With the sweep of a pen stroke, Joe Biden recently committed perhaps the single largest act of bribery in the history of Western Civilization. At a cost estimated by the smart folks at Wharton to run anywhere between $469 billion and $519 billion, his cancellation of student loan debt is clearly designed to make those who had their debt forgiven vote for Democrats out of gratitude and those who are contemplating future student debt vote for Democrats out of hope.
If the Marshall Plan after WWII was designed to encourage Europe to come together and behave better, its cost, at a paltry $150 billion in today’s dollars, at least it had a sound objective and positive results. What is the objective of Biden’s bailout of students? Votes. What will the results likely be? Even higher tuition costs. Nothing noble, just hubris and carnage.
Forbes ran a story in September that was well researched and drew from multiple sources to provide an overview of the current lay of the student loan landscape. Here are a few tidbits to hold onto from that article:
- $1.75 trillion in total student loan debt (including federal and private loans)
- $28,950 owed per borrower on average
- About 92% of all student debt are federal student loans; the remaining amount is private student loans
- 55% of students from public four-year institutions had student loans
- 57% of students from private nonprofit four-year institutions took on education debt
- In constant dollars, tuition costs at both private and public four-year universities have doubled over the past 30 years
As Milton Freidman said, inflation is always a monetary phenomenon. The skyrocketing cost of college over the past three decades has been caused by the easy availability of student loans. The student loan funding has created a surplus of liquidity that has allowed the universities to increase their prices with essentially no upward limitations. However high they raised their rates, the government would just lend more money so that students could pay the exorbitant charges.
Universities raise tuition, the government lends more money, universities raise tuition again, the government lends more money, and so on. This perverse cycle is what TPUSA founder Charlie Kirk labeled nearly a decade ago as the “Game of Loans.”
Some people might be surprised that the federal government holds nearly all the student loan debt in the country. The government takeover of the student loan market was completed as part of the Affordable Care Act (I know, right?). This is what has enabled Biden to so easily forgive student loan debt; The federal government is the actual lender. In a typical borrowing situation, debt forgiveness is treated by the IRS as taxable income to the borrower. That will not be the case here.
Pause to consider this: Your new IRS agent who shows up to audit you in 2023 is going to have had their debt freshly forgiven without any tax consequence. They are then going to tear your world apart, looking for any amount of money they can wring from your hide, including any advances that a friend or relative might have loaned to you, and then out of kindness, said you didn’t have to pay back! Make you mad? It should!
The federal government is printing money to put you or your children into debt and now has added the twist of making you bet that after this round of debt forgiveness, they will do it again in the future.
This is the inflationary aspect of the new debt forgiveness program. The dollars that are being forgiven have already entered the economy and have already had their inflationary impact on university pricing and, through a ripple effect, impacted overall price levels, as well. What will add to inflation is that now that debt has been forgiven, more students will be encouraged to borrow more money, in part because they just had their debt load lifted so they can “start over,” and in part, they will borrow in the hope that debt will be forgiven again.
This will lead to the federal government printing more money, the universities raising their tuition, the federal government printing more money…
Game of loans.