OPINION:
Here’s an economics lesson that belongs in the textbooks.
Student loan debt soared to more than $1.5 trillion during the Biden presidency. Washington’s response was to “forgive” hundreds of billions of unpaid loans by deadbeat borrowers and let taxpayers pick up the tab. It was never clear why the universities that charge exorbitant tuitions — some now exceed $75,000 a year — shouldn’t bear the program’s cost, but that’s another story.
Those of us who watched these events unfold predicted that one result of this policy would be that many college graduates would stop paying back their loans. Guess what.
Like clockwork, this Bloomberg headline told the story: “Student loans drive U.S. delinquency rate to highest since 2020.”
Gee, who, except a bunch of head-in-the-sand politicians in Washington, would have ever thought that forgiving as many people from paying their student loans as possible would increase future nonpayments?
Well, the Biden administration, for one. Now that the Department of Education is honestly reporting the data, serious delinquency rates are more than 10 times what the Biden Department of Education said they were.
There is an old saying in physics and economics: Every action in the universe has a reaction. How many students in the future will pay back student loans when the next forgiveness program is right around the corner? So, people who did the right thing and paid back their debts now have to pay more for those who refused to pay back the money they owed.
In Washington, we love to reward vice and punish virtue.
As we said many times last year, student loan defaults will remain sky high for many years as deadbeat borrowers wait for the next student loan amnesty program.
Fortunately, the House of Representatives’ “big, beautiful” tax bill has caps of $50,000 on student loans for undergraduate students and $100,000 for graduate students. This cap should help slow the stampede of higher tuition prices, which have grown at two to three times the overall inflation rate over the past 30 years. The availability of cheap student loans fueled this surge in tuition prices. The Wall Street Journal calls this move “The End of the Free College Lunch.”
The bad news is that we should anticipate bigger piles of student loans at taxpayers’ doors in the coming years. The good news is that this scam has reminded us that incentives matter in life. This episode brought to light the financial foolishness of debt forgiveness programs, so hopefully, we will never do this again.
Except that politicians have very short memories.
• Stephen Moore is a co-founder of Unleash Prosperity and a former senior economic adviser to President Trump. His most recent book is “The Trump Economic Miracle.”
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