There is no such thing as canceling student debt

President Biden finally announce his promised debt relief programme. The government will forgive up to $20,000 in student debt for Bill Grant recipients, and up to $10,000 for others whose annual income is less than $125,000 ($250,000 if they marry). Furthermore, it extends the grace period for student loan repayment until the end of the year. The plan is estimated to cost $24 billion annually for a decade, totaling $240 billion.

The round of victory that surrounded the announcement indicates that the government does not fully understand its own policy. Consider two representatives of politicians, Kamala Harris And the Elizabeth Warren, who describes Biden’s policy as “debt cancellation.” The last columns in Forbes and CNET show similar statements. The word “cancellation” is very expressive; It gives the impression that student debts are disappearing. The cancellation narrative is reinforced by advocates who talk about the benefits of debt relief, while remaining silent about its costs. There is no such thing as debt Cancellation. The loan will be paid off. The only question is who will pay the bill. While acknowledging that the Biden administration’s policy only shifts the burden from some Americans to other Americans, the economic and ethical questions involved are more salient than many realize.

The student debt forgiveness policy means the government will forgo nearly $240 billion in payments over the next decade. How will you deal with this lack of revenue?? There are a few possibilities. The government may:

  • Spending cut
  • raise taxes
  • debt issuance
  • gain money

The options are not mutually exclusive. The government may use a combination of the four. But, no matter how you break it down, the $240 billion is going to come from somewhere. Basic accounting requires it.

Moreover, the idea that the government will bear the bill for this policy is a bit misleading. The cost of the program does not fall on the government. It falls to those who lose out on expenses that would otherwise occur, those who pay higher taxes as a result of the program, those who pay higher interest rates or who are crowded out by additional government borrowing, or those who see the purchasing power of their dollars lower than usual .

Remember, government cannot give without taking.

Biden’s student debt relief policy raises important ethical questions. For example, individuals with an income of up to $125,000 per year qualify. But the median income in the United States is only about $45,000. Why should low-income Americans pay for the loans taken by those who earn so much more?

There are other issues related to stocks as well. Some students and alumni sacrificed consumption to pay off their loans more quickly, and as a result, they wouldn’t see much of their debt forgiven. Those who have made minimal payments or not at all will benefit. Those who have paid off their loans in full get nothing. Why are those who have paid off their loans less deserving of financial assistance than those who have not?

Moreover, the prospect of enacting such a policy again seems likely to lead to further problems. Lawrence White He predicts that individuals will be more inclined to take out larger loans, at higher rates, because there is now a greater chance that Uncle Sam will force someone else to pay for them at some point in the future.

There is no denying that some Americans are struggling, and some of those who are struggling have student debt. If the Biden administration is really concerned about those who are struggling, it can provide more help to those on lower incomes. If he really cares about those struggling to pay off their student loans, it might be possible to phase out debt forgiveness at a much lower income threshold. Its failure to follow either of these two paths indicates that it is primarily concerned with winning the votes of the educated elites in the upcoming elections at the expense of all.

Nicholas Kashanowski

Nicholas Kashanowski

Nicholas Kashansky is an assistant professor of economics at Metropolitan State University in Denver. With research interests in monetary and macroeconomics, much of his recent work has focused on integrating aspects of fiscal duration into traditional business cycle models. He has published articles in scholarly journals, including the Quarterly Journal of Economics and Finance, Financial Economics Review, and Journal of Institutional Economics. He is associate editor of Libertas: Segunda Época. His popular works have appeared in La Nación (Argentina), Infobae (Argentina) and Altavoz (Peru).

Kashanowski holds an MA and a Ph.D. He holds an MA in Economics from Suffolk University, a MA in Economics and Political Science from the Graduate School of Economics and Business Administration, and a BA in Economics from Pontificia Universidad Católica in Argentina.

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