Aug 25, 2022

Biden announces student loan cancellation.

Biden announces student loan cancellation.
Photo by Tim Gouw / Unsplash

Plus, a question about "my take."

I’m Isaac Saul, and this is Tangle: an independent, ad-free, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum on the news of the day — then “my take.”

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Today's read: 15 minutes.

This is a longer Tangle than usual. But our main topic is very complex, and we have a good reader question about "my take" that I wanted to respond to.

Full focus at a coffee shop
Photo by Tim Gouw / Unsplash

Quick hits.

  1. First Lady Jill Biden tested positive for a rebound case of Covid-19, but is not experiencing any reemergence of symptoms. (The rebound)
  2. Ukrainian officials say Russia fired a rocket into a train station that killed at least 25 people. Separately, the Pentagon announced another $3 billion of military aid for Ukraine. (The strike)
  3. The Uvalde school board announced it was going to fire its police chief over the response to the shooting at the school earlier this year. (The firing)
  4. Rep. Marjorie Taylor Greene (R-GA) said her home was "swatted," which is when pranksters place a fake emergency call to get a SWAT team dispatched to private locations. (The prank)
  5. A federal judge temporarily blocked Idaho from enforcing a near complete ban on abortion, saying the state law does not provide adequate protection for physicians who perform abortions in a medical emergency. (The ruling)

Our 'Quick Hits' section is created in partnership with Ground News, a website and app that rates the bias of news coverage and news outlets.


See you tomorrow?

Yesterday, I interviewed economist and Bloomberg columnist Noah Smith about inflation, Biden's student loan cancellation, and much more. Tomorrow, we'll be sharing a transcription of our interview in a subscribers only post. If you're a paying subscriber, you'll get it at 12pm EST. If you're not, and you want to receive the conversation, you can subscribe here. We hope to publish it as a podcast early next week.


Today's topic.

Student loan cancellation. Yesterday, President Joe Biden formally announced an executive order for widespread student debt cancellation. The move comes after more than a year of internal debate by Biden and his administration, who were trying to execute one of his key campaign promises.

In the end, the administration is going to wipe out $10,000 of federal student loan debt for any individual making under $125,000 per year, or any couple making less than $250,000. Borrowers who received Pell Grants (about 6 in 10 borrowers) and make less than $125,000 a year will be eligible for total forgiveness of $20,000. The income thresholds apply to 2021 or 2020 income.

The White House also said the debt forgiveness will be exempt from taxes, unlike other federal student debt forgiveness programs (typically, debt forgiveness is taxed as income). Forgiveness will also apply to the Parent Plus program, a federal program that allows parents to take out the total cost of attending college in the form of a loan.

Estimates suggest the plan will cost about $300 billion over 10 years. However, that does not include the extended Pell Grant cap of $20,000, or the administration's freeze and cap on monthly repayments, which are expected to drive the net cost up. The move will add to the federal deficit because borrowers will pay back less than or none of the amount they borrowed from the federal government.

Most of the 40 million Americans with student debt are expected to qualify for some cancellation. 53% of federal student debtors owe $20,000 or less, according to the Education Department.

Along with the cancellation, Biden also announced an extension of the pandemic pause on student loan payments, which were set to resume on August 31, through the end of the year. He also lowered the cap on undergraduate loan repayments from 10% to 5% of monthly income.

The Education Department said it will release more information about how borrowers can claim their relief in the coming weeks. Tens of millions of Americans are expected to be impacted by the announcement, and some eight million may automatically become eligible because the Education Department already has their income data.

Biden's announcement was met with both criticisms and praise. Many Democrats and advocacy groups celebrated the decision, though their praise was not unanimous. Some high-profile economists like Larry Summers and Jason Furman warned that the cancellation could cause future spending cuts or tax increases.

Republicans, meanwhile, criticized the plan, arguing that it is likely to increase inflation and is unfair to Americans who had worked to pay off their debt. Others accused Biden of attempting to "buy" votes before the midterms.

In a CNBC poll released this week, 30% of Americans said there should be no student loan forgiveness for anyone, 34% said only those in need should have loans forgiven, and 32% were in favor of student loan forgiveness for everyone who has student debt. 59% of Americans said they were concerned that student debt forgiveness would make inflation worse.

Today, we'll take a look at some reactions from the right and left about the merit of the plan, then my take.


What the right is saying.

  • Many on the right are critical of the plan, saying it is fiscally irresponsible and unfair to responsible borrowers who pay their debts.
  • Some say it will only make the student debt problem worse in the long run, and means the government will foot the bill.
  • Others warn it is likely to increase inflation.

The Wall Street Journal editorial board called it "easily the worst domestic decision of his presidency."

“The Penn Wharton Budget Model estimates that canceling $10,000 for borrowers earning up to $125,000 will cost about $300 billion. The Pell grant addition could increase this by as much as $270 billion. The four-month freeze on payments will cost $20 billion on top of the roughly $115 billion it already has," the board said. "An analysis commissioned by the Trump Education Department estimated that taxpayers would lose $435 billion on federal student loans, largely because borrowers in these payment plans on average were expected to repay only half of their balances. Now they will repay even less. Worse than the cost is the moral hazard and awful precedent this sets.

“Those who will pay for this write-off are the tens of millions of Americans who didn’t go to college, or repaid their debt, or skimped and saved to pay for college, or chose lower-cost schools to avoid a debt trap,” it added. “This is a college graduate bailout paid for by plumbers and FedEx drivers. Colleges will also capitalize by raising tuition to capture the write-off windfall. A White House fact sheet hilariously says that colleges will ‘have an obligation to keep prices reasonable and ensure borrowers get value for their investments, not debt they cannot afford.’ Only a fool could believe colleges will do this. It’s important to appreciate that there has never been an executive action of this costly magnitude in peacetime. Not Mr. Obama’s immigration amnesties, not his Clean Power Plan, not Mr. Trump’s border-wall fund diversion. Nothing comes close to this half-trillion-dollar or more executive coup.”

In USA Today, Steve Forbes said Biden is abusing executive power, undermining Congress and burdening American taxpayers.

“To be blunt, short term, it smacks of vote buying for the November elections. And questions have been raised about Biden's legal authority to cancel student debt," he wrote. "The moratorium has already cost the federal treasury more than $100 billion in lost revenue, which has meant that Uncle Sam has been making up the shortfall by printing more money. We know where that has led us. Indeed, Larry Summers, the former Treasury secretary under President Bill Clinton and chief economic adviser under President Barack Obama, noted that the pause in loan repayments is ‘highly problematic’ and permits short-term spending that raises ‘inflation pressures.’

“But these loan payment suspensions – and the ultimate far-left ambition of wiping out all student debt – also have ugly social-justice consequences,” Forbes said. “According to a report by the Brookings Institution, a left-of-center think tank, student loan debt is concentrated ‘among high-wealth households and loan forgiveness is regressive whether measured by income, educational attainment, or wealth.’ In other words, because of its regressive nature, the moratorium – and any debt forgiveness – is a handout to better-off Americans and offers the least relief to our neediest citizens. Let’s cut to the chase here. Most Americans don’t have a college degree, and most of these citizens are in lower- to middle-income brackets. Why should they subsidize better-off Americans?”

In Reason, Eric Boehm said the debt cancellation will worsen inflation.

“First, even though student debt relief might not look like spending the way we traditionally think of it—the government isn't cutting checks or awarding grants here, the way it did in the American Rescue Plan, for instance—economically, it will function the same way,” Boehm wrote. “Because money is fungible, student loan borrowers will effectively now have extra discretionary income equal to whatever they would have had to pay towards that $10,000 in loans. That might sound great, but remember that the standard definition for inflation is what happens when a larger supply of money is chasing the same amount of goods and services.

“Money that would have been spent paying back loans will, upon the conclusion of the repayment moratorium, remain circulating in the regular economy,” he added. “Ending the repayment moratorium without passing forgiveness would've been deflationary by returning U.S. dollars to Treasury. An entirely predictable response to a $10,000 student loan forgiveness plan would be colleges and universities hiking tuitions—while telling future students not to worry about the rising sticker prices because, hey, a portion of your loans will likely get forgiven anyway. In short, student loan forgiveness will contribute to inflation on both macroeconomic and microeconomic levels.”


What the left is saying.

  • The left is divided on the issue, with some strongly supporting it and others worried about the negative impact.
  • Some say the plan is a good start, but should just be the beginning.
  • Others say it could increase inflation and does not solve the underlying issues.

In The American Prospect, Ryan Cooper said more reform is needed.

“On balance, this is good news. As Matt Bruenig points out at the People’s Policy Project, canceling $10,000 zeros out the balances of about 31 percent of student loan borrowers, while cutting the balances of a further 21 percent by at least half. Add to that the doubled relief for Pell grant recipients, and the White House estimates that 20 million out of 43 million borrowers will have their full balance extinguished,” Cooper said. “Such borrowers in turn are more likely to have failed to graduate, or have been ripped off by a for-profit scam college, and thus in most need of help. A Penn Wharton analysis found that, with $10,000 in forgiveness and the income cap, about 58 percent of the benefit would accrue to people in the bottom 60 percent of incomes, and another 28 percent for the fourth income quintile.

“It also found that the income cap saves a piddling $15 billion. However, Bruenig points out that the Wharton model is based on the Survey of Consumer Finances, which greatly understates the amount of student debt held by the poorest people. He estimates that the bottom quintile should receive about 20 percent of the benefit, and the bottom three-fifths about 65 percent. The $20,000 for Pell grant recipients (which wasn’t reported until now and thus hasn’t been analyzed yet) will make it even more progressive," Cooper wrote. "As welcome as this news is, it doesn’t do enough to fix the broader system of higher-education financing. Much like the medical system, higher education is badly in need of price regulation. For decades now, the government has been shoveling subsidies into colleges and universities, and (with a few exceptions) they have responded by jacking their prices through the roof. Biden can’t do this by himself, of course, but it’s long since time for the government to start demanding a better deal for itself—and American students.

In The Los Angeles Times, Michael Hiltzik criticized people who think it will increase inflation.

“I’ve written about the fatuous arguments against student debt relief before. The inflation angle is relatively new, however, presumably because inflation is top of mind for voters as we approach the midterm election,” he said. “It’s natural, in a way, for opponents of debt relief to bootstrap this kitchen table issue to their long record of opposition. As it happens, however, they’re wrong. Canceling student debt, even at higher levels, won’t drive inflation. The critics are using faulty math to make their point... 'It’s about allowing borrowers to keep $13 billion a year in income,' [economist Alí] Bustamante told me. ‘That comes to about 0.08% of total personal consumption.’ For an economy with about $16.5 trillion in annual personal spending, $13 billion is ‘insignificant when it comes to inflationary pressure.'

"Nor is there any evidence that people would go out and spend that money, creating inflationary demand," Hiltzik wrote. "The evidence from more than two years of debt forbearance thus far is that borrowers have used it to improve their household balance sheets, paying off high-rate credit card debt and saving the rest. That’s not even to mention what has been driving inflation over the last year. It’s not demand-side personal consumption, but constraints such as supply-chain disruptions and restricted supplies of oil. Both factors have decreased in recent months, which is why the month-over-month inflation rate in July fell to 0.0%. (The Federal Reserve may be making the same mistake in its inflation-fighting campaign.)... Clearly, student debt relief will be a wealth-producing, economy-growing initiative. It won’t create unfairness, but redress economic injustice that has been building for decades. Biden’s proper course should be obvious."

The Washington Post editorial board, meanwhile, called it an expensive mistake.

“The loan pause, which President Donald Trump instituted in March 2020, was an emergency measure at a time when people were struggling to find jobs or had to remain home due to the pandemic,” the board said. “Thankfully, the situation is very different today: The unemployment rate for people with bachelor’s degrees and higher is just 2 percent. It’s hard to make the case that college graduates are still facing an unprecedented crisis. The loan-forgiveness decision is even worse. Widely canceling student loan debt is regressive. It takes money from the broader tax base, mostly made up of workers who did not go to college, to subsidize the education debt of people with valuable degrees. Though Mr. Biden’s plan includes an income cap, the threshold does not reflect need or earnings potential, meaning white-collar professionals with high future salaries stand to benefit.

“Student loans, moreover, are a poor proxy for household income: An analysis by policy researcher Jason D. Delisle found that, in 2016, students from high-income and low-income families were just as likely to take on debt for their first year in an undergraduate program — and students from high-income families borrowed the largest amounts,” the board added. “Mr. Biden’s plan is also expensive — and likely inflationary. The Committee for a Responsible Federal Budget estimates that extending the loan pause to the end of the year would cost $20 billion, while forgiving $10,000 for households making less than $300,000 would cost $230 billion. Together, these policies would nullify nearly a decade’s worth of deficit reduction from the Inflation Reduction Act.”


My take.

Reminder: "My take" is a section where I give myself space to share my own personal opinion. It is meant to be one perspective amid many others. If you have feedback, criticism, or compliments, you can reply to this email and write in. If you're a paying subscriber, you can also leave a comment.

  • I'm happy for my friends and family getting relief, and believe there is merit to many cancellation arguments.
  • The timing for this really couldn't be worse — both for the economy and for Biden politically.
  • We are doing nothing to fix the root problem, which is just going to boomerang on us in a few years.

First, I'll tell you why some of the arguments I'm seeing don't convince me this is a bad plan. Then I'll tell you why I think it's a bad plan.

The unconvincing arguments: "I paid, so they should too." I also paid off my student loans. I did it by being frugal, living in a six-bedroom apartment, working the entire time I was in college, and accepting some help from my parents. I chose a cheap in-state school over the bigger, more expensive school I thought I really wanted. I’m the prototype of the person who should be mad, but I don't regret anything. I also don't think that means other people should have to go through what I did, just because it feels unfair to me. Many of my friends are getting huge relief from this cancellation, and I'm happy for them. I like seeing my friends happy. This is helping people. I don't feel spiteful that I didn't get the same help.

That whole argument is kind of like arguing tax dollars from people in New York shouldn't go to hurricane relief because people in New Orleans chose to live there despite knowing the risks. Or people who didn't join the military shouldn't see their taxes cover veterans’ aid, because they chose not to enlist. That's not really how our country works. We all help to pay for a lot of things we don't participate in.

"Well, I want my credit card debt canceled." The reason debt cancellation is focused on school loans is that these loans are mostly tied to federal programs. Most kids are not getting money from colleges but from the government. And many of those programs are now predatory and broken, so it makes sense the federal government should have a role in fixing them. Whether this constitutes a "fix" is a separate debate — but the reason student debt is being forgiven and not your credit card is that it is the federal government who made these programs so incredibly god awful. This is their way of righting a wrong.

"It's poor people paying for rich people's colleges." There is a grain of truth here, in that this will probably result in an increase in taxes or inflation or cuts to other programs, all of which will hurt the poor. And it's true that many middle and higher income earners will benefit (if you're making $124,000 a year, you are doing really well). But this program is also targeting students who came from lower income households (Pell Grant recipients are typically families making less than $60,000 per year) and will absolutely have massive benefits for folks who are struggling to pay the interest on some loans. Millions and millions of lower-income people are going to be helped, and we're probably underestimating that number.

The real question is twofold: 1) Is this move a net positive for the country? 2) Is it solving the problem? To me, the answer to both questions is no.

First, the timing for this is terrible. I believe debt cancellation has some merit in other contexts: It can be an economic stimulus, it can free people from the kinds of loans that should be criminal, and it can do all sorts of positive things for the economy, like creating upward mobility. But the greatest issue our economy is facing right now is inflation, which is driving down real wages for everyone. Telling tens of millions of people that they now have $10,000 or $20,000 of savings they didn't have yesterday is probably going to spur consumption, which is precisely what we cannot have right now. It's incredibly risky and shortsighted.

And, to the point about lower-income folks, this is what is also the most unfair. For starters, the loans could definitely have been better targeted. I have a lot of friends breathing a huge sigh of relief today whose lives have truly been altered by a newfound budget freedom. I also have some friends joking about how Biden just bought them a new PlayStation5. It seems clear to me the net was cast too widely.

On top of that, people at the bottom of the economic rung are the ones most impacted by the rising costs of energy and goods. After our first slightly encouraging numbers on inflation, an action like this that risks spurring demand among the middle class is irresponsible. Even if it doesn't actually cause inflation to rise, the risk alone should have stopped Biden. Every focus from the administration should be on reducing inflation. Instead, he's pushing a program via executive order that is basically equal in cost to the tax savings from the Inflation Reduction Act over ten years, and about the same amount as all the money we are putting toward fighting climate change. It's bonkers.

Which brings me to the second point: Like I've said before, this isn’t actually fixing the problem. Capping how much borrowers have to pay every month or boosting cancellation for Pell Grant recipients is helpful for those really struggling. But it doesn’t fix the root problem, which is that college is incredibly expensive in America. Consumer-side handouts are essentially supply-side subsidies. The whole reason we are in this mess is that we’ve been limiting supply of college seats and boosting demand by making those seats more affordable through debt. We have to change that dynamic.

The organization Student Defense, whose entire mission is to solve our broken student loan system, compared it to bailing water out of a sinking boat without plugging the leak. The Committee For a Responsible Budget estimated that if you cancel $10,000 of student debt for all the borrowers in Biden's plan, the amount of outstanding debt will return to today's levels in four years. This doesn’t take into account the Pell Grant increase and lowering of the income cap, so this bounce back may not be quite as dramatic, but we’d be naive to think it won’t happen at all. In other words, the cost of the program is at least $300 billion, risks worsening inflation, is incredibly divisive, and the problem will be right back at our feet in a few years.

The debt relief isn't just not fixing the problem, but it could legitimately make it worse. As many on the right noted, there are two realistic potential consequences: One, students will take out more debt assuming it won't matter. Two, colleges will jack up the prices figuring the government is just going to intervene anyway. Again: The system is broken, and it needs reform, but if we were going to forgive these loans and right a wrong — it should come after we change the system so it doesn't just happen all over again.

All this is to say nothing of the fact Biden himself (and Nancy Pelosi) were both openly admitting they didn't think he had the authority to do this a few months ago.

So, yes: College is too expensive and our loan system is broken. Many millions of people getting debt relief will greatly benefit from it and I'm happy for them. And there is merit to student debt cancellation in several different economic and personal contexts. But this plan is too broad, poorly timed, and incredibly risky. All for a problem that it doesn't actually solve and which will be right back in front of us in a few years.


Your questions, answered.

Q: I'm a first time reader. I did enjoy Tangle, with its non-biased info. But when I got to "My Take," I was puzzled. If you're trying to demonstrate that you're non-biased, why would you print your opinions? It puts doubts into your news. I expected to trust your news as facts. But if you need to share your opinions, I'm not sure I was reading unbiased facts. What is your rationale for this?

— Anonymous, Pinehurst, North Carolina

Tangle: This is actually a question I'm surprised I don't get more often. And the answer is twofold: 1) I think it's the most honest way to do it and 2) People asked for it!

First, everyone has biases. No human being is objective. Reporters either let their biases inform their reporting, or they don’t — they are either fair, or unfair. I believe I’m a fair reporter. To me, the most honest way to share the news with readers is to be honest about what biases I bring to the table. By sharing my own opinions, I’m allowing people access to how I think and view the world. If you see my biases coming through in other sections of the newsletter, that is a huge problem. But if I'm telling you what I think at the end, in a section clearly labeled “my take,” you can take it or leave it. I view that as an act of transparency and honesty.

Second, a lot of people requested I keep it. When I first started Tangle, I wasn't at all attached to "my take," but a lot of my test readers wanted to know my opinions about the stories — so I started sharing it, and it proved to be a popular section, so I kept it up.

I also know (from reader emails and surveys) that some folks read Tangle for the explanation of a story and the right and left views, and mostly skip my take. And I know some people read Tangle mostly because they want to see my take. By including everything, everyone can use the newsletter as they like. Simply put: I think it gives our product broader appeal.

Want to ask a question? You can reply to this email and write in (it goes straight to my inbox) or fill out this form.


Under the radar.

The next generation is about to enter Congress. Max Frost, a 25-year-old Democrat whose political career started in activism, looks primed to win Florida's 10th District after prevailing in the primary race. Frost, like many others in Gen Z, represents a new wave of progressive activists: He campaigned on Medicare-for-all, demilitarizing police, legalizing sex work and marijuana, expunging marijuana convictions, and restoring voting rights to the incarcerated. His career in politics started as an activist calling for gun control after the Sandy Hook Elementary School shooting, and he eventually became a national organizing director for March for Our Lives, the group run by survivors of the Marjory Stoneman Douglas High School shooting. The Washington Post has the story on Frost.

Have a story you think is slipping under the radar? Submit one here.


Numbers.

  • $9,140. The average cost per year of a four-year, in-state public university.
  • $23,890. The average cost per year of a four-year, out of state public university.
  • $32,410. The average cost per year of a four-year private university.
  • $1.7 trillion. The amount of student debt held by borrowers in America.
  • 44 million. The number of people holding that debt.
  • $32 billion. The amount of student debt relief the Biden administration says it has approved already, before the latest cancellation announcement.

Have a nice day.

I'll be honest: This story borders on "weird," but it made me smile so I wanted to share it. Two sets of identical twins have married each other. Brittany and Briana Deane grew up in Delaware and were always inseparable, and said they hoped to one day fall in love with identical twin brothers and marry them. Jeremy and Josh Salyers are also identical twins, and apparently had the same idea; to marry twin sisters. So in 2017, when the four met at the annual Twins Day Festival in Twinsburg, Ohio, (yes, it's a thing), they decided to give it a shot. After a year of dating, the love was real, and the four returned to the festival and got married in identical outfits. Now the couples have sons born five months apart.

"The boys are cousins, but because their parents are twins who married twins, their genetics are similar to those of siblings,” The Washington Post reported. “The Salyers’ unusual marriage is known as a quaternary marriage, and their sons are known as quaternary twins." The Washington Post has the story.


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Isaac Saul
I'm a politics reporter who grew up in Bucks County, PA — one of the most politically divided counties in America. I'm trying to fix the way we consume political news.