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Warren Pressures Biden

Such pressure will escalate.

Is Student Debt Forgiveness Even Legal?

First Question of the Day: Is it Legal?

Biden has said he would forgive $10,000 in student debt for all borrowers, and the rest of the debt for those who attended public colleges or historically Black colleges and universities and earn less than $125,000 a year. In all, that would slash the country’s $1.7 trillion outstanding student loan tab by about a third, according to calculations by higher-education expert Mark Kantrowitz.

CNBC asked Toby Merrill, founder and director of the Project on Predatory Student Lending at Harvard Law School, how she’d explain to a 15-year-old why she believes it’s within the president’s power to do so.   

The Constitution gave Congress the authority to control property of the government, like debts owed to it,” she wrote. 

And Congress, Merrill said, granted the Secretary of Education, who works for the president, “the specific and unrestricted authority to create and to cancel or modify debt owed under federal student loan programs.”

Using an executive order to forgive federal student loans will likely be met with a lawsuit and preliminary injunction, and eventually fail,” Kantrowitz said.

“Also, trying that route immediately upon taking office would block any attempt at working with Congress in a bipartisan manner,” he added.

Ryan D. Doerfler, a law professor at the University of Chicago, can also see such a move being met by a myriad of challenges. For example, he said, opponents may say that the U.S. Department of Education can deliver relief to borrowers only in specific circumstances.

Forgiving Student Debt Isn’t a Great Stimulus Plan

Bloomberg author Noah Smith says Forgiving Student Debt Isn’t a Great Stimulus Plan.

  1. It’s an open question whether the President could forgive this debt without an act of Congress. Some legal scholars believe that if various executive agencies acted in concert, they could simply stop collecting the debt forever, meaning that it would be effectively cancelled.
  2. Whether this makes for good politics is another question. Canceling student debt might provoke a backlash among those who don’t have any loans. People who decided not to go to college because it was too expensive might be upset at a government action that invalidates their decision. Those who paid off their loans early might feel that their frugality was being punished. Parents who forked over more cash for their children’s educations to help those kids avoid the burden of debt might be similarly incensed.
  3. There’s also a moral hazard to consider. A big cancellation of student debt might convince people that such forgiveness would become a regular occurrence. That would make students more willing to take on debt, which would compound the problem in the future and push up tuition even further.
  4. Some will argue that a very weak stimulus is better than no stimulus. But given the potential backlash, legal uncertainties, and potential for moral hazard, student debt cancellation by executive fiat might not be worth it at all.

I agree with Smith on all four counts. 

Lessons From Cool Cal

Please consider Budget and Tax Lessons from President Calvin Coolidge.

  • “Economy in the cost of government is inseparable from reduction in taxes. We cannot have the latter without the former.”
  • "We are seeking to let those who earn money keep more of it for themselves and give less of it to the Government. This means better business, more of the comforts of life, general economic improvement, larger opportunity for education, and a greater freedom for all the people. It is in essence restoring our country to the people of our country. It reendows them not only with increased material but with increased spiritual values."“

“They Hired the Money, Let Them Pay for It’

Allegedly Coolidge said that, and it applies, but the quote is in dispute according to the Book of Fake Quotes

 Claude M. Fuess, Coolidge's biographer, who  worked hard to track down the origin of the statement, finally decided it was inauthentic. "I have tried in vain to ascertain the source of this quotation," he said, "and must, under the circumstances, regard it as belonging to the Coolidge apocrypha." When Mrs. Coolidge was asked about it after her husband's death, she said, "I don't know whether he said it, but it is just what he might have said."

How It Applies

University administrators knew that with Federal student debt they had a steady and reliable flow of money to use to inflate the number and compensation of administrators and go on binge building new buildings and upscale dorms and athletic programs. The cost of college has mushroomed well beyond almost every category of costs (e.g. healthcare, housing eye.). 

Look at the administrator to professor ratio. Most sports programs lose money, even some of the big ones, but the football or college coach in at least 38 states is the highest paid state employee by far.

University Industrial Complex

The University Industrial Complex is out of control. With all of this debt removed as a burden for many of its customers and with the introduction of moral hazard, these university presidents will all go into fifth gear in driving costs through the roof.

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Moral Hazard 

In addition to the moral hazard of the administers, ponder some poor schmuck and his wife who drive old beat-up cars and defer vacations to pay off their student debt then wake up the next morning to read that Biden did this.

They look across the street at their neighbor who is driving back from the airport in his Lexus from his vacation in Cancun knowing that guy just had $150,000 in student debt cancelled for his degree in “Interpretations of Medieval French toenail clipping.”

Caution About Discharged Debt

Less Education for Your Buck

Less Education for your buck

The above chart is from US College Tuition & Fees vs. Overall Inflation.

Please note the acceleration in 2005. What happened?

Flashback 2005

On April 15, 2005, I penned The Deflation Guarantee Act of 2005.

Today Congress passed the “The Deflation Guarantee Act of 2005” currently known as the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005”.

Twenty years from now economists are going to be studying legislation from this Congress and signed by this administration and be wondering: “What the * were they thinking?”.

Anytime this administration passes a law with the “protection” in it, assume it will do just the opposite

This was a bill written by loan sharks, and bought via payoffs (otherwise known as campaign contributions) to those voting for this bill. It has NOTHING to do with “Consumer Protection”.

I believe this will backfire in many ways, and not all of them are fully understood yet.

Emphasis added. 

I discussed debt deflation. Debt that had no chance of being paid off.

What Did the Law Do?

  1. It made student debt not dischargeable in bankruptcy. 
  2. In the process it made debt slaves out of millions of students.
  3. Colleges promoted useless degrees with impunity. 
  4. Tuition costs soared. 

Confusing Cause With Result

Proposal Worth Consideration

Make Colleges Eat Their Own Student Loans

I believe this to be a curious mix. I side with Ann Coulter and Noah Smith.