You aren't paying for student loan forgiveness
No one is.
One of the common complaints that I’ve heard since President Biden announced his student loan forgiveness initiative is “I don’t want to pay for someone else’s college education.” Well, you can stop worrying about that. You aren’t paying for it. In fact, no one is.
Biden’s plan is estimated to cost as much as $519 billion over 10 years, but there is no mechanism to pay for it because it is being done by Executive Order rather than through Congress. Biden might have the authority to forgive the loans depending on how you squint your eyes as you read the HEROES Act, but there is no question that the president does not have the authority to levy a new tax to pay for his plan. Taxes are not going up. (At least not on most Americans. The Inflation Reduction Act does create a 15 percent minimum tax for corporations.)
So how are the forgiven loans going to get paid for? The short answer is that they aren’t. The cost of paying billions of dollars in loan amnesties is just going to get tacked onto the rising national debt. Currently at an estimated $30.8 trillion dollars and rising fast, the national debt is never going to get paid off. Ever.
To put that in perspective, federal revenues in 2021 were $4.05 trillion. If we didn’t spend on anything but paying off the debt, it would still take more than seven years and that doesn’t even include compound interest.
But it’s worse than that because we aren’t paying off anything currently. Every year we spend more than we take in. We are just transferring balances from one credit card to another while we keep on charging new purchases.
In a town that is fiercely partisan, there is one thing that the denizens of the District of Columbia agree on and that is that when you are in power, you spend like there’s no tomorrow. Eat, drink and be merry for tomorrow we may be a minority again!
There are some problems with measuring debt by president. These include the facts that there is mandatory spending that presidents have little to no control over and that presidential terms do not coincide with the federal fiscal year which ends in September. Nevertheless, The Balance has put together estimates of how much recent presidents have added to the debt:
Joe Biden (through the end of FY 2021) - $1.84 trillion
Donald Trump - $6.7 trillion - 33 percent increase
Barack Obama - $8.6 trillion - 74 percent increase
George W. Bush - $5.85 trillion - 101 percent increase
Bill Clinton - $1.4 trillion - 32 percent increase
George H. W. Bush - $1.55 trillion - 54 percent increase
Ronald Reagan - $1.86 trillion - 186 percent increase
Jimmy Carter - $299 billion - 42 percent increase
There are two key takeaways from this data. One is that spending is increasing at an increasing rate and the other is that both parties are clearly to blame. Donald Trump spent almost as much in four years as Barack Obama spent in eight. Each Administration since Carter has dramatically increased the rate of spending.
As I’ve written before, the one bright spot in years of rocket-like increases in spending was John Boehner’s Congress. Although Boehner got little credit for it, he led congressional Republicans in cutting spending in consecutive years, a feat not accomplished for a half-century before and unlikely to be repeated any time soon. For his efforts, Boehner was reviled as a RINO by his own party, proving that a prophet is without honor in his own country.
This isn’t to say that the money was all wasted. We got some very good things from those trillions. We got a strong military, a space program, and a national transportation infrastructure that makes our resilient economy possible. I approved of pandemic relief bills even though I knew they would be expensive because I believed that letting the economy crash due to COVID-19 was a worse option than adding to the national debt.
It’s true that we have more of a spending problem than a revenue problem. We simply spend too much money even though a lot of it is spent on good, popular programs.
However, it’s not true that we don’t have a revenue problem at all. I supported tax reform, but the honest truth is that the 2017 reform law flattened revenues and increased the deficit. Then came the pandemic with its economic contraction and emergency spending to make the problem worse.
I remember some fiscal conservatives of yesteryear who talked about “starving the beast.” The idea was that cutting taxes would cut revenues and force cuts in spending and government size. At this point, it’s easy to see that starving the beast is a failure without a balanced budget amendment. The beast keeps growing through deficit spending.
So, we spend too much and we don’t take in as much as we could be collecting. Maybe I was a little hasty in the first paragraph when I said you could stop worrying.
The worst part is that there is no way out of the fiscal quagmire that we find ourselves in. Both sides are perfectly willing to cut the other side’s priorities but not their own. In fact, any cuts are usually quickly replaced with new spending.
And all the while, entitlements are on autopilot. These items are the largest parts of the federal budget and they can’t be touched because they are popular with both sides. If you don’t believe me, just suggest cuts to Social Security in a Republican Facebook group. Even many conservatives believe that they have been paying into their retirement account all these years rather than paying a tax that pays someone else’s benefits.
Suddenly, Social Security sounds a lot like student loan forgiveness.
As both parties pile up debt, America is becoming an economic experiment. No one really knows what will happen as our debt continues to grow. We know what has happened to other countries such as Greece, but we don’t know how far we can go before our own situation becomes critical.
One factor that makes the US different is that the dollar remains the world’s reserve currency. As bad as our debt situation is, the dollar is still a better investment than most other currencies. That won’t be true forever, but it has been true so far. But at some point, the debt pyramid is going to come crashing down.
The reckoning is fast approaching. Per the Center on Budget and Policy Priorities, Social Security makes up 21 percent of the federal budget. Trust fund reserves are projected to be depleted by 2037. Medicare is in even worse shape. Medicare’s Hospital Trust Fund will be out of funds by 2029, only seven years from now. Very soon, difficult choices will have to be made. If Medicare and Social Security benefits are moved to the general fund, the debt will increase that much faster.
The US debt level is already at more than 120 percent of GDP. We can go higher. Greek debt-to-GDP is at about 189 percent. We do have some time.
At the moment, there are no serious efforts at fixing our debt problem. The debt ceiling will have to be raised again this December and the only choices on the table will likely be a clean increase or a national default. The prospect of default is worse than continuing along the path to a debt apocalypse so we will kick the can down the road.
The student loan forgiveness will have moved us along in the direction of the debt crisis, but it will have been far from the only thing that got us there. To grow a debt this big required agreement among both parties. In fact, it seems that borrowing and spending is often the only thing the two parties do agree on.
STUDENT LOAN POLLS: Two new polls address student loan forgiveness. An Economist/YouGov poll found 51 percent in favor and 39 percent opposed. A separate poll from Morning Consult/Politico found 48 percent in favor and 43 percent opposed. The two results report similar findings that the country is divided on the issue, but a slight plurality favors the Biden plan.
BLUE ALASKA: Democrats picked up another House seat as Alaskans selected Mary Peltola, a Native American woman, over Sarah Palin in ranked-choice voting results announced Wednesday. The special election fills the seat of Republican Don Young, who passed away in March.
Rep. - elect Peltola will start running for re-election immediately as the remainder of Young’s term is only four months long.
The Republican vote was split between Palin and Mark Begich. The pair got a combined 58 percent of the vote (30.9 percent for Palin and 27.8 percent for Begich), but many Begich voters apparently did not list the Trump-endorsed Palin as their second choice. Peltola will likely win with about 40 percent of the vote, but the result is not yet official.
UKRAINE IS ON THE MOVE: Details are sketchy but there are reports that Ukraine has launched a counteroffensive in the southern region of Kherson. The Ukrainians have reportedly made significant gains. It may be several days before firm information about the fighting is available.
TWEET OF THE DAY: A Ukrainian tank crew has claimed a kill on a Russian armored vehicle from more than 10 kilometers away.
Just to clarify: Peltola will win with 50%+ of the vote due to the nature of ranked choice voting. Begich's voters either listed Palin, Peltola, or no one as their secondary/tertiary/etc... preference: so for Peltola to win it means more Begich voters preferred her or no one over Palin.
BofA thinks it'll eliminate the debt of 1/3rd of student loan borrowers, at least for their student loans.
https://www.yahoo.com/finance/news/student-loan-forgiveness-wipe-out-debt-180520413.html