In March 2020, then-President Donald Trump declared a “temporary pause” on federal student loan repayments. Last week, President Biden announced the sixth extension of the hiatus, which will now run until September 1 this year.
The initial rationale for the moratorium on loan repayments has long since evaporated. Amid the COVID-19 shutdowns, it was assumed that college graduates would be out of work on a massive scale. This is certainly not the case today.
The college graduate labor market has been growing since February 2020, the last month before the pandemic disrupted the job market. For those with at least a bachelor’s degree, the labor force and number of people employed increased by 1.7 million, according to the latest data from the Department of Labor.
Additionally, the median weekly earnings of college graduates increased significantly during the height of the pandemic: by 6.2% from the fourth quarter of 2019 to the fourth quarter of 2021. By almost any measure, the labor market for those who hold at least a bachelor’s degree is incredibly strong, with the latest unemployment rate down to just 2.0%.
Although the reason for the moratorium no longer exists, the cost to taxpayers continues to rise. In the unlikely event that the administration ends the pressure on August 31, the “pause” will have lasted 28 months, postponing more than $218 billion in payments and costing taxpayers more than $5 billion a month in lost interest. .
In terms of economic policy, the moratorium is not only costly; it is patently unfair. On average, this forces low-income taxpayers to subsidize those with higher incomes. The latest data from the Bureau of Labor Statistics shows college graduates continue to earn significantly more than their less-educated counterparts: 45.2% more than the average worker, 57.6% more than those with only a some college education or an associate’s degree, and 125.3% more than those who never finished high school.
The biggest economic challenge facing college graduates — and all Americans — today isn’t the threat of student loan repayments, but inflation, which is cutting into everyone’s income. This hidden tax has confiscated nearly 8% of Americans’ purchasing power in the last year alone. Since Mr. Biden took office, the real value of the average person’s weekly earnings has fallen by 4.5%. That’s a dizzying drop in just over a year.
Unfortunately, the moratorium on student loan repayment contributes to inflationary pressures.
Certainly, most of the blame rests with an incompetent Federal Reserve that vastly over-expanded the money supply and naively or arrogantly thought that this would not wake the inflation beast. But allowing student loan balances to continue indefinitely — while printing presses crank out even more money for new loans — is making the situation worse.
This amounts to a double whammy for low-income taxpayers. Not only are they forced to subsidize other people’s college education, but in doing so they end up exacerbating inflation, a hidden tax that hits the poor hardest.
Unfortunately, the Biden administration appears to be in thrall to the radical left, which is demanding “forgiveness” for student loans — a euphemism that means taxpayers pick up the balance of student debt. Senate Majority Leader Chuck Schumer recently claimed the White House is closer than ever to unilaterally — and likely unconstitutionally — attempting such a transfer.
When September 1 rolls around, borrowers will most likely expect another extension. Lucy can only take Charlie Brown’s football away so many times before he even expects it; this latest extension was as predictable as the administration’s captivity to Democratic Party socialists.
The endless moratorium on student debt repayment is an attempt by the administration to square the circle: it replaces forgiveness, attempting to appease the far left of the party, without incurring the political costs of pure forgiveness. and simple. However, the cost to taxpayers continues to rise.
Ironically, “lunch bucket Joe” effectively taxes welders, crane operators and assembly line workers to subsidize people who are likely to have higher lifetime earnings, a flagrant violation of Mr. Biden not to raise taxes on people earning less than $400,000 a year. . Like the previous commitment not to extend the moratorium, these are promises made, promises broken.
• EJ Antoni is Regional Economics Research Fellow at the Heritage Foundation’s Data Analysis Center and Senior Fellow at the Committee to Unleash Prosperity.