President Biden’s plan to forgive up to $20,000 of student loans per borrower is bad policy for numerous reasons. It adds nearly $1 trillion to the national debt. It fuels inflation. And it is illegal executive overreach. (The Job Creators Network Foundation’s Legal Action Fund is currently considering legal options to block it.)
The bailout is also fundamentally unfair to most Americans who never earned an associate’s or bachelor’s degree. These hard-working folks are forced to shoulder loan forgiveness for the consultant class through their tax dollars. Biden’s action, therefore, makes for an especially depressing Labor Day for ordinary workers who also face declining real wages and living standards because of historic inflation.
Over the Labor Day weekend, the media targeted these everyday wage-earners with a heavy dose of pro-union messaging, championing the supposed triumphant return of the labor movement that’s always just around the corner. They ignored how student loan forgiveness is far more unjust to workers than any supposed remaining labor abuses. The bailout’s inequality-inducing wealth transfer from ordinary workers to higher-income households should enrage supposedly pro-worker politicians, union bosses, and journalists who apparently have put partisanship above their ideals.
More broadly, the student loan bailout doesn’t address the underlying reason why so many Americans have crushing student debt in the first place. Between 2008-09 and 2020-21, tuition increased by 54 percent (26 percent, adjusted for inflation). Some middling private universities, such as Kenyon College in Ohio, Skidmore College in New York, and Bates College in Maine, now cost more than $80,000 a year to attend.
The bailout does nothing to reverse these runaway college costs, keeping higher education off-limits for many blue-collar families. As a result, the nonpartisan Committee for a Responsible Federal Budget concludes that college debt levels will return to today’s level within five years.
Even some prominent Democrats concede this point. Sen. Catherine Cortez Masto (D-Nev.) said the action “doesn’t address the root problems that make college unaffordable.” Sen. Micahel Bennet (D-Colo.) said, “One-time debt cancellation does not solve the underlying problem.” And the Wall Street Journal quotes one Democratic House member as saying her colleagues are “frustrated that it doesn’t actually solve the college cost issue.”
Unfortunately, government action that merely addresses the effect of a problem, rather than its cause, is standard practice. By only managing symptoms, policymakers allow the underlying disease to fester, exacerbating the problems they’re trying to solve.
Nowhere is this dynamic more apparent than in labor policy, activism for which filled the editorial pages of most major newspapers this weekend. Major Democrat labor policy proposals such as a $15 federal minimum wage, curtailing independent contracting, and forcing unionization through policies like card check attempt to address perceived insufficient workplace pay and benefits.
Yet they ignore the underlying reasons for this problem. These include reckless spending that’s fueling inflation and reducing real wages, a lack of hard skills among workers, and over-taxation and over-regulation, whose costs are partly paid for in terms of reduced employee compensation. Democrats’ heavy-handed policies to try to address the consequences of these problems would only exacerbate them by reducing economic opportunities.
The recently passed Inflation Reduction Act (IRA) also includes examples of this phenomenon. Consider the $7,500 subsidy extension for electric vehicle purchases. These taxpayer funds are intended to make these “green” cars and trucks more affordable. But in reality, they simply enable automakers to raise their prices. Witness how Ford and GM recently increased their sticker prices on some electric vehicles by approximately this subsidy amount. This IRA provision, therefore, effectively subsidizes the automakers’ profits. The action does nothing to actually bring down electric vehicle costs to make them more accessible.
Same story with the IRA’s $64 billion of taxpayer funds to extend the expanded ObamaCare subsidies. History demonstrates that health insurers will use these funds to increase premiums further. Indeed, some health insurers already have announced they are increasing ObamaCare premiums by around 20 percent next year. These subsidies won’t address the underlying reasons for the health care and coverage cost crisis but instead will exacerbate it by facilitating health insurers to charge even more.
The only way to fix American society’s biggest problems — including declining real earnings and college and health care unaffordability — is through economic, not political, solutions. That means the government should do less, not more, and empower the free market to work.
For example, to meaningfully address outrageous college costs, the government should reduce its presence in the student loan market. This would force colleges to lower costs and improve quality to attract students. Colleges would redirect the costs of worthless degree programs, administrative bloat, five-star amenities, and part of their $691 billion collective endowment to reduce tuition and make college more affordable.
Unfortunately, Biden’s plan to throw more money at this problem by bailing out student loans will only make it worse. It treats laborers around the country who chose hard jobs over fancy degrees as chumps on Labor Day.
Alfredo Ortiz is president and CEO of Job Creators Network.