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Who pays for those forgiven loans? You, the forgotten one

8/26/2022

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In 1876, Yale professor William Graham Sumner perfectly described the problem with President Biden’s student loan forgiveness program, using an algebraic argument involving four people he labeled A, B, C and X.
“As soon as A observes something which seems to him wrong, from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X,” he wrote in an essay. “Their law always proposes to determine what C shall do for X, or, in better case, what A, B, and C shall do for X... 
“What I want to do is to look up C,” he continued. “I want to show you what manner of man he is. I call him the Forgotten Man…. He is the man who never is thought of.... He works, he votes, generally he prays — but he always pays..."
Brandon Renfro, assistant professor of finance at East Texas Baptist University puts it this way: The problem with loan forgiveness is that neither the schools nor their students have any skin in the game.
Renfro was quoted in a Forbes piece by Robert Farrington as explaining it like this: Schools “aren’t strictly accountable for the debts of their students. If students also aren’t responsible for their debt, then neither party to the transaction is responsible for the cost.”
The person responsible is, of course, the forgotten man, or woman. That is, you. You have skin in the game.
A Reuters report on the loan forgiveness program Biden outlined Wednesday said it would add between $300 billion and $600 billion to the budget deficit over time.
Just put it on X’s tab. He won’t notice, until the tab comes due. Unless, that is, all this extra money floating through the economy makes inflation a bit worse, but he isn’t likely to know exactly who to blame for that.
And his (or her) confusion would be understandable. For many years, leaders in both major parties have been adding to X’s tab with impunity, racking up a national debt that is rapidly approaching $31 trillion, or more than $244,000 per taxpayer, according to usdebtclock.org.
They have been especially generous in recent years, adding $5 trillion in loosely monitored pandemic relief money that was at least a factor in today’s inflation.
Any time politicians touch the economy, you can count on unintended consequences following. Student loan forgiveness will indeed make life easier for many students and recent graduates (provided they took out their loans before the June 30 cutoff date.) But if they live in one of 13 states, they may be on the hook for income taxes on the forgiven amount, as a Tax Foundation analysis explained this week. 
It also may, as some commentators are saying, initiate a string of future loan forgiveness as tomorrow’s students wonder why they don’t deserve what their predecessors got. The Committee for a Responsible Federal Budget estimates it will take about five years for the total student debt level to return to the pre-forgiveness level. Its website said borrowing may accelerate because of this round of forgiveness because, as Preston Cooper, a senior fellow in higher education policy at the Foundation for Research on Equal Opportunity, put it in the Wall Street Journal, “Students will gladly take out larger loans when colleges can credibly wink and whisper that higher tuition rates are no big deal since the loans will be forgiven anyway.”
The result of that, he said, would be an increase in master’s degree programs that don’t provide a return on investment, That’s because X, the person involuntarily doing the investing, is forgotten.
The loan forgiveness may not happen before Election Day if legal challenges bog things down. If so, expect a lot of political meltdowns over the cold-hearted opponents of this program.
In truth, there are some noble purposes for which A, B and C might combine to help X and the general welfare of society. Helping the poor obtain a higher education would be one of those. So would bipartisan efforts to reduce the exorbitant cost of tuition. 
But many, if not most, recipients of this loan forgiveness will be among the nation’s top earners — college graduates who, as The Economist noted, will earn 65% more than someone with just a high school diploma.
The magazine said this makes the forgiveness program “unlikely to be a coup for the proletariat.” It won’t be much of one for all those forgotten men and women out there, either, whether or not they have degrees of their own.
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    Jay Evensen is the Opinion Editor of the Deseret News. He has more than 40 years experience as a reporter, editor and editorial writer in Oklahoma, New York City, Las Vegas and Salt Lake City. He also has been an adjunct journalism professor at Brigham Young and Weber State universities.

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