Throughout the 1990s and into the early 2000's I lobbied Congress with colleagues at other firms and advocacy organizations to have amend Chapter 125 of the Internal Revenue Code to allow students for the first ten years after graduation to divert pre-tax dollars into essentially an IRA that would disburse a lump sum at the ten year mark to repay the debt. Kids need to pay back their loans, then save for retirement, so give them the same advantages. At the time, the military had a similar program before we needed everyone for a war and changed that program. Of course, that means the Congress isn't collecting tax when it could, so nobody is in favor of that.
I dont have time to unpack this today or the next few weeks. He's the short answer. In the 1990s, schools had faculty retiring from the WWII generation, Baby Boomer faculty at the height of their earning power, skyrocketing health insurance and pension costs that weren't projected, AND students were demanding computer labs, cable television and internet connections on campus. They didn't have a way to pay for all their competing demands. They didn't have a way to pay for even one of them.
So much like the Democrats do, they take a public programming problem and fashion a populist solution at tax payer expense so that their friends get rich and voter turnout gets upped. And that's how you got student loans as a way for "every child to realize the American dream." Even though the American dream was a family farm or low cost housing and safe industrial manual labor in its original form. They sold it as middle class welfare as a bridge between the price increases they needed to raise and the family contribution means of most of their target recruits. The problem was most of those costs went up even further - IT infrastructure and health insurance for retirees - and the education folks figured out that they could name their price, Congress would OK it, and the kids would blindly sign. And they knew what they were doing when they specifically provided that you couldn't discharge these debts in bankruptcy.
Who benefitted? Congress in purple districts got to go home and say they were doing something. State legislators loved it, They got to build lots of fancy new stuff and not raise taxes. Banks were all about it of course, especially when they loosened up the rules on parents co-signing. But the people that really benefited, beyond all the democrats on campus, was the cabal of Democratic operatives that immediately went into the loan processing business. And you are seeing that now. All of these rule changes on student loan forgiveness, debt cancellations, etc. The evaluations for eligibility are not being performed by the federal government, but government contractors - most of whom have no experience in this area because its never been done before. Same thing with immigration. The Democrats created a flood of people coming over the border seeking relief from the conditions in their own country and the only solution is to set up a bunch of relief companies with no experience run by people who just left the Administration. Thats how the US government spends $400 million last year on free hotels to offset an overwhelmed immigration system and nobody really knows how many rooms were actually occupied by asylum seekers. But the company running that free hotel operation sure got rich and the Biden appointees that left to run the operation sure did too. And you are a racist if you ask questions. The system is designed that way. The same thing will happen here. He unilaterally announces a program that Congress could and refused to create, the system gets overwhelmed, so he authorizes his ex-employees to create companies to meet the demand and throws money at it. And of course a substantial portion of that money goes back into student debt relief advocacy, political donations, academic studies to justify results, and fundraising. The machine becomes sentient and the elite get rich. You pay.
The solution is forgive all of it. Public or private. Cancel it at the federal level and mail checks to the private banks. Together with a confession that it was all a massive scam. I abhor that solution as a fiscal conservative, but sometimes government just has to bite the bullet and restore faith in the system by admitting its mistakes. And if we have to forgo big budgets in Labor, Transportation or Agriculture to do it, so be it.
A lot has been written about the moral hazards of doing this, that is self evident and isn't worth the discussion.
There has really been no legitimate discussion on potential solutions because nobody in DC is interested in stopping the money rolling in on the Left and the Right isn't interest in co-signing middle class welfare, particularly for medical and law school graduates that make up about 70% of the debt. The lesson here is the same one that Clinton learned on environmental policy in national forests. Biden is going to learn the hard way that the only thing worse than doing nothing is doing half measures that pisses off both sides. So on the next issues, there will be no compromises, especially if Democrat polling recovers. Buckle your helmets. Both sides will be going to war. Probably over energy policy.
