Biden, "forgiveness" operation: the cancellation of the US university debt

In many European countries, universities are free, in America they cost a fortune. This is a brief description, but it serves to understand the different political impacts of the fundamental issue in the two societies.

In continental Europe there are very few private universities, which have rather high costs, but always much lower than those in the United States and parents also pay something to attend public ones. In the United States, on the other hand, state public universities, not to mention the thousands of private colleges, have high fees not comparable to European ones, and consequently weigh heavily on the family budget, to the point that the government loan for all students to pay for higher education has become a huge macro financial problem.

So many are indebted, and such is the volume accumulated by university or former university students, to place the invoice of their debts alongside those deemed relevant by the Federal Reserve when describing the risks of "holes" with a potentially systemic effect in American society: student loans are behind home loans (which are worth about 18 trillion dollars), but ahead, as we will see, of personal loans financed with credit cards (890 billion, figure for the second quarter of this year ).

The cost of the four-year college course has steadily increased over the last 30 years: fees from public universities, state and municipal, have jumped on average over the period from $ 4,160 to $ 10,740 per year, while in private non-profit universities rates rose from $ 19,360 to $ 38,070. For colleges of excellence, the Ivy League, the annual fees are around $ 70,000.

The average figures are ’adjusted’ for inflation, that is, the dollars spent today on tuition amount for twice as much purchasing power than what students spent 30 years ago.

The driving cause of the rising costs lies precisely in the debt mechanism. Universities know that student funding comes from public coffers, and that they do not take risks on their own: therefore they are "incentivized", among other things, to enlarge the body of administrators dedicated to the management of liberal causes (diversity, inclusion, environmentalism, etc.) and to multiply the courses with zero market value but in line with woke themes.

As costs increased, the indebtedness of those who resorted to federal programs to pay for their degree increased. Unfortunately, the extension of the number of members, a populist illusion of giving a title to everyone believing it to be the panacea for social inequalities can only lead to disarming consequences.

"40% of those who start college do not finish it, and those who graduate with poor grades, in the bottom quarter of their class, earn about the same as those who graduate from high school," wrote the economist Richard Vedder in the book Reviving the Promise, released in 2019. In 2020, according to another research, 4 out of 10 college graduates have jobs for which a degree is not required.

But here, in summary, are the figures that describe the phenomenon. The total of student loans, including public and private loans, amounts to $ 1750 billion, but debt with the federal government weighs up to 92%. Public and private colleges have almost identical percentage of debtors, 55% for the former, 57% for the latter. In absolute numbers, almost 45 million Americans have yet to pay off their university debt.

This large percentage of citizens who owed the federal government to enroll and attend college is now the focus of President Joe Biden. The reason is obvious. The mid-term elections are near, and the leader of the Democrats announced on August 24 that he will use the power of the office to cancel an important slice of the debts with the forgiveness operation: from 10 thousand to 20 thousand dollars each according to the loan program.

For several million people in debt, who had graduated many years ago and had been paying for some time, it will be total cancellation. For everyone, however, it will be a substantial gift. Thus, Biden plans to help his troubled party by funding his "generosity" with taxpayers’ money.

Biden has an audience of voters who, thanks to his munificence, will no longer have to pay back the sums in full (20 million people), or partially (the rest, or another 25 million), from next year.

It seems a clever plan, but instead it is a mass of missteps that give Republicans, Independents, and even some Democrats so many critical arguments as to make it an ineffective, counterproductive initiative, and with every probability illegitimate

In fact, the president does not have the legal authority for a generalized cancellation of student federal debts through an executive order. Some time ago he himself admitted that he could not do it, since only Congress has the so-called "purse power", that of approving expenses for every public need. And even the speaker of the Chamber Nancy Pelosi had reiterated, a year ago, that the parliamentary vote was indispensable for clearing debt.

This measure would in fact take away from the state coffers funds that are already expected to arrive in future budgets: in essence, it would be an expense financed by taxes, and for an enormous amount, calculated by the Budget Model of Penn Wharton (University of Pennsylvania) in 519 billion in 10 years.

Biden does not have the votes in the Senate, where it would take 10 Republicans to add to the 50 Democrats to form the required 60-vote qualified majority, so if the president realizes his intention he risks a lawsuit.

There are millions of Americans who feel unfairly penalized. The measure, in fact, would discharge the cost of the discount, which favors a minority (graduates with outstanding debt who have an income of less than 125 thousand dollars if they make the individual declaration, or 250 thousand if they make the joint declaration with the spouse) to the detriment of the rest of the population.

This overwhelming majority includes those who gave up college not wanting to get into debt, those who graduated without being financed by the federal coffers or private entities and paid their fees with the help of their parents, those who got into debt in the past and who have regularly respected the commitment by repaying the due.

Ethically, Biden’s "forgiveness" will create in the country an opposite reaction to that, undoubtedly favorable, of the beneficiaries. If the latter were at least all poor, needy people, the provision would be morally more acceptable, or less abject. The reason given by Biden, in fact, is that the initiative would only help the poor. Not so much: among the indebted forgiven middle and upper middle class prevail, many educated people in a country that abounds in jobs: there are 11 million jobs offered and not covered, and unemployment is at 3.7%.