Why Democrats Might Come to Regret Student Debt Relief

When a dog catches a car, things don’t always end well. In politics, some victories that are rapturous for the true believers can leave a lot of putative allies sighing, “That’s not what I had in mind.”

Such appears to have been the case, for instance, with the Supreme Court’s Dobbs ruling. That verdict, initially expected to be pretty much a wash politically, now appears to be giving a big boost to Democrats. While the politics may matter little to committed pro-lifers thankful to be rid of Roe, it’s a big headache for many Republicans trying to legislate or campaign in the post-Roe era.  

Democrats just might be in a similar situation when it comes to President Biden’s massive, illegal, and regressive student loan jubilee.

The idea that Democrats could regret Biden’s loan scheme may come across as far-fetched. After all, the abortion debate is intimate in a way loan forgiveness is not. And a new Quinnipiac poll finds that Biden’s scheme is more popular than not, winning the general public and independents by identical 53-43 margins. But there may be more to the story.

First off, for those who are fuzzy on the details, Biden has attempted to misappropriate a minor provision of the post-9/11 HEROES Act (a provision intended to give the executive branch a little more flexibility in aiding military families and victims of terrorism) to assert that individuals who borrowed taxpayer funds to attend college no longer need to repay roughly $500 billion in federal loans.

There’s a laundry list of substantive critiques of this maneuver. It’s regressive, steering vast sums to college-goers who, on the whole, are disproportionately well-off. It’s inflationary, pumping hundreds of billions of unearned dollars into the economy without even a pretense that it’s paid for. It’s unnecessary, given that income-driven repayment and loan forgiveness options already exist to accommodate borrowers in need. It creates an immense moral hazard, encouraging colleges to be ever more cavalier about raising tuition and future borrowers about taking on student debt. And it’s ludicrously designed, with up to $20,000 in benefits flowing to borrowers who racked up their debt at Harvard Law or Stanford Business School.

The justification is also laughable. Biden’s legal rationale isn’t even coherent on its own terms. This spring, when his administration wanted to end Title 42—adopted as a public health measure to keep asylum seekers in Mexico—the White House asserted there was no longer a COVID-19 emergency to justify that policy. And Biden brags about our 11 million open jobs and insists that the economy is humming. Yet the White House now claims that COVID-19 is a national emergency with economic ramifications that require an extraordinary giveaway to the nation’s most educated workers? This was an idea Biden mocked on the campaign trail in 2020 and that Speaker Nancy Pelosi, in 2021, said was beyond Biden’s authority.

Biden’s calculus is simple. He’s giving up to $20,000 in taxpayer money to millions of college-educated borrowers, whom Democrats trust to be appropriately grateful. Meanwhile, the cost will be borne by, well, everyone, including children and grandchildren who aren’t yet with us. The politics here are those of sugar subsidies— concentrated, visible benefits and dispersed, ephemeral costs. Most of the time, this kind of politics pays off.

Is there any reason to think things might work differently in this case? Maybe.

Recall that it took some time for the political consequences of Dobbs to shake out. Indeed, the very reasons that Dobbs aids Democrats might suggest why loan forgiveness could cut the other way.

Both Dobbs and loan forgiveness raise hard questions regarding the motives of those upending the status quo. Democrats have effectively used Dobbs to suggest that the right is willing to trample on individual rights in pursuit of some kind of Handmaid’s Tale-style theocracy. Biden’s loan maneuver was tailor-made to fuel the suspicion that Democrats are contemptuous of personal responsibility and intent on catering to woke kids with graduate degrees. 

Both hint at slippery slopes. Dobbs raised the specter that the Supreme Court might revisit other decisions governing gay marriage and privacy. The audacious illegality of Biden’s move and the calls for more from the progressive back-benchers feed the suspicion that Democrats will be itching to do a reprise in the future. 

Both undercut core messages. At a moment when the right had been benefiting by  defending free speech and religious freedom from woke excesses, Dobbs allowed Democrats to argue that Republicans are the party of Big Brother. Well, just as the “Inflation Reduction Act” seemed to be helping Democrats make a little headway addressing concerns about inflation and runaway federal spending, loan forgiveness risks making them look like phonies.

The political cracks aren’t hard to see. Jason Furman, former chair of Obama’s Council of Economic Advisers has blasted Biden’s maneuver as inflationary and misguided. In fact, it’s tough to find serious left-leaning economists who think forgiveness was a good idea. Centrist Democrats have tiptoed around it, acknowledging that it’s a mixed bag. The move even got denounced by the Washington Post, for heaven’s sake.

This would hardly be the first time that the progressives have led Democrats down a path they’d regret. Remember “defund the police”? Or the consequences of progressive enthusiasm for dealing with illegal immigration via amnesty and an open border? Progressives argued that this would help Democrats win over the broader Latino community. As it turned out, though, Latino immigrants who came here legally weren’t all that thrilled about rewarding line-jumpers.

Such a backlash isn’t hard to imagine. Keep in mind that less than two in five Americans have a bachelor’s degree and that, of those who’ve borrowed money for college, just 7 percent owe more than $100,000. The beneficiaries are a small, relatively privileged slice of the nation. And the public’s legitimate concerns for the unemployed, the struggling, or those who wound up with student loans but no degree can already be addressed by existing income-based repayment programs.

What will it take to make Democrats regret catching the student loan car? The response should be guided by three principles: Make taxpayers whole. Stop colleges from draining the public treasury. And assist student borrowers in need without rewarding the affluent. In short, Republicans need to offer policy responses that clarify the sides and the stakes. 

Republicans should aggressively champion measures that treat loan forgiveness for what it is—a college bailout. Colleges with multibillion-dollar endowments have charged outrageous tuition (especially for graduate school) and then encouraged students to take out student loans while hoarding their endowment funds for buildings and bureaucracy. If this was troubling before, it’s unconscionable in light of Biden’s scheme—under which colleges that have pocketed ludicrous tuition bills now get to cheerfully watch their customers collect a taxpayer-funded refund. If there are to be refunds, they should be paid by those institutions themselves.

Policymakers should insist that any institution with an endowment in excess of $50 million repay taxpayers all the funds “forgiven” to its graduates before it can again participate in federal lending or be eligible for any federal funding. Henceforth, an annual “student loan repayment assessment” should be a condition for endowed institutions to participate in federal student lending or other federal aid programs.

Colleges and universities that want to continue to be eligible for federal loans should have to adopt appropriate austerity measures, similar to those imposed during the General Motors bailout during the Great Recession or the savings and loan bailout of the 1980s. At a bare minimum, Congress should insist that Biden’s scheme not apply to those who voluntarily used the funds to obtain graduate degrees or attend pricey private colleges.

Usually, giving stuff away is a winning political strategy. But that’s not an iron law. A little more than a decade ago, in early 2009, the Tea Party movement was ignited by CNBC reporter Rick Santelli’s outraged rant over the Obama administration’s Homeowners Affordability and Stability Plan. That initiative came in the midst (not the aftermath) of a raging crisis to which the solution (restructured mortgages) was at least plausibly related and where the beneficiaries (who had to meet certain qualifications) could at least be portrayed as vaguely responsible or deserving. And yet, the backlash was still enough to upend the political landscape.

Biden’s massive giveaway is more sweeping and far less defensible than what gave rise to the Tea Party. But making Democrats pay will require a credible messenger and a coherent message. Unfortunately, neither of these are GOP strengths right now. Indeed, it’s not clear whether Republicans are capable of (or even interested in) mustering the necessary discipline. If they’re not, it risks sending the signal that it’s safe for Democrats to buy off the Warren-Sanders gang with even more shameless, cynical grift. And that’d be an unfortunate lesson indeed.

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