The Great Student Loan Income Transfer


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The great student loan scam continues, mostly out of the public eye. But sometimes horrible financial facts emerge as they did this week during a Senate hearing on banking.

The Cares Act allowed student loan borrowers to defer payments without accruing interest until last September. Presidents Trump and Biden both used emergency executive power to expand tolerance. Now borrowers no longer have to make payments until at least October, and in the meantime their balances will not increase.

In the fourth quarter of fiscal 2020, more than half of the $ 1.6 trillion federal student loan balance was forborne. Twenty-two million borrowers were not making payments, saving an average of $ 400 per month. Most Americans with a college education did not need the help because they suffered much less from the pandemic than low-income workers without a college degree.

According to press reports, some borrowers have used the money saved from forbearance to buy homes, pay off higher interest debts and day trade stocks. But there is no such thing as free debt deferral. Taxpayers pay for it. Senator Elizabeth Warren noted during the hearing that the Department of Education “is currently writing off about $ 5 billion in debt per month in interest.”

Mull on that one. Eighteen months of deferral of student loans could cost taxpayers $ 90 billion, without any default or debt being paid. The reason is that the federal government’s student loan portfolio is heavily indebted. The Treasury borrows at extremely low rates, then lends the money to students at somewhat higher rates. But when borrowers don’t make payments or earn interest on their federal loans, the treasury loses money.

Ms. Warren doesn’t worry about taxpayers or rubes who have responsibly paid off their student loans, even during the pandemic. She wants President Biden to write off $ 50,000 in student debt per borrower by executive order. His plan would disproportionately benefit millennials with graduate degrees. Thus the pandemic has become a pretext for a massive transfer of income to privileged Americans.

Wonder Land: Over 100 business leaders did a laptop Davos to vilify Republicans and validate their progressive credentials. Image: Getty Images / iStock Photo

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Published in the print edition of April 17, 2021.


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