A White House Student Loan Forgiveness Whopper

You won’t believe the explanation for why the cancellation is all ‘paid for.’

WSJ editorial.

"Many student borrowers get into trouble because they don’t understand basic financial management. Neither do the Biden officials who claim the President’s student loan cancellation is fully paid for by this year’s decline in the federal budget deficit.

The Penn Wharton Budget Model estimates that the President’s student loan relief could cost as much as $1 trillion. The White House is cagey about the cost, and says it doesn’t matter anyway since the federal deficit is on track to fall by about $1.7 trillion this fiscal year from last year’s $2.7 trillion, which was the second largest in history after 2020.

Bharat Ramamurti, deputy director of the White House National Economic Council, recently explained: “This is paid for. It is paid for and far more by the amount of deficit reduction that we’re already on track for this year,” adding that “compared to the previous year, 1.7 trillion more dollars are coming into the Treasury than are going out.”

Mr. Ramamurti must be smarter than that makes him sound. This year’s deficit and student loans are entirely unrelated. The deficit is falling this fiscal year for two reasons. The first is that most of the transfer payments in Democrats’ $1.9 trillion Covid spending bill last March, including the $3,600 child tax credit and stimulus payments, have lapsed.

Revenues have also increased by nearly $800 billion through the first 11 months of the fiscal year owing to faster income growth, especially among high earners. The Congressional Budget Office in May estimated that revenue would hit 19.6% of GDP, the highest level since wartime in 1945, except for fiscal 2000 before the dot-com crash when it hit 20%.

But the deficit is almost certain to grow next year as money from the most recent Democratic spending bills rolls out while slower economic growth and falling equity prices could hurt tax revenue. The $1 trillion for student loan write-offs is all unfinanced and will add to deficits in the future.

By the White House’s twisted logic, Americans who borrow $50,000 to buy a car one year will have saved $50,000 in the next, which they can spend on an luxury vacation in the Caribbean. It’s no wonder so many students don’t feel they should have to pay for their indulgences when political leaders don’t either.

No matter how much the student loan bailout costs, Congress didn’t authorize it or appropriate funds to pay for it. If Republicans win the House in November, we hope they challenge the President’s usurpation of Congress’s power of the purse in court."