credit score borrowers and those living
in richer neighborhoods with a majority of white residents.
In other words, without an income cap, forgiving $10,000
per borrower would most benefit whites under the age of 40 who have graduate
degrees and live in high-income, majority-white neighborhoods. This is one of
the most Democratic-leaning and outspoken progressive demographics in the
country.
This is a wealth transfer from taxpayers to the
Democratic Party’s Twitter class. (Then again, judging from the rapidly
changing follower numbers in just the past day or so, maybe these people are
leaving Twitter now that Elon Musk owns it.)
If you paid back your student loans in recent years,
there is a good chance you were a chump. You paid money that Uncle Sugar was
going to come along and cover if you had just waited. You should have spent
that money on other things you would have enjoyed and defaulted on your
payments, waiting for the federal government to come along and say, “Don’t
worry, the taxpayers have this covered.”
If you currently owe a lot on your mortgage, your car
payments, your home-improvement loans, or any other loan, and you’re diligently
and responsibly making your monthly payments . . . well, you are kind of a
sucker, too, because you borrowed money that you had to pay back, instead of
taking part in Joe Biden’s free-money program.
At the beginning of the month, when Biden extended the
moratorium on repaying student loans until September, he released a statement
declaring that, “We are still recovering from the pandemic and the unprecedented
economic disruption it caused. If loan payments were to resume on schedule
in May . . . millions of student loan borrowers would face significant economic
hardship.”
What Biden ignores is that the moratorium on repaying
student loans is exacerbating the “unprecedented economic disruption.” Inflation
represents too much money chasing too few goods; consumer demand is high, and
supply is low, thanks to pandemic disruptions, supply-chain issues, etc. One of
the reasons consumer demand is so high is because no one has had to make a
student-loan payment in two years!
As the New York Times observed earlier this
month:
The administration’s decision to
extend the student loan moratorium through Aug. 31will keep money in the hands of millions of
consumers who can spend it, helping to sustain demand. While the effect on
growth and inflation will most likely be very small — Goldman Sachs estimates
that it probably adds about $5 billion per month to the economy — some
researchers say it sends the wrong message and comes at a bad time. The economy
is booming, jobs are plentiful and conditions seem ideal for transitioning
borrowers back into repayment.
Apparently, President Biden’s philosophy is to borrow and
spend whatever it takes to get inflation under control. He keeps throwing
larger and larger piles of money at the public and then stands in befuddled
confusion, wondering why inflation keeps getting worse.
For what it is worth, polling suggests that public
opinion on this is jumbled. When Morning Consult asked people about it in early April,
19 percent said that the federal government should forgive all student-loan
debt for all Americans; 13 percent said it should forgive all student-loan debt
for lower-income Americans; 16 percent said it should forgive some student-loan
debt for all Americans; 16 percent said it should forgive some student-loan
debt for lower-income Americans; and 29 percent said it should not forgive
student-loan debt at all.
Americans are a generally sympathetic and charitable lot,
but they think you should repay at least some of the debt you owe, and if the
government is going to help people, the aid should focus on those with the
lowest incomes. If you can afford to pay back your debts, you should do that
instead of expecting the taxpayer to do it for you.
The same survey found that 80 percent of respondents said
they didn’t have any student-loan debt, and that 8 percent said they had
$20,000 or less in student-loan debt.
This is one of the bad consequences of this White House
and Democrats facing a “red tsunami” of a midterm-election year. If Biden and
his party are going to get wiped out no matter what they do, why shouldn’t they
just do what they want, regardless of the political fallout and long-term
economic and social effects?
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