By Greg Ganske

Sept. 25, 2022

Let’s be clear at the beginning, President Biden has never had a plan to eliminate student debt. But he does have a plan to transfer that debt to those that don’t owe it.

Lest you think this op-ed is too partisan, Biden’s own wife and his Secretary of the Treasury Janet Yellin urged Biden not to go ahead with the policy. On July 28, 2021, Speaker of the House Nancy Pelosi said, “People think that the President of the United States has the power for debt forgiveness. He does not.” She added that loan forgiveness can only be accomplished through “an act of Congress.”

Other Democrats are rebuking Biden. Rep. Chris Pappas (D-NH), “This announcement by President Biden is no way to make policy and sidesteps Congress and our oversight and fiscal responsibilities. . . any plan to address student debt should go through the legislative process.” Rep. Tim Ryan (D-OH) criticized President Biden, arguing, “. . .waiving debt for those already on a trajectory to financial security sends the wrong message to millions of Ohioans without a degree working just as hard to make ends meet.”

A poll by The Economist shows that half of Americans think Biden’s loan forgiveness is unfair to Americans who did not go to college; 57%  think that the plan is unfair to Americans who have already paid off their student loans. A CNBC poll shows that 59% of Americans worry that student loan forgiveness will make inflation worse. Former Obama administration Jason Furman criticized Biden’s loan forgiveness, “Pouring roughly half a trillion dollars of gasoline on the inflationary fire that is already burning is reckless.” Furman estimates that the loan executive order would increase inflation by 0.2% to 0.3%. and that the cost would be passed on to taxpayers either through higher taxes or inflation, or both.

Just a year ago President Biden himself doubted that he had the unilateral authority to cancel student debt on such a broad basis. He now claims that his authority to wipe out hundreds of billions of dollars in student debt derives from a 2003 law called the Heroes Act. This law gives the Secretary of Education the power to waive or modify any statutory or regulatory provision applicable to the student financial assistance programs during a national emergency. In March 2020 the Trump administration invoked the Heroes Act to pause student loan interest payment through January 2021 but issued a memo claiming that “Congress never intended the Heroes Act as authority for mass cancellation or forgiveness of student loan balances.” The Biden administration argues this memo was wrong.

The Supreme Court will eventually review the Biden administration’s claim that the Heroes Act gives Biden’s Department of Education the authority to cancel loans. The Court will most likely rule that Biden’s action is unconstitutional as contrary to a doctrine it has used in other cases where executive agencies need explicit authorization from Congress for any action of such huge economic and political impact. For example, it rejected the authority of the CDC to ban housing evictions and limited the EPA’s ability to regulate carbon emissions from power plants.

A Penn-Wharton analysis estimates that the cost of this executive order could amount to $600 billion over ten years. However, we don’t know the details and a small change in the program from opt-in to opt-out that allows borrowers to repay their loans as a percentage of their income (known as “income directed repayments,” or IDR) could push the cost to over $1 trillion. This huge amount of money will be transferred to the national debt (with accompanying inflation) or cause significant tax increases. There is no proposal to cut spending to pay for those forgiven loans.

Shortly before an election, this has the appearance of a huge bribe to a favored constituency at the expense of everyone else. Furthermore, as a former Member of Congress I believe that it amounts to a power grab by the executive that our Founding Fathers specifically wrote the Constitution to forbid. The Constitution specifically gave the power of the purse to Congress. As stated in the Federalist Papers 58, the Founders saw in “the power of the purse. . .the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people.” Unfortunately, Congress’ power of the purse has been challenged by the executive branch regardless of party for some time, though not this blatantly.

Congress has allowed the executive leeway on spending in times of national emergency such as war and early on in the Covid epidemic. But we are not at war and the epidemic is over. If this executive order is allowed to stand, where does presidential power end? The Founding Fathers were worried about the power of a king; shouldn’t we be worried about the power of an unchecked president? The Constitution is clear that the president “must spend those dollars appropriated by Congress and no money shall be drawn from the Treasury but in consequence of appropriations made by Congress.”

Making people who didn’t go to college pay for those who do is unfair, the debt bailout is expected to cost each taxpayer about $2500 or more depending on the details. The executive order is unconstitutional. The policy is also unwise.

College costs are up 169% over the past 40 years while pay for workers is up just 19% according to a Georgetown study. Over the past 20 years the cost of college tuition has risen more than any other consumer goods or services except hospital care. It exceeds any other large country. There are many reasons like decreased state aid to public universities as Medicaid eats up a larger and larger portion of states’ finances. Students are taking longer to graduate with only 55% graduating in four years. Schools are offering more amenities to compete with other schools such as Tempur-Pedic mattresses, off-campus apartment buildings with infinity pools and hot tubs, gourmet food, ski days, private bathrooms and flat screen TVs, student unions a la Four Seasons, even lobster bakes. There is poor transparency in total price as one adds in multiple fees for orientation, commencement, library, parking, tech services, and entertainment. The number of college administrators with high salaries has ballooned.

However, the largest contributor to college price inflation is financial aid in the form of federally guaranteed loans. Universities know that students will get financial aid money and raise their tuition and fees to take advantage of that. Education Secretary Bennett in the 1980’s began to speak about this and published “Our Greedy Colleges.” President Obama recognized this, too. It is estimated that for every dollar of federal student aid, tuition increases up to 65 cents. An example of this phenomena occurred recently when car manufacturers increased the sticker price of their EVs by the same $8,000 that Congress recently allocated in its green energy bill.

Is it any wonder that colleges that will benefit from the Biden student loan handout have spent over $130 million on lobbying since 2021!

It doesn’t have to be that way. Purdue University has held tuition and fees flat since 2012 while lowering room, board and book costs in fewer inflation-adjusted dollars than a decade ago. How did Purdue’s President Mitch Daniels do it? Daniels explains, by, “. . .lower ratios of administrators to faculty, less gold-plating on new buildings, modernized and consumer-driven health plans and other simple changes…60% of our students graduate debt-free. Debt per student has been cut in half to just over $3,000.”

Universities must have some skin in the game for student loan defaults. Most importantly, students must know that they will be responsible for paying off their loans and need to look at a realistic cost-benefit in acquiring debt in the first place. They must look at whether their post graduate salaries will enable them to pay off those loans. Biden’s debt forgiveness creates a real moral hazard in terms of an incentive to take on increased risk when one is protected from the consequences of not paying back one’s debts.

After Biden, who will want to pay their debts now?

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Greg Ganske, MD, is a retired surgeon and former Member of Congress representing Iowa from 1995-2002.