Analysis | Biden’s big dreams are reaching the limits of “imperfect” tools

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WASHINGTON — President Joe Biden’s move last week to eliminate student loan debt for tens of millions of borrowers and reduce future loan payments for millions more comes with a major catch, economists warn: It does almost nothing to stem the skyrocketing cost of… Colleges limit and could very well be fuel for even faster tuition increases in the future.

This disadvantage is a direct result of Biden’s decision to use executive action to pay off some or all student debt for those earning less than $125,000 a year after he failed to push debt relief through Congress. Experts warn that schools could easily play on the new structure Biden has created for higher education funding, by ratcheting up prices and encouraging students to borrow with the expectation that they will never be paid in full have to.

It’s the latest example, alongside energy and healthcare, of Washington Democrats attempting to tackle the country’s most pressing economic challenges by practicing the art of the possible — and ending up with imperfect solutions.

There are practical political limits to what Biden and his party can achieve in Washington.

The Democrats have razor-thin margins in the House and Senate. Its ranks include liberals, who favor a major overhaul of sectors like energy and education, and centrists, who favor more modest changes, if any. Republicans have resisted almost all of Biden’s attempts, along with those of President Barack Obama, who began more than a decade ago to extend the government’s reach into the economy. The conservative majority of the Supreme Court has sought to stem what it sees as executive overreach on issues like climate change.

As a result, much of the structure of important markets such as college and health insurance remains intact. Biden has achieved victories in the areas of climate, healthcare and now — pending possible legal challenges — student debt, often by expanding the boundaries of executive power. Even progressives, who are urging him to do more, agree that he cannot impose European-style government control over higher education or the health system without the help of Congress.

The President dropped entire sections of his political agenda as he searched for compromises. He has been left to use what appears to be the most powerful tool available to Democrats in a polarized nation — the purchasing power of the federal government — to address the challenges of rising temperatures and tighter access to higher education and health care.

Arindrajit Dube, an economist at the University of Massachusetts Amherst who consulted with Biden’s advisors on the student loan issue and supported his announcement last week, said in an interview that the debt relief plans are necessarily incomplete because Biden’s executive power is only so could reach far into the higher education system.

“This is an imperfect tool,” Dube said, “but it is one available to the President, and he uses it.”

However, with the policies pursued by Biden and his party doing comparatively little to affect the prices consumers pay in some parts of these markets, many pundits risk increasing the cost to taxpayers and, in some cases, hurting some consumers who they are trying to help.

“They haven’t done anything that changes the structure of education,” said R. Glenn Hubbard, a Columbia University economist who served as chairman of the White House Economic Advisory Council under President George W. Bush, of Biden’s student loan movements. “All you’re going to do is raise the price.”

Hubbard said Biden’s team has made similar missteps on energy, healthcare, climate and more. “I understand politics, so I’m not making a naïve comment here,” Hubbard said. “But subsidy repair won’t get you there — or it’ll get you such market distortions, you should really be concerned.”

Biden said Wednesday his administration would forgive up to $10,000 in student debt for individual borrowers earning less than $125,000 a year and an additional $10,000 for households earning up to $250,000 -Dollars to provide relief to people from low-income families who receive Pell Grants in school.

He also announced plans to cap how much lower-income students have to pay on their student loans each month, including promising people who stick to a monthly payment schedule won’t pay additional interest on their balances.

Biden said the moves would reopen the path to middle-class life for millions of Americans struggling to make loan payments.

Critics of the moves — and even some supporters — say Biden has effectively given schools an invitation to raise their prices even faster than before, by only targeting what students are paying and not what colleges are charging. Average tuition and fees at public, nonprofit colleges and universities increased 10%, adjusted for inflation, from 2010 to 2020, the Department of Education reports. The increase in private schools was almost twice as high.

Schools that already charge high rates, even for low-income students, could raise them further, encouraging students to take out more loans with the idea that the government will eventually forgive them, said Melissa Kearney, an economist at the University of Maryland , directed by the Aspen Economic Strategy Group.

Biden’s plans, she said, will also “perpetuate the problem of students attending schools and programs that charge high fees, even when student outcomes are lousy.”

“If people know their loans will be made, they will be less cautious about signing up for these types of low-return, high-risk programs,” she said.

Kearney said Congress could help dampen tuition increases by lowering how much students can borrow on federal loans, making it harder for schools and programs to charge increased rates.

Beth Akers, a senior fellow at the conservative American Enterprise Institute in Washington, said Congress should pass legislation tying schools’ eligibility for grants and loans to their graduates’ job outcomes — a move colleges would certainly fight against.

“Schools that send their graduates or non-graduates into the labor market without being able to earn wages that justify their costs should be excluded from the system,” she said.

Liberal writer Matt Bruenig, in an article for think tank People’s Policy Project, proposed a series of direct federal price controls for higher education, writing that Biden’s new plans to reduce payments for lower-income borrowers in the coming years are encouraging for students become to decide. the maximum possible debt.”

In such a system, Bruenig wrote, “we may also need government to play a much larger role in setting college prices.”

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