When scholars at the conservative Heritage Foundation reach the same negative conclusion about a Biden administration proposal as scholars at the liberal Urban Institute, you can be sure the policy proposal is bad, even by Washington standards.
The policy in question: the Biden administrations revised plan for repaying federal student loans.
Payments are based on borrower incomes.
Borrowers with incomes below 225% of the federal poverty level (approximately $30,600 a year, according to the Department of Education) would have no loan repayments.
Those with incomes above $30,600 will pay back just 5% of income earned above the income floor.
The new Revised Pay As You Earn plan, the administration calculates, will cost only $138 billion over the next decade, but independent experts foresee far higher costsranging from $361 billion over 10 years (per the Penn Wharton Budget Model) to as much as $1 trillion (as estimated by Travis Hornsby, CEO of Student Loan Planner, a firm that helps students manage their monster student-loan debt).
Several words beginning with I describe the plan: illegal, inequitable and irresponsible.
Illegal: Im an economist, not a legal scholar, but where does the president get the legal authority to unilaterally rewrite the terms of an existing law without new legislation approved by Congress?
Congress never even held hearings on the administrations plan, which effectively would provide full loan forgiveness to many borrowers (a big majority of those receiving loans to cover costs of obtaining an associate degree from a community college) and significantly reduce what many others have to pay back.
The administration brags about the money borrowers will save; but what about taxpayers, who ultimately will be responsible for the unpaid debts?
This is a brazen assertion of power by the administration that goes beyond the scope of existing law.
The Supreme Court ruled against such administrative overreach in an analogous 2022 decision in West Virginia v. Environmental Protection Agency.
If challenged in court, the loan-forgiveness plan would seem unlikely to survive judicial scrutiny.
Inequitable: The administration constantly claims its championing the poor against greedy plutocratic millionaires and billionaires.
Yet the proposal violates virtually every measure of what public-finance experts call horizontal or vertical equity.
Under this plan, college attendees and graduates receive a federal benefit (loan forgiveness) that those not attending college (but earning the same or lower incomes) do not receive.
Moreover, those in such highly paid professions as engineering, computer science, law, economics and finance are also discriminated against, receiving lower benefits than borrowers who choose to study subjects likely to pay less, such as gender studies, art and sociology.
These are voluntary choices: The former group of students receive training that the US labor market highly values; the latter group gets degrees with relatively little demand outside the woke environs of academia, journalism and the nonprofit world.
In a society where choices are made voluntarily, is it equitable to reward one group over another?
Irresponsible: All this is playing out as the nation is facing a fiscal crisis: Unless Congress and the president change their views very shortly, the nation could face default on its federal debt for the first time in history.
This would lead to a precipitous decline in Americas global primacy in the world of finance, destroying the notion that the dollar is as good as gold or that US government bonds are the safest investment.
Rather than finding new ways to spend more money, our nation needs to tighten its belt.
So why is the Biden administration doing this?
We all know the answer: Administration officials believe it will be wildly popular among the millions of federal student-loan borrowers and give the president a badly needed political boost.
Unfortunately for the White House, that hasnt happened yet.
The presidents approval ratings remain abysmal.
With the job market slowing, interest rates rising, inflation still 2½ times the Federal Reserves target rate, growing concerns about the stability of the banking system and a possible debt crisis just ahead, the administrations irresponsible and reckless pandering to college-loan borrowers is the wrong thing at the wrong time.