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College debt forgiveness alienates Hispanics and working class from Democratic Party

WSJ: "Biden is dumping on his own inflation message, dividing his party, and insulting any American who has ever worked, saved or paid a bill".

University of Georgetown / Mathieu Thouvenin (Flickr).

University of Georgetown / Mathieu Thouvenin (Flickr).

Published by
José Carlos Rodríguez

President Biden's plan to forgive a substantial portion of college student debt has received several criticisms. Some of them refer to its enormous cost or the negative effect it could have on inflation. Another part of the criticism, especially important at this time of year, is the effect it could have on the November elections.

High risk, low benefit

Kimberly A. Strassel, Wall Street Journal analyst, considers that "it is hard to imagine a program that involves greater political risk for such a small political gain. that “It would be hard to fashion a program that carries more political risk for less political reward”, because “Mr. Biden is dumping on his own inflation message, dividing his party, and insulting any American who has ever worked, saved or paid a bill."

Or, as Sean Collins notes in Sp!ked,

Beyond the financial burden it imposes, Biden’s cancellation of student debt sends a terrible message to society. Cancelling debt for a select group will stir anger and resentment, as many will feel they have been played for suckers.

Hispanics

Democratic analyst Ruy Teixeira, in an article written in The Wall Street Journal, believes that the decline in Hispanic support for the Democratic Party is driven "by working-class, non-college-educated voters, who make up the vast majority of the Hispanic population. The benefit of the measure is not for them, but the cost is, since they pay taxes like everyone else."

Abraham Enríquez, founder of the Bienvenido movement, said in statements given to Fox News that: "The best thing that could have ever happened to the conservative movement to awaken younger Latinos has been the Biden administration, because they themselves have shown Latinos that they don't care about us."

He aded:

Latino voters are very sophisticated when it comes to researching policy. So as soon as the media really blasted this idea that Biden was protecting and supporting students, what it really actually did was encourage Latino families from across the country to look into how much this student loan protection program was going to cost each taxpayer. Once we now know that this program is actually going to cost taxpayers on average about $2,000, many Latino families across the country started waking up and saying, ‘Wait, this really actually doesn't help Latino communities'.

Solving the underlying problem

On the other hand, House candidate Cassy Garcia (R-Texas), said:

Mechanics and teachers and bodega workers, you know, shouldn't be bailing out Harvard Law alumi to the tune of $1 trillion over the next ten years. We should be reforming the broken student loan system, not pouring more gasoline on that fire.

On the other hand, Daniel Galarza, president of LIBRE Initiative, considered that "The government should not be in the business of transferring the financial burden of student loans to taxpayers and do nothing to address the root issue of escalating college tuition costs."

There is an overwhelming to Joe Biden's politics among Hispanics. On the other hand, Hispanics and blacks are the two demographics moving more quickly to abandon the Democratic Party. Thus, phenomena occur, such as the fact that in Miami Dade, a county with a Democratic majority, there are more Hispanics registered as Republicans than as Democrats, according to a recent report given by Breitbart News.

Degressive measure

It's not just about the cost, but who the beneficiaries are. College students generally speaking, come from families with higher incomes and more wealth than average Americans. In fact, according to the Brookings Institution, the measure is regressive, or in other words, this means a transfer of wealth from the poorest to the richest. Thus, the study states that "almost a third of all student debt corresponds to the richest 20% of households and only 8% to the poorest 20%".

He aded:

Whether measured by income or wealth, student loan borrowers are better off than other Americans, and widespread loan forgiveness is regressive. Some argue that loan forgiveness isn’t regressive when measured by financial wealth. But that’s because such measures exclude the very asset the person borrowed to buy—an education that increases lifetime earnings. That’s like assessing a homeowner’s wealth by counting their mortgage balance but not the value of their home.

And the same is true of the division between rural and urban America. The vast majority of university students live in cities, because that is where the universities are located.

Public spending and inflation

The measure costs at least $230 billion, according to the Committee for a Responsible Federal Budget. And that's without taking into account debt forgiveness for those who received a Pell Grant. But the cost could be much higher. The Penn Wharton-University of Pennsylvania Budget Model estimates that the final cost over a decade will be $980 billion. In other words, almost dollars.

The Obama Administration's chief economist is not at all clear: "Pouring roughly a half trillion dollars of gasoline on the inflationary fire that is already burning is plain reckless. Doing it while going well beyond one campaign promise ($10K of student loan relief) and breaking another (if all proposals are paid for) is even worse."

Widespread price increases are a major concern for Americans, and 59% of Americans believe the measure will worsen inflation.

Conflict between current and future university students

The measure benefits 13% of the population. Those who are more directly affected by a political measure are more likely to vote for that measure than other citizens who are also affected, but less so: mainly taxpayers.

Concentrate the benefits and dilute the costs, that is the recipe of politicians to win votes and not to notice the cost they impose on society. But reality does not always respond so simply to this scheme.

According to several analysts, this measure will increase the cost of university tuition. M.J. McManus, for example, notes:

The announcement to cancel debt is comparable to the mortgage schemes of Clinton, as it will change the behavior of the colleges.  They had to be slightly careful in terms of college tuition fees, as they needed to make sure their prospective students could actually get a loan.  Now that the government has announced student debts will be cancelled, the colleges will be incentivized to increase their fees.  After all, now the government will come to the rescue of students who owe the college.  Much like the banks being confident that the government would bail them out over mortgages to credit-risky customers, colleges are confident that the government will bail them out for the costs of tuition racked up by students.  So why not rack the fees up some more?

And that's not the end of it, because some of the students will not benefit as much. The Tax Foundation notes that as many as 13 states may tax students for the benefits they get from having their debt forgiven. According to Jared Walczak, those 13 states would have to adopt legislative changes to prevent that from happening.

Thus, students who benefit fully from the debt forgiveness ($10,000) will have to pay $1,100 in taxes in Hawaii. Likewise, they would pay $985 in Minnesota, $700 in South Carolina and $685 in New York.

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