Biden's Student Loan Cancellation-A Moral Dilemma

I was going to write about crime this week, but with the President’s forgiveness of student loans, I am compelled to alter my course. Someone once asked me if I had any trouble finding subjects to write about.  The problem is not finding the issues.  The problem is that there is so much wrong right now that one does not have the time to examine and respond to it all.

On Wednesday, President Biden announced that he (aka-the federal government) will forgive student debt of $10,000 plus another $10,000 in Pell Grant loans.  This program is limited to “needy” persons with income below $125,000 or $250,000 per household.  This act of charity with your money applies to undergraduate and graduate loans (think of your lawyer) as well as Parent-Plus loans. We also bought him a $500,000 fence for his vacation home at the beach in Rehoboth, DE, but we do not have the time or energy to discuss that issue here today.

This loan forgiveness is particularly ironic since only last week we were talking about the Inflation Reduction Act (HAHAHA) where the Administration struggled with basic math to brag there would be $300 billion in deficit reduction over ten years.  Now they have come out with a program only 8 days later that will increase the deficit by $300 billion starting, well … today.  He also extended the repayment and interest holiday at a cost of $30 billion but promised that it would be the last time.  I will believe that when I see it, but since the deferrals take us past the midterm elections until January 1st and long before the 2024 elections, perhaps his prediction will indeed come to pass.

The first question is who died, made Biden King and gave him the key to the treasury?

Well, it goes back to those pesky executive actions that we talked about in my prior column on July 29th, “Is Our Democracy at Risk?”  You can still take a look at it at davekerber.substack.com in the archives to refresh your memory. For this program, Biden relies on the HEROES Act which was actually passed by a Congress in 2003 when we were fighting wars in Afghanistan and Iraq.  It gave the Secretary of Education the authority to waive rules relating to student financial aid programs in time of war or national emergency. 

The Congress at that time did not want to deter individuals from joining up to fight because of pending student loan commitments.  Back then, if you were out of college, in the military for instance, you had to begin to pay back your college loans.  This was a way that students who wanted to join the military could defer the start of those payments, at least so we were told.  But the law not only included “time of war”, but also “national emergency”.  This was a technicality since we don’t declare wars anymore. We have “authorizations of use of military force” and “national emergencies”. 

In 2020 responding to the War on COVID, Trump declared a national emergency, but it was not based on the HEROES Act of 2003, but the Stafford Act, which gives FEMA authority during natural disasters, the National Emergencies Act, relating to Medicare and Medicaid and the Defense Production Act which allows the government to redirect private industry to focus on government contracts.  Trump did extend the CARES act freeze on student loan repayments for a couple of months but concluded  there was no basis to cancel basic student loan debt.  That was the legal position of the Biden Administration as well until…. well, yesterday.  The COVID national emergency is still in effect despite the fact that we are overwhelmingly back at work, demasked, and going to school full time, but never letting a national emergency go to waste, Biden cited the Iraq war HEROES Act which allowed for student loan deferrals and hooked it to the current unexpired COVID national emergency that has nothing to do with student loans for the legal basis for opening the vault.  The CDC tried this in a different way by citing the COVID national emergency for the federal eviction moratorium, but the Supreme Court ultimately slapped them down.

I’m not sure that you, my readers, are any better off knowing the above, but at least you have an idea of the games that are being played, and that neither you nor your Congressional Representatives have any control over this.

The second question, is it a good idea?

I won’t give the answer away yet, but maybe you can guess. To go way back, well not to the Bible which has its own views on borrowing and lending, but to 1600, we have all heard the saying “Neither a borrower nor a lender be.”

That was taken from a soliloquy by Polonius in Act I, Scene 3 of William Shakespeare's Hamlet. Polonius is giving advice to his son Laertes, ironically for the current discussion, before Laertes heads back to school. Here is more of the quote for you Shakespeare fans. 

“Neither a borrower nor a lender be; For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry. This above all: to thine own self be true, And it must follow, as the night the day, Thou canst not then be false to any man.”

When Shakespeare’s play was staged, borrowing was a real problem among the upper classes. This resulted in many landowners selling off their estates in order to maintain their opulent lifestyles.  In fact, one of the individuals who was rumored to be Shakespeare was Edward De Vere, the 17th Earl of Oxford.  Facing overwhelming debt, he had to sell his estates, and as a result, he was the last Earl of Oxford. So maybe he was talking to himself or giving us a warning.

Not many have paid attention to the specific warnings of Polonius but in our particular culture; how we do things, who we are as independent free people who are responsible for themselves, have always presumed that if you borrow money you have to pay it back.  Have the rules changed?

Is this Fair?  

Of course not.  Can you imagine what is going through the minds of those couples making the median income, $67,521 per household.  Half the households make more.  Have the households make less. They are told by Biden that households that make $250,000 are eligible for potentially $40,000 in student loan debt relief.  If I was making $67,000, I would counsel my $250,000 contemporaries that they should live my life for a year on my $67,000 which would give them $183,000 extra so that they could pay off all their student loans and leave me alone.

As of 2020, 37.9% of the American population had obtained a college degree, which means that 62.1% had not.  Those who have not gone to college as well as those who followed the rules and have already paid their way are now expected to fund the college experiences of those who will be their supervisors, lawyers, doctors, college professors and presumed societal betters.  There is no loan forgiveness for truckers who buy their trucks, or restauranteurs who borrow to pay their employees or warehouse workers who just want to buy a home to make their lives a little bit better.  No, it is not fair.

What was Biden thinking?

Assuming that Biden is thinking anything, I do not believe he is considering this issue on societal terms.  I suspect that the Democrats are thinking only short term until the midterm elections. Who are their winners?

The Democratic Legislators. Think of it, only two months before the midterms, Biden decided to kick $300 plus billion to nearly 43 million voters.  In the 1880s, Tammany Hall in New York City used to buy beers for all the voters before going to the polls.  To be fair, everybody bought beers to “encourage” the vote.  Now in all 50 states and the federal government, there are laws to prohibit monetary payments to buy votes in primary and general elections.  However, those laws apply only to private money buying votes. I would suggest that with our system of separation of powers, no one ever imagined that any one person would be able to use the federal treasury to buy millions of votes for his party in a midterm election.  Don’t be naïve. Look at the timing of this “gift”.

The Colleges and Universities. This group of administrators and professors constitute a key constituent and intellectual base of the Democratic Party. They are overwhelming supporters that rely for their livelihood on grants for research and federally subsidized student loans which provide the revenues to pay their salaries. Virtually no college or university declines to take federal money with its strings attached. Colleges are big business institutions which need customers and revenue streams to fund their enterprises. This loan forgiveness of 2022 does nothing to fix the system that has seen higher education costs skyrocket.  It is estimated that in the next 10 years, another $1 trillion dollars will be advanced in student loans, all coming academia’s way.

Student debtors. Some may suggest that student debtors are winners, but I would argue that they may not feel like winners.  There are those, the doctors, the lawyers or the MBAs who will take the $20,000 gift that they really don’t need.  Then there are the baristas and food service industry employees who realize that they have wasted four years of their lives. 

The Moral Dilemma

We understand that a certain privileged group, college and graduate students, have borrowed money from the government (which is all of us) and made a commitment to pay it back.  Now having spent the money, they are not going to pay it back because the Biden administration says they don’t have to, and the rest of us will just have to suffer the loss.  The moral dilemma that arises is how does it affect our behavior the next time and will it push us in the right or the wrong direction as a society.

Why did we work while our classmates were partying?  Why did our parents and grandparents set up 529 college accounts and go without to fund education while others got it for free? Why did we pay off our loans when others don’t have to.  Instead of going to work, why didn’t we go and have the college experience if it wasn’t going to cost us. That is the moral dilemma.

Will we decide not to be suckers next time and believe that we will be saved by the Government, by our parents, by someone else.  We will be perennial children who are protected by the State, entitled to food, education, health care, affordable housing, free internet, and safe injection drug sites? The danger is after enough people quit to become dependent on the State, the State will no longer have the resources to provide that education, food, healthcare, and affordable housing, and we won’t have the skills or the character to turn back.

Another downside to society as a result of this decision to grant loan relief is that the student loan crisis had led us to question the basic premise of a modern college education.  Does one really have to go to college to have a better life?  Is the cost worth the reward? Is the premise that those who go to college are better people than those who do not, still valid?   These are the issues and discussions that the student loan crisis generated, and the loan forgiveness program may have cut short.  Hopefully not, because we definitely should have that conversation.  As to how the moral dilemma will turn out.  We shall see.