Riley Parr: Student loan forgiveness doesn’t solve problem

The Biden administration’s recent move to “forgive” student loan debt isn’t just bad policy. Like many proposals proffered by the left, it ignores the actual problem and instead slaps a Band-Aid on it, all while yelling, “Voila! Look at this!”

The cost itself is impressive: Most budget estimates put the bill at $400 billion to $500 billion over 10 years, so at least some people realize nothing in life is free. To be fair, the University of Pennsylvania’s Penn Wharton Budget Model estimates that roughly two-thirds of those who will benefit make less than $88,000 per year (although PWBM also suggests the actual cost could exceed $600 billion or, depending on “potential behavioral changes,” even $1 trillion).

Isn’t it a good thing that many beneficiaries will be low- or moderate-income earners?

Not quite. The projection means about a third of those expected to benefit will make more than $88,000. In fact, under the policy, households making up to a quarter of a million dollars per year can qualify. It’s also entirely reasonable that wealthier households are less likely to benefit because they’ve already paid off any student loans. If you did what you were supposed to do and followed through on the contract you signed or worked hard enough to earn a scholarship, well, so sorry.

For those who understand basic economics, the money must come from somewhere. If it’s through higher taxes, then add that onto the tax that someone could face for accepting the forgiveness. What if the government prints or borrows? More inflation.

But wait! As a left-leaning friend pointed out, the forgiveness basically covers the interest on his loan. Given the interest rates on student loans, isn’t it just fair that the borrower not have to bear that cost? Not exactly.

Consider Indiana: Only 27% of Hoosiers have a four-year degree. Even accounting for those with an associate degree or who attended college but did not graduate, much greater than the majority of Hoosiers never stepped foot in a college classroom. Is it fair to tell them they are now responsible for the entirely voluntary choices of total strangers?

Putting aside the cost and the debt redistribution from college grads (or at least attendees) to blue-collar workers, retirees and those who otherwise had no impact on a borrower’s decision yet now bear the consequences, the policy doesn’t even do anything to actually lower the cost of college. Rather, it accomplishes the opposite.

When the government motivates or subsidizes certain behavior, significant and occasionally unforeseen consequences often follow. Look no further than the 2008 financial crisis, where the government “encouraged” banks to lend to un-creditworthy borrowers, doubled down by artificially keeping interest rates low, then bailed out most of the lending institutions.

Perhaps the most significant example of bureaucratic meddling is the third-party payor health care system. Is it any wonder hospitals and other health care providers have zero incentive to compete and keep costs low when the person receiving services isn’t the one paying? The provider doesn’t care about the cost because patients keep coming back and insurance keeps paying. The patient doesn’t care because other insurance plan participants are helping to pick up the tab.

The same is true of college education. It should come as little shock that shoving 18-year-olds into college and telling them to take out loans to cover it has caused the provider—colleges and universities—to push aside concerns about cost. After all, Uncle Sam is footing the bill upfront. The Biden administration’s gimmick only exacerbates the increasing cost of college education. Time will tell what other unintended consequences follow.•

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Parr is a practicing attorney in central Indiana. Send comments to ibjedit@ibj.com.

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