#137 Student Loan Forgiveness

Student loan forgiveness decreases the incentive to work: it is regressive.  It makes the Federal Government the owner of the education of 40 Million Americans.  What will the government expect in return?
 
Christians tend to believe that only God can forgive sin.  But increasingly, it’s looking like government officials think they can.  An article in the WSJ this week titled, “Biden’s Half-Trillion-Dollar Student-Loan Forgiveness Coup,” explains how student debt will be forgiven for some 40 million borrowers. The government will cancel $10,000 for borrowers making less than $125,000 a year and $20,000 for students who received Pell grants. 
 
I analyzed the student debt problem almost two years ago in podcast #57 titled Canceling Student Debt.  I seldom write about the same subject twice, but this new development demands another analysis by the Christian Economist. 
Policies that Promote Production
Think about a person with student loans, making $120,000 a year who is offered a raise to $130,000.  She would turn it down, to keep her salary below the $125,000, so she could get the student debt forgiveness.  
As I explain in podcast #27 there is only one thing that separates rich from poor nations: Policies that promote production.  As we’ve seen in this example, student debt forgiveness is a policy that encourages sloth, not production. 
Oh, another part of the announcement that didn’t get as much attention is that President Biden is cutting undergrad payments to a mere 5% of discretionary income.  So that means student debt holders are further encouraged to under-produce.  If you keep your income low, it decreases your loan payment.  That’s a formula for making the country poorer.   

There is no Free Lunch
Nina Turner’s view of canceling student debt is as follows:  "FYI—Student debt cancelation isn’t paid for by the taxpayers, the federal government is the lender.”  Wow.  That level of ignorance is just frightening.  I unpack this idea in more detail in podcast #79 titled, There is no Free Manna.
The government has no money!!!  This is stealing, which is a violation of the eighth commandment.  When Sergiy Saydometov and I wrote Biblical Economic Policy, we found ten Biblical Commandments of Economics, and “Don’t Steal,” is one of them. 
Let’s check our definition here:  “Taking another person’s property without permission or legal right.”  Yes, President Biden’s decision to move the debt from one person to another person will require stealing the second person’s money to pay for it.  I repeat: The government has no money.  
Think about this with me: As government subsidies increase, will the price charged by the supplier increase or decrease?  Government subsidies PUSH the supplier price higher.  So we can fully expect tuition rates to increase as a result of the student debt forgiveness, just as they increased when government provided the subsidy.  
The Wall Street Journal editorial board explained it this way,