#137 Student Loan Forgiveness

the christian economist dave arnott

#137 Student Loan Forgiveness

Student loan forgiveness decreases the incentive to work: it is regressive.  It makes the Federal Government the owner of the education of 40 Million Americans.  What will the government expect in return?


Christians tend to believe that only God can forgive sin.  But increasingly, it’s looking like government officials think they can.  An article in the WSJ this week titled, “Biden’s Half-Trillion-Dollar Student-Loan Forgiveness Coup,” explains how student debt will be forgiven for some 40 million borrowers. The government will cancel $10,000 for borrowers making less than $125,000 a year and $20,000 for students who received Pell grants. 


I analyzed the student debt problem almost two years ago in podcast #57 titled Canceling Student Debt.  I seldom write about the same subject twice, but this new development demands another analysis by the Christian Economist. 

Policies that Promote Production

Think about a person with student loans, making $120,000 a year who is offered a raise to $130,000.  She would turn it down, to keep her salary below the $125,000, so she could get the student debt forgiveness.  

As I explain in podcast #27 there is only one thing that separates rich from poor nations: Policies that promote production.  As we’ve seen in this example, student debt forgiveness is a policy that encourages sloth, not production. 

Oh, another part of the announcement that didn’t get as much attention is that President Biden is cutting undergrad payments to a mere 5% of discretionary income.  So that means student debt holders are further encouraged to under-produce.  If you keep your income low, it decreases your loan payment.  That’s a formula for making the country poorer.   

There is no Free Lunch

Nina Turner’s view of canceling student debt is as follows:  “FYI—Student debt cancelation isn’t paid for by the taxpayers, the federal government is the lender.”  Wow.  That level of ignorance is just frightening.  I unpack this idea in more detail in podcast #79 titled, There is no Free Manna.

The government has no money!!!  This is stealing, which is a violation of the eighth commandment.  When Sergiy Saydometov and I wrote Biblical Economic Policy, we found ten Biblical Commandments of Economics, and “Don’t Steal,” is one of them. 

Let’s check our definition here:  “Taking another person’s property without permission or legal right.”  Yes, President Biden’s decision to move the debt from one person to another person will require stealing the second person’s money to pay for it.  I repeat: The government has no money.  

Think about this with me: As government subsidies increase, will the price charged by the supplier increase or decrease?  Government subsidies PUSH the supplier price higher.  So we can fully expect tuition rates to increase as a result of the student debt forgiveness, just as they increased when government provided the subsidy.  

The Wall Street Journal editorial board explained it this way, “Like other Great Society programs, federal student loans and grants were initially aimed at helping low-income Americans. They have since become another all-you-can-eat entitlement. Its costs grow on autopilot as lawmakers boost subsidies in the name of making higher education more affordable, but in reality doing the opposite.”

Oh, another example outside education.  Just last week, the Biden administration authored the Inflation Reduction Act, which added a $7,500 subsidy for electric vehicles.  General Motors and Ford have already hiked the price of their EV’s by almost that exact figure.    


Patrick Garry, writing in his book, The False Promise of Big Government, tells us the foundational argument underlying big government is a myth.  “Big government does not help the poor, the working class, and the middle class, even though those groups provide the justification for big government.  In fact, big government often hurts the supposed beneficiaries of government largesse.  Those who gain the most from big government are the elite and the powerful.”

The loan handout is a thumb in the eye to every American who went to trade school, got an apprenticeship, took out private loans to start a small business, or simply went to work—and now must not only grind out a living and keep up with inflation but cover the poor financial decisions of the college elite.

It’s a taxpayer subsidy of the most affluent class of American citizens, that is: Those with college degrees.  The sub-head from the previously quoted WSJ article reads, The President’s student-loan write-off is an abuse of power that favors college grads at the expense of plumbers and FedEx drivers.  

This is typical Socialist dogma.  President Obama’s declaration, “You didn’t build that,” is now aimed at people, like my daughter, who worked hard to pay off her student loan, and now must pay off the student loan of those who didn’t.  You see, this is how Socialists think: It’s all luck, human behavior does not produce success.  They’ve never read one of the classics of Economics, titled Human Action, by Ludwig Von Mises.  His point is consistent with the Biblical narrative: That human behavior determines success or failure.  The Jews believe success is based on alignment with the Ten Commandments.  Christians believe it’s alignment with God’s design for our lives.  Since Socialism has no Biblical basis, the ideas are based on humanist ideas that everyone performs the same.  That’s why they favor these silly policies that incentivize decreased production on both ends of the spectrum: Winners are discouraged from increasing their performance, because the government just takes it away, and losers are discouraged from trying, because the government is going to bail them out.   

Then there’s inflation, which hurts the poor more than the rich. “Pouring roughly half [a] trillion dollars of gasoline on the inflationary fire that is already burning is reckless,” Jason Furman, the Obama administration’s top economist, tweeted.

The student loan forgiveness is estimated to cost up to $500 billion.  If you add the $430 billion from last week’s Inflation Reduction Act, you’re talking about increasing the debt by about a $trillion……in one month.  Okay, this is just absolutely unsustainable.  With all the administration’s concern for environmental sustainability, they seem to have no understanding of economic sustainability.  

Let your Yes be Yes……..

Here’s something I have NOT seen since the announcement of student loan forgiveness.  Have you seen a campaign encouraging debtors to go ahead and pay off their loans anyway?  I haven’t either.  Have we really become that much of a cynical society, that NO ONE is going to step up and say, “I don’t care what the government says.  I am going to keep my promise.”  No one?  Me neither.  Do you suppose your pastor will say that from the pulpit this week?

This is just more evidence of the corrosive effect of the government on society.  No one feels any compulsion to do what’s right.  You DO realize that the folks who received these loans, signed a piece of paper, saying they would pay this money back?  40 million of them.  Not one is going to keep their word.  You see the morality of this?  It foments the idea that “I only have to do what the government says I have to do.”  There is no personal responsibility, only public commands.  That’s frightening.    

Who owns education?  If education is for the individual, then the individual should pay for it.  But if the government pays for it, then they own it.  Is it correct for the Government to own your education?  That would mean that you owe the government for your education.  You don’t own it.  

 Proverbs 22:7: “The rich rules over the poor, and the borrower is slave of the lender.”  In another podcast, I might unpack that more carefully.  But for today, let’s consider the effect of the individual owing the government.  How might that “ruling over” be exercised?  We had to wait only two days after President Biden announced the new plan.  Some of his political opponents disagreed with canceling student debt.  That’s to be expected.  His response was to try to shame them for taking part in another payment plan during the Covid pandemic.  So we have our evidence: Citizens whose student loans were canceled stand the threat of being publicly shamed by the government.  Oh, and don’t tell me it won’t happen.  It happened this week. 

Constitutional ability to forgive loans?

I mentioned in the opening line that only God can forgive sin.  Here’s another divine question, “Where did President Biden get the authority to cancel student debt?  The ego required to make this kind of a sweeping declaration is just stunning.  Even Mr. Biden said in December 2020 it was “pretty questionable” whether he had the authority to cancel student debt. 


Here’s another part of the announcement that didn’t get much attention, “The government will also cover unpaid monthly interest for borrowers so their balances won’t grow even if they aren’t paying a penny. This will mask the cost to taxpayers of the Administration’s rolling loan write-off. Student-loan debt won’t appear to swell even as it does.” That’s not in line with GAAP, Generally Accepted Accounting Principles.  If a for-profit firm used that accounting trick, they would be sued by their stockholders, and barred by the Securities and Exchange Commission. 

Julius Caesar assumed power in 46 BC, only for a short time period, only because of an emergency.  He just never gave the power back.  Same thing here.  The administration attempted to squeeze this decision under the Covid emergency program.  But Covid has been declared finished by the Federal Government.  

Milton Friedman said that most economic myths grow out of an acceptance of the zero-sum myth.  But he was an atheist and I’m a Christian, so my version reads, “Most economic myths grow out of a denial of the fallen nature.  Here’s an example of that denial.  A White House fact sheet hilariously says that colleges will “have an obligation to keep prices reasonable and ensure borrowers get value for their investments, not debt they cannot afford.” Why?  If colleges were managed by angels, this would be true.  They’re not.  The government isn’t either.  All have sinned, and fallen short of the glory of God, even college administrators.  According to economic understanding, they will act in their own interest.

I warned about government control of education in Podcast #74 titled the Wall of Separation Between Education & State  .  Democratic President Harry Truman warned us against it also, when he said, “Without a strong educational system – free of government control – democracy is crippled.  Knowledge is not only the key to power.  It is the citadel of human freedom.”

And folks from my generation remember the comedian George Carlin, who said, “Governments don’t want well informed, well educated people capable of critical thinking.  That is against their interests.  They want obedient workers, people who are just smart enough to run the machines and do the paperwork.  And just dumb enough to passively accept it.”  

Just as they passively accepted this loan cancellation.  What do they owe the government, and when will the leviathan make its collection?




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