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Terry McLaughlin: Student loan forgiveness is unfair

Terry McLaughlin | Columnist

It is extremely rare for the Wall Street Journal and the Washington Post to draw the same conclusions on almost any topic, but President Biden’s plan to forgive up to $20,000 in outstanding student loans has somehow managed to unite them.

On August 25 the Washington Post said “Mr. Biden announced he will extend the pause on student loan payments until the end of the year. He will also forgive up to $10,000 for those making less than $125,000 a year – and up to $20,000 for Pell Grant recipients under that income threshold. Both measures are ill-conceived and misdirected.”

The Post reminded readers that the loan pause, instituted by the previous administration in March 2020, was an emergency measure in response to workers being forced to remain home due to the pandemic. They point out that this situation has changed dramatically, as “the unemployment rate for people with bachelor’s degrees and higher is just two percent. It’s hard to make the case that college graduates are still facing an unprecedented crisis.”

The Post finds the loan-forgiveness decision is “even worse. Widely canceling student loan debt is regressive. It takes money from the broader tax base, mostly made up of workers who did not go to college, to subsidize the education debt of people with valuable degrees. Though Mr. Biden’s plan includes an income cap, the threshold does not reflect need or earnings potential, meaning white-collar professionals with high future salaries stand to benefit.”

In agreement with the Post, an article in the WSJ states “It’s regressive, rewarding the well-to-do at the expense of the less fortunate. It’s grossly unfair to those who repaid what they borrowed or never went to college.”

On August 29, the WSJ revealed another troubling aspect of the President’s plan: “President Biden’s student-loan write-off is the gift that keeps on giving, unless you’re the sap who paid off her loan or didn’t go to college. Thanks to a little-known provision in the March 2021 Covid spending bill, student borrowers will get a hefty tax benefit on top of their $10,000 or $20,000 in canceled debt.” A provision tucked into the $1.9 trillion American Rescue Plan, sponsored by Senators Elizabeth Warren and Bob Menendez, makes “loan forgiveness tax free through Jan. 2, 2026.”

Normally, state and federal taxing agencies treat loan forgiveness as taxable income. A borrower earning $50,000 in one year, with the forgiveness of a $10,000 loan, would declare taxable income of $60,000 for that year. That money is considered a windfall, and the lender that forgives the debt can deduct it from their own income. But according to the plan of Senators Warren and Menendez, an average borrower earning $50,000 will save about $2,200 in taxes for every $10,000 of forgiven student loans. According to the WSJ “The borrowers get a double bonus, while taxpayers assume another burden in interest that must be paid on the additional government debt now and higher taxes later.”

The Congressional Joint Committee on Taxation scored the Warren-Menendez provision in 2021 at a cost of $44 million, but the left-leaning Tax Policy Center now estimates the cost as roughly $34 Billion. The Post reported that “The Committee for a Responsible Federal Budget estimates that extending loan pause to the end of the year would cost $20 Billion, while forgiving $10,000 for households making less than $300,000 would cost $230 Billion.” Other analysts say the total bill could be nearly $500 Billion, while the Penn Wharton Budget Model, a widely regarded analysis frequently cited by policy makers, indicates that the total price tag could reach as high as $1 Trillion.

Whether the final bill is $250 Billion, $500 Billion or $1 Trillion – who pays? Jason Furman, former chair of President Obama’s Council of Economic Advisors, slammed the idea, saying “Student loan relief is not free. . . Part of it would be paid for by the 87% of Americans who do not benefit but lose out from inflation. Part of it would be paid for by future spending cuts and tax increases – with uncertainty about who will bear those costs.” Furman warned that the idea “benefits recent college grads and hurts most everyone else, both rich and poor.”

The WSJ opines that “It’s grotesquely expensive, adding hundreds of billions to a federal debt that already threatens our safety-net programs and national security. . .. It’s inflating college costs as schools continue to pocket the subsidies Uncle Sam showers on them. And it’s profanely contemptuous of the Constitution, which authorizes only Congress to spend money.”

Speaking to the press last year, even Speaker Nancy Pelosi made it clear that “The president can’t do it, so that’s not even a discussion . . . Not everybody realizes that, but the president can only postpone, delay, but not forgive.”

The Washington Post appears to agree with Speaker Pelosi and the WSJ, saying “it is unclear that the 1965 Higher Education Act even grants the president the legal authority to take such a sweeping step.” Knowing this, the president did it anyway.

There appears to be bipartisan agreement that the plan to reward those with college degrees and the highest earning potential and penalize those who chose not to go to college, paid for trade school, joined the military, or labored to responsibly pay off their own college debt, creates a windfall for those who least need it, and leaves American taxpayers footing the bill.

Terry McLaughlin, who lives in Grass Valley, writes a twice monthly column for The Union. Write to her at terrymclaughlin2016@gmail.com


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