Progressive Democrats Bernie Sanders and Elizabeth Warren made cancellation of student loan debt one of their signature policy issues when they were running for President.
Of course, they did not state that they would push for legislation to accomplish that student loan cancellation. They stated they would do it through executive orders if elected.
They knew that this fringe idea would have no hope of passing into law.
Consider the fact that more than half of the workforce in the United States has no college degree
How is it fair that you cancel student loans but not other debts?
How is it fair to cancel student loans for those who have debt currently but there is no consideration for those who sacrificed to pay for college on their own or who previously paid off their loans?
Once you cancel current student loan debt today what happens in the future? Does college become free for everyone going forward? Why would anyone pay their own way? Why wouldn't everyone just take out a loan and wait for the next cancellation?
These are the major reasons why legislation to cancel student loans in Congress is dead on arrival.
You can add that to the fact that only about 12% of the U.S. population has student loan debt.
Joe Biden did not initially endorse the student loan cancellation idea but after he obtained the Democrat nomination in 2020 he saw that he needed to do so to maintain the support of the progressives in his party.
As a result, Biden's final position in the campaign was that he would use his executive authority to cancel student loan debt albeit not the total forgiveness that progressives wanted.
After he was elected, he did use executive authority to announce he was cancelling $400 billion of student debt for nearly all 43 million student loan borrowers with many borrowers getting up to $20,000 in debt relief.
A year ago the Supreme Court struck down this program in a 6-3 vote holding it was an unconstitutional use of executive power. It ruled that any major modification of the terms of the student loan program had to be passed by Congress.
Rather than accept that decision, Biden immediately attacked the Court.
He called the decision "wrong" and promised that "this fight is not over".
Since then we have seen Biden issuing order after order over the last year attempting to nip at the edges of student loans by forgiving or cancelling the loans for certain smaller groups.
Last week Biden proved that this is really all just political grandstanding by announcing another executive order to cancel a larger amount of student loan debt thereby ignoring the Supreme Court decision and any thoughts of working with Congress. This plan is directed at over 30 MILLION borrowers (70% of those with student loan debt).
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The major feature of this loan cancellation plan is that it would cancel up to $20,000 of student loans if the balance has grown due to unpaid interest after repayment begins.
25 million of the 43 million who have student loans are supposedly in this category.
It will apply irrespective of the income or means of the student borrowers.
Do you know how a loan balance can grow to a larger amount than what you originally borrowed?
This can only occur if you simply were not paying on the loan at all OR the amount you were paying was so minimal each month that it did not even equal the interest cost on the loan.
Let's put this in context.
Almost 60% of those who have taken out student loans have made such minimal payments on their loans that they have not even come close to covering the interest on the loans?
Keep in my mind as well that all student loans borrowers got a four-year moratorium during the Covid "emergency" when they did not have to pay on their loans (although they could have) and did not have any interest accrue.
Biden's proposal blames the student loan mess on "the interest rates on Federal student loans" implying they were too high.
However, the interest rates were established by the federal government.
Almost all student loans were nationalized by the federal government in 2010 in the Obama-Biden administration in legislation related to Obamacare titled "The Health Care and Education Reconciliation Act of 2010".
The rationale of nationalizing the loans was that the federal government could earn interest on the student loans and the receipts of interest on those loans (instead of going to private banks) could instead be used to fund Obamacare.
In fact, Barack Obama claimed that nationalizing the student loan program would save the taxpayers $68 billion over the next decade while also making it easier for graduates to afford their loan repayments.
Click here if the video does not play in your browser.
In that same bill, most student loan repayments went from a fixed repayment schedule (such as your mortgage or car loan) to an income-based repayment program where payments would not exceed 10%-15% of the borrower's discretionary household income---generally defined as the amount exceeding 150% of the federal poverty guideline (this would be about $23,000 for a single individual and about $31,000 for a two person household).
In other words, the entire system that Biden is criticizing as causing students to not being able to pay their loans was created by the federal government and has been controlled by it since 2010.
The student debt market was nationalized from private banks. The federal government set the interest rates to subsidize Obamacare. It established the repayment parameters.
93% of all student loans today are held by the federal government.
It hasn't worked out anywhere close to what Obama was selling in 2010.
All in all, Biden has issued executive orders to cancel more than $1 trillion in student loans since taking office as outlined in this analysis by the House Budget Committee.
There are about $1.7 trillion in current student loans outstanding.
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| Source: https://budget.house.gov/press-release/bidens-student-loan-scheme-breaking-down-the-costs-of-the-presidents-loan-forgiveness-plans |
Does anyone believe we would be in this mess if private banks had continued to be the lender with fixed payment schedules and the federal government continuing as a guarantor for student loans as it was before 2010?
Biden's latest plan, that would cancel accrued interest, would alone cost $84 billion according to an analysis done with the Penn Wharton Budget Model.
This would apply irrespective of the household income of those who hold the student debt.
The Penn Wharton analysis found that roughly 750,000 households making making over $312,000 in annual household income would be eligible for longer-term student debt cancellation under the Biden proposal.
Let's look at a real life example of someone who should be able to pay their student loan debt but has chosen not to.
Transportation Secretary's Pete Buttigieg's federal financial disclosure form that he filed in 2022 (I could not find a more current form online) shows students loans outstanding of between $100,000-$250,000.
Fourteen student loans apparently were taken out in the name of his spouse between 2010 and 2017 at interest rates between 3.4% and 6.8%.
The current interest rate on new loans for undergraduate study in 2024 is 5.50%. In fact, that is very close to the amount an investor could earn from a 6-month T-Bill right now,
These are hardly onerous interest rates. I paid a higher mortgage interest rate than the Buttigieg student loans on every home I ever owned until the last one.
Here is a photo of Buttigieg and his spouse Chasten who he married in 2018.
This is the first page of the liabilities section of that loan disclosure form that shows student loan debt of between $100,000-$200,000. During his Presidential campaign Buttigieg stated that $130,000 was owed in student loan debts.
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| Source: https://extapps2.oge.gov/201/Presiden.nsf/PAS+Index/F5A19DC2DE73EF4A852588CA002ECD59/$FILE/Peter-P-Buttigieg-2022-278.pdf |
An article in Forbes from 2021 provides a lot of background on Buttigieg's finances, his relationship with Chasten and how the student loans came about.
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| Source: https://www.forbes.com/sites/danalexander/2021/06/14/how-pete-buttigieg-cashed-in-on-his-candidacy/?sh=4ad856a47301 |
Chasten started taking out the student loans to attend community college and continued taking out loans as a nursing student after transferring to the University of Wisconsin-Milwaukee before flunking out.
He then enrolled at the University of Wisconsin-Eau Claire and changed his major to Theater.
It should come as no surprise that an education in Theater did not lead to attractive employment opportunities so Chasten ended up working at Starbucks, an Eddie Bauer, a gay bar and a position at a children's theater.
He ultimately transferred from a Wisconsin Starbucks to a Chicago location and took out more loans to get a Master's degree in Education from DePaul University.
Chasten and Buttigieg met via a dating app in 2015 while the former must have still been attending DePaul as the financial disclosure shows two student loans taken out in 2016 and 2017.
At that time, Buttigieg was the Mayor of South Bend, Indiana which he assumed in 2012 and continued in office until he became Secretary of Transportation in 2021.
In January, 2019, six months after they were married, Chasten quit his teaching job to support Buttigieg's political career in his run for President. He effectively became a "house husband".
Any repayments of the student loans would also be on Buttigieg after the marriage.
During his years as Mayor, Buttigieg earned a salary of over $100,000 each year.
Buttigieg wrote two books in the last several years of which he received a $75,000 advance on "Shortest Way Home" and $225,000 on "Trust".
Buttigieg earns over $221,000 per year as Secretary or Transportation.
His financial disclosure form showed that he also had between $50,000-$100,000 in cash in a brokerage sweep account.
The Forbes article reveals that Buttigieg and Chasten purchased a $415,000 lakeside vacation home in Traverse City, Michigan in July, 2020 taking out a $332,000 mortgage in the process. That means that they put down almost $100,000 in a cash down payment on the second home.
The financial disclosure form also reveals that Chasten received between a $15,001-$50,000 advance on his own book in 2021. It also reveals that Chasten had gamboling winnings of $5,000 at the Grand Traverse Resort and Casino during 2021.
In addition to all of this, Buttigieg and Chasten adopted twin babies (a boy and girl) in 2021.
After the adoption, you may recall that Transportation Secretary Buttigieg took two months of parental leave at the same time as the U.S. was going through the chaos of the supply chain crisis in late 2021.
Any adoption is not an inexpensive proposition.
Consider all of the above and ask why was it not possible for Buttigieg and Chasten to somehow find the money to pay off the students loans over the years?
No money to repay the loans from the six-figure incomes?
From the book advances?
From the gambling winnings?
From forgoing the vacation home?
By delaying the adoption until the loans were paid?
There are undoubtedly cases where the individual carries student loan debt that was incurred fraudulently from diploma mill colleges.
There is little doubt that many colleges have taken advantage of the student loan program to enroll students who should not be there in the first place.
Or allowed students to enroll in programs that had minimal prospects for students to gain jobs that would pay enough to repay their loans. Theater? Gender Studies?
It is also unquestionable that the student loan program is the principal reason for college cost inflation.
Colleges could simply have not raised their tuition and fees to the extent they have without the gigantic pot of federal student loan money.
College costs would have stopped rising long ago due to the fact that it was unaffordable.
What is the lesson in all of this?
Choices have consequences.
Obama and Biden made a choice to nationalize student loans in 2010.
They made a choice to use the interest income on student loans to subsidize Obamacare and claim that their healthcare takeover would not raise the deficit.
Now that their choices have resulted in disaster, Biden wants the consequences to fall on the 300 million Americans who do not have student loans debt.
Students make choices to attend college, learn a trade or go straight into the workforce.
Some students who go to college make a choice to attend an expensive private schools and take on more debt. Others opt for a state school to minimize their debt load.
Students make choices about their college studies. Some choose a course of studies that promises better job prospects (nursing, accounting, engineering, etc). Others choose to enjoy college while studying Theater, Gender Studies or the like that have less than promising future job prospects.
Those who leave their school years behind with student loan debt have a choice to prioritize paying that debt back or paying the bare minimum they can in order to enjoy life to the fullest without any sacrifices.
Choices have consequences and yet there are too many student loan borrowers who don't want to take responsibility for their choices and the fact they signed a loan document promising to repay their loan in full with interest.
The United States was founded on the idea of freedom of choice.
It was never contemplated that the federal government would be expected to insure that the consequences of those personal choices would be transferred to other Americans if a bad choice was made.
I have written before how James Madison wrote in the Federalists Papers about the manner in which the Constitution was designed and drafted in order to protect the country from the development of dangerous factions in society.
James Madison in Federalist Paper #10 also enumerated those things that were most likely to result in the development of dangerous factions that government (and the people) should be protected against.
Madison called them "Improper or Wicked Projects". It could not be much clearer what the Founders thought of these potential risks and the need to avoid them at all costs because of the danger they posed to the nation at large.
We are in the midst of what Madison referred to as the three big improper and wicked projects right now in the United States.
He referred to them as "rages".
Note #2 on his list.
What were they?
1. A rage for paper money
2. A rage for the abolition of debts.
3. A rage for the equal division of property.
I could not say it better than Madison.
The entire effort to abolish or forgive student loans is "improper and wicked" to use Madison's words.
The fact that Joe Biden is attempting to do it after the Supreme Court has already ruled it unconstitutional is even more "improper and wicked".
All of this says all you need to know about the student debt issue and a whole lot more.
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