The Bad Vibes of Student Debt Bailout

When the pandemic first hit in 2020 Congress did a good thing. They suspended, without interest, student loan payments. That made sense since so many people lost their jobs.

But then they — both Republicans and Democrats — turned a good thing into a bad thing. They just kept extending the moratorium even after employment rates for college grads soared back to where they had been pre-pandemic. And throughout the pandemic those with college educations always had better employment rates than those without.

Pres. Joe Biden wanted to keep the lid on through last year’s mid-term elections for obvious reasons. Then he promised to forgive loans entirely for most borrowers. But that was based on legal authority that was shaky a best and, last month, the Supreme Court did what everybody expected and struck it down.

Now borrowers will have to go back to making payments in October and some are acting as if they’re being hit with some sort of penalty when, in fact, taxpayers have shelled out $200 billion to cover their interest during this unnecessarily long pause in repayments.

But the problem goes far beyond ingratitude. Too many of these borrowers did what you might expect. Perhaps because they believed Biden when he said he could forgive their loans, they took on more debt, mostly in the form of credit cards, but also in car loans and mortgages. Now, when payments restart this fall even more grads won’t be able to afford them because they’ve tied up their income in other debt repayments.

In other words, this whole project did nobody any favors. Taxpayers got stuck with $200 billion in payments that didn’t go for anything useful — not child care subsidies or improvements to education or fighting climate change — but just making interest payments on debt. Meanwhile, lots of borrowers learned the wrong lesson — that somehow they weren’t responsible for the student debts they incurred and that being asked to pay it back was an affront. Moreover, the default rates on student loans, as well as other forms of debt, are likely to go up.

And all to address a “crisis” that was never anything of the sort. A college education earns you, on average, $1.4 million over a career compared to somebody who didn’t get a four-year degree. The average debt is $30,000, which makes for an awfully good return on investment. And 75% of borrowers have monthly payments of under $400 while only 6.6% have payments exceeding $1,000.

College debt forgiveness was always a bad idea. The Supreme Court saved us from the worst of it by turning back Biden’s ill-conceived attempt to write off a half trillion dollars in loans, but the bad vibes from this thing will just keep on happening.