The Biden administration’s illegal student-debt “forgiveness” program will result in hundreds more dollars per month being freed up for those who currently owe money. What Biden calls “forgiveness” really amounts to a transfer of debt from the people who borrowed the money to people who did not. Taxpayers will be picking up the tab for borrowers whose debt is reduced, which means they are ultimately subsidizing the purchases that borrowers make. What kind of purchases will taxpayers be subsidizing?
A survey from Intelligent.com found that 73 percent of borrowers who have their student debt reduced plan to spend their extra money on non-essentials such as travel, eating out, and new technology. Thirty-six percent said they’d buy a new gaming system, and 27 percent said they’d gamble with the extra money.
The survey included this finding: “Despite the fact that most don’t plan to practice what they preach, 73% do agree using student relief to buy non-essential goods is wrong.”
Truly needy people would not need to contemplate the morality of their spending on non-essential purchases. If someone was having a hard time affording food, clothing, and shelter, he or she would naturally spend extra money on those things first. That borrowers know they shouldn’t spend on non-essentials yet plan to do so anyway indicates that they have no problem paying for essentials as things currently stand. They don’t need “relief.”
That perfectly matches what we know about the distributional impacts of the student-debt program. People with lots of student debt are generally people with graduate and professional degrees who have relatively high incomes. As Adam Looney wrote for the Brookings Institution in January, “Measured appropriately, student debt is concentrated among high-wealth households and loan forgiveness is regressive whether measured by income, educational attainment, or wealth.”
The non-essential spending on short-term satisfaction also undermines the claim that removing the debt burden from borrowers will allow them to make long-term improvements in their financial situations. Instead, it adds to what we already know about the vaporous effects of the student-debt-forgiveness program at a macro level. According to calculations from the Committee for a Responsible Federal Budget, total student debt in the United States will return to its current level of $1.6 trillion in only five and a half years.
By that time, the U.S. will be in the exact same situation it is today with respect to student debt, the national debt will be about half a trillion dollars greater, and a bunch of already well-off people will have taken federally subsidized vacations. Blatant unconstitutionality aside, the student-debt-forgiveness program is awful public policy.