Tangle - Biden announces student loan cancellation.

Episode Date: August 25, 2022

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.You can read today's podcast here.You can subscribe to Tangle by clicking here or drop something in our tip jar by clicking here.Our podcast is written by Isaac Saul and produced by Trevor Eichhorn. Music for the podcast was produced by Diet 75. Today’s episode was edited by Zosha WarpehaOur newsletter is edited by Bailey Saul, Sean Brady, Ari Weitzman, and produced in conjunction with Tangle’s social media manager Magdalena Bokowa, who also created our logo.--- Send in a voice message: https://podcasters.spotify.com/pod/show/tanglenews/message Hosted on Acast. See acast.com/privacy for more information.

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From executive producer Isaac Saul, this is Tangle. Good morning, good afternoon, and good evening, and welcome to the Tangle podcast, a place where you get views from across the political spectrum, some independent thinking without all that hysterical nonsense you find everywhere else. I'm your host, Isaac Saul, and on today's episode, we're going to be talking about student debt cancellation. Obviously, it is the story of the day right now. President Biden announcing he was going to cancel student debt for tens of millions of borrowers yesterday. So we're going to jump right in. Before we do, though, as always, we'll start off with some quick hits. First up, First Lady Jill Biden tested positive for a rebound case of COVID-19, but is not experiencing any reemergence of symptoms. Number two, Ukrainian

officials say Russia fired a rocket into a train station that killed at least 25 people. Separately, the Pentagon has announced another $3 billion of military aid for Ukraine. Number three, Uvalde announced it was going to fire its school's police chief over the response to the shooting there earlier this year. Number four, Representative Marjorie Taylor Greene said her home was swatted, which is when pranksters place a fake emergency call to get a SWAT team dispatched to private locations. Number five, 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 medical emergencies.

President Biden today announced his long-awaited plan on student debt, an historic move to address the $1.6 trillion in federal loans held by 45 million Americans. The Biden administration has announced its highly anticipated plan to forgive some student loan debt for some Americans. The administration said it will cancel $10,000 worth of student loan debt for borrowers with incomes less than $125,000 a year. Biden unveiled his administration's plan to cancel billions of dollars in student loan debt. The plan will cancel loans for borrowers making less than $125,000 a year, including $20,000 for Pell Grant recipients. Yesterday, President 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 per year. Borrowers who receive Pell Grants, which is 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 that 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, those estimates do not include the extended Pell grant cap of $20,000 or the administration's Friesen 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 kind of cancellation. 53% of federal student debtors owed $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 31st 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 8 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 debt forgiveness for anyone, 34% said only those in need should have their 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 the left about the merit of the plan and

then my take. First up, we'll start with 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 paid off their debt. 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, the board said.

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, quote, will have an obligation to keep prices reasonable and ensure borrowers get value for their investments, not debt they cannot afford, end quote. 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 that 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 said. 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 advisor 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 class income brackets. Why should they subsidize better off Americans? In reason, Eric Bohm 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, he 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 may sound great, but remember that the standard definition of 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 said. Ending the repayment moratorium without passing forgiveness would have 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. Alright, that is it for what the right is saying, which brings us to the left's take. 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 the plan 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 Bruning points out at the People's Policy Project, canceling $10,000 zeros out the balances of about 31% of student loan borrowers, while cutting the balances of a further 21% 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% of the benefit would accrue to people in the bottom 60% of incomes

and another 28% for the fourth income quintile. It also found that the income cap saves a piddling $15 billion. However, Bruning points out that the Wharton model was based on the survey of consumer finances, which greatly underestimates the amount of student debt held by the poorest people. He estimates that the bottom quintile should receive about 20% of the benefit, and the bottom three-fifths about 65%. 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 said. 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 up 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 fascist 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 kind of 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 Ali Bustamante told me. That comes out 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%. 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. Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, a background character trapped in a police procedural who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime, Willis begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th,

only on Disney+. The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported across Canada, which is nearly double the historic average of 52,000 cases. What can you do this flu season? Talk to your pharmacist or doctor about getting a flu The Loan Bars, 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 degree and higher is just 2%. 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 proxy for household income. An analysis by policy researcher Jason J. 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 said. 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. Alright, that is it for the left and the right's take, which brings us to my take. All right, that is it for the left and the right's take, which brings us to my take. Okay, so first I'm going to tell you some of the bad arguments I'm seeing that don't convince me this is a bad plan, and then I'll tell you why I think it's actually a bad plan. So the unconvincing arguments. I paid, and they should too. Look, I also paid off my student loans. I did it by being frugal. I lived in a six-bedroom apartment in New York City for years. I worked the entire time I was in college. I got a little bit of help from my parents. I chose a cheap in-state school over the bigger, more

expensive school I thought I really wanted. I'm like the prototypical person that should be salty about this, but I'm not. I don't regret anything. I don't think it means that 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 definitely going to help some 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 York shouldn't go to hurricane relief because people in New Orleans chose to live there knowing the risks. Or people

who didn't join the military shouldn't see their tax dollars cover veterans aid because they chose not to enlist. That's not how our country works. We all help to pay for a lot of things we don't participate in. Another argument I've seen is, well, I want my credit card debt canceled, so can the federal government do that? 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 government programs are now predatory and broken, so it makes sense that the federal government should have a role in fixing them. Whether this constitutes a fix is another thing. But the reason student debt is being forgiven and not your credit card is that the federal

government is the one who made those programs so incredibly god-awful. It's their way of righting a wrong. The other common argument is this is just poor people paying for rich people's colleges. There's a grain of truth in there in that this will probably result in an increase in taxes or inflation or cuts to other programs, all of which 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're doing very well, and I don't know that you need your loans to be forgiven. 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. It 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 by this cancellation,

and we're probably underestimating the number. The real question, to me, is twofold. Is this move a net positive for the country? And is it solving the problem? The answer to me to both of those 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 create upward mobility. But the greatest issue of our economy that we're 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 short-sighted. And to the point about lower income folks, this is what is also the most unfair. For starters, the loans could definitely have been more targeted. I have a lot of friends breathing a huge sigh of relief who are going to be coming out from under a years-long burden that can be ruinous for their lives. I also have some friends joking about how Biden just bought them a new PlayStation 5. It seems clear to me that the net was cast too wide. 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.

Just after getting our first slightly encouraging numbers on inflation, to do something that risks spurring demand among the middle class is just 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 to the cost of tax savings from the Inflation Reduction Act over 10 years and about the same amount as all the money we're putting towards fighting climate change. It's kind of bonkers. Worse, it does practically nothing to fix the system.

Many of the folks on the left are right about this. The organization Student Defense, whose entire mission is solving 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 level 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 quick, 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, risk-worsening

inflation is incredibly divisive, and the problem will be right back here 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 consequences. One, students will take out more debt assuming that it doesn'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 just going to forgive these loans and right a wrong, it should come after we change the system so it doesn't just happen again. All this is to say nothing of the fact that Biden and Nancy Pelosi were both openly admitting

they didn't even think he had the authority to do this just 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 am truly happy for them. There's merit to student debt cancellation in several different economic and personal contexts, but this plan is too broad, it's poorly timed, and it's incredibly risky. All for a problem that it doesn't solve and we'll be right back at our feet in a few years. Alright, that is it for my take today, which brings us to your questions answered, which is actually about my take. This one is from an anonymous reader in Pinehurst, North Carolina. They said, 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? So this is a great question. I'm actually surprised I don't get it more often, but the answer is twofold. One, I think it's the most honest way to do it. And two, people ask for it. So first, everyone has biases. No human being is objective. Reporters either let their biases inform their reporting or not. They're 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'm bringing to the table. By sharing my own opinion, I'm allowing people access to how I think and view the world.

If you see my bias coming through in other sections of the newsletter, that's 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 just ask for it. When I first started Tangle, I wasn't at all attached to the idea of my take, but a lot of my test readers wanted to know my opinion about the story, so I started sharing it, and it proved to be a pretty popular section. So I just kept it. I also know from reader emails and survey that some folks read Tangle for the explanation of a story

from the right and the left views and then mostly skip my take. But I also know that some people read Tangle mostly because they want to see or hear my take. By including everything, folks can just use the newsletter or podcast as they'd like. All right, next up is our under the radar section. 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 the Gen Z generation, 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. If Frost wins his election, which he is widely expected to do, he'll become the youngest member of Congress. The Washington Post has the story on Frost, and there's a link to it in today's newsletter. All right, next up is our numbers section. The average cost per year of a four-year in-state public university is $9,140. The average cost per year of a four-year out-of-state public university is $23,890. The average cost per year of a four-year private university is $32,410. The amount of student debt held by borrowers in

America is $1.7 trillion. The number of people holding that debt is an estimated $44 million. The amount of student debt relief the Biden administration says it has approved already before the latest cancellation announcement was $32 billion. All right, that's it for our numbers section, which brings us to our Have a Nice Day section. Okay, I'm gonna be honest, this story kind of borders on weird,

but it made me laugh and smile, so I figured it was a good fit for the have a nice day section. Two sets of identical twins have apparently married each other. Brittany and Brianna Dean grew up in Delaware and were always inseparable, and they said they one day hoped to fall in love with identical twin brothers and marry them. Jeremy and Josh Salyers were also identical twins, and apparently had the same idea to marry twin sisters. So, in 27, when the four met at the annual Twins Day festival in Twinsburg, Ohio, yes that's a real 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 outfits and now they have sons who are 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 marriage, and their sons are known as quaternary twins. The Washington Post has this story, and there's a link to it in today's newsletter. All right, everybody, that is it for today's podcast. As always, if you want to give us some feedback, you can reach me, Isaac, I-S-A-A-C, at readtangle.com. And if you want to support our work, you can become a Tangle member by going to read Tangle dot com slash membership. We'll be out tomorrow with a subscribers only Friday edition. And we'll be right back here with the podcast early next week. Have a good one. Peace.

Our newsletter is written by Isaac Saul, edited by Bailey Saul, Sean Brady, Ari Weitzman, and produced in conjunction with Tangle's social media manager, Magdalena Bokova, who also helped create our logo. The podcast is edited by Trevor Eichhorn, and music for the podcast was produced by Diet75. For more from Tangle, subscribe to our newsletter or check out our content archives at www.readtangle.com. dot com. Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Thanks for watching. buried history and what it feels like to be in the spotlight. It's the first cell-based flu vaccine authorized in Canada for ages six months and older,

and it may be available for free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed. Learn more at FluCellVax.ca.