When the founding fathers gave Congress the power of the purse, they never anticipated the presidency could preside over a $1.6 trillion loan portfolio drawn directly from the U.S. Treasury. Nonetheless, the federal student loan portfolio places President Joe Biden in that exact position, and if he gets his way, he will spend more than a trillion dollars forgiving student loan debt, and do so without Congressional approval.
Big ticket forgiveness proposals are taking center stage, but they obscure the hundreds of billions the president has already spent toward that mark.
The grandest of Biden’s proposals is his blanket forgiveness of up to $20,000 in student loan debt for borrowers earning $125,00 or less, which comes before the Supreme Court at the end of February. The administration maintains the president’s authority to categorically forgive student debt comes from the Higher Education Relief Opportunities for Students Act of 2003 to address "financial harms of the COVID-19 pandemic," a pandemic whose public health emergency declaration Biden will end on May 11. The Penn Wharton Budget Model pegs the cost of Biden’s plan at $469 billion this year.
The court may rule against the president, at least in part because his plan violates the bedrock principle of separation of powers, but we know what the president will do if he can, and it’s just the tip of the iceberg.
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Less flashy, but just as consequential, are the administration’s proposed changes to Income Driven Repayment (IDR) programs. IDR ties borrowers’ monthly payments to their income, and after a period of successful payment, forgives remaining balances. Biden’s changes to the program will adjust multiple factors—the amount of exempted income, the minimum percentage of discretionary income, and the repayment periods required for forgiveness—all in ways that increase forgiveness.
The Urban Institute projects these changes would result in 49 percent of average Bachelor degree borrowers enrolled in IDR repaying half of their federal loans, or less. Such generous terms will not only increase forgiveness costs, they will increase future borrowing. Penn Wharton projects IDR changes will cost $333 billion over 10 years, not accounting for the likely increases in borrowing. Even worse, the administration’s IDR revamp comes through regulatory changes that will not require Congressional approval, and will be difficult to challenge in court.
Still absent from this accounting is how much the Biden Administration has already forgiven. AEI’s Student Debt Forgiveness Tracker, which I produce, captures the amount of federal student loan revenues that have already been foregone by the US Treasury during the Trump and Biden administrations. This month, the total due to Biden’s actions reached $201 billion—from one-time discharges, Public Service Loan Forgiveness Waivers, and the pandemic pause on federal student loan payments. That total will grow $6 billion each month Biden maintains the pause. If he does so through August, as he promised, that total will grow by $30 billion.
Adding his immediate $469 billion plan to forgive up to $20,000 per borrower, the $333 billion cost of his proposed IDR changes over ten years, and the $201 billion he has already forgone, Biden could divert a trillion dollars in total forgiveness from the US treasury. Much of this could be returned to taxpayers, but even if not, $1 trillion could fund other potential priorities, including Build Back Better’s ten year proposals for Pell increases, Universal Pre-K, and Birth through Five Early Learning provisions, twice over.
Adding insult to injury, these forgiveness measures are far from progressive, benefiting many relatively advantaged Americans and almost none who never chose to attend college. The unimaginable amount Biden is working toward would equal to over $8,000 for every American household, and if Biden has his way, he will spend it without Congressional approval. Worse, these expensive measures will not stem the flow of student loan debt, and are more likely to increase the root problem in the future.
President Biden has quoted his own father saying "Don’t tell me what you value. Show me your budget, and I will tell you what you value." Despite what he said in the State of the Union, his budgeting is clear. Student debt relief, much of it going to relatively advantaged Americans, is among his highest priorities.
The Biden administration is spending the people’s money, without action from Congress, and has attempted to avoid interference from the Supreme Court. Both bodies should stop this profligate spending and executive overreach where they can. The Court should rule against the forgiveness proposal, and Congress should right size adjustments to IDR. Longer term solutions will require Congress addressing the root causes of these challenges, including the rising cost of college, the increasing disbursements of student loans, and ultimately, the unrestrained presidential control of a huge loan portfolio housed in the U.S. Treasury.
