Washington — Much of the recent criticism of President Biden's student loan cancellation plan is based on faulty assumptions about its high cost to taxpayers. While there are reasons to wish he would have acted somewhat differently — to provide student loan relief through restoration of bankruptcy protections and to address cost of college — it is off-base to overestimate his action's taxpayer price tag.
First, the cost of the loan repayment pause due to the pandemic should be considered in the same category as similar actions, such as the Payroll Protection Plan, to keep the economy from collapsing. It should not be confused with long-term, underlying student loan issues, no more than PPP should be confused with corporate tax rate issues.
Second (and here I am relying heavily on GAO's 2014 and 2022 reports on federal Direct Loan costs), borrowers for many years have been more than paying for the costs of the student loan program, such that the federal treasury was making money from borrowers in the hundreds of billions of dollars. Think of it this way: if those funds had been put into escrow, and later distributed back to borrowers as rebates for overcharges beyond the cost of the program, would we be saying that the rebates were being paid by taxpayers generally? Of course not. The appropriate question to ask is how much of the Biden cancellations must be paid by taxpayers, beyond rebating borrowers for overcharges, if there is in fact any taxpayer cost. GAO admits to being flummoxed by how to determine costs such that the question can be easily answered.
Third, complicating the question even more, is how much borrower debt was never borrowed to attend college, but has been added by lenders and servicers under questionable circumstances. From my years on the inside of student loan administration, and from looking in depth at individual cases, I know how corruption manifests itself in higher borrower debt. Such debt should be cancelled because it was improperly added to borrower accounts in the first place. Whatever sums are involved, and they may be huge, there are no taxpayer costs for such cancellation.
It's wrong in so many ways to cast the cancellations as new, inflationary, poorly targeted taxpayer burdens, when a more careful analysis may well show the opposite, or at least raise so many questions that editorialists (and celebrity pundits) should hold their tongues.