Brian Riedl joins the podcast this week to help us uncover all of the details inside President Biden’s student loan forgiveness plan. We discuss what the plan actually does, what the costs are to you, including whether or not this will make inflation worse, and whether it’s even constitutional.
Brian Riedl is a senior fellow at the Manhattan Institute, focusing on budget, tax, and economic policy. Previously, he worked for six years as chief economist to Senator Rob Portman (R-OH) and as staff director of the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth. He also served as a director of budget and spending policy for Marco Rubio’s presidential campaign and was the lead architect of the ten-year deficit-reduction plan for Mitt Romney’s presidential campaign. Riedl’s writing and research have been featured in the New York Times, Wall Street Journal, Washington Post, Los Angeles Times, and National Review, among other publications; he is a frequent guest on national TV networks.
TRANSCRIPT
Beverly Hallberg:
Welcome to She Thinks, a podcast where you’re allowed to think for yourself. I’m your host, Beverly Hallberg. On today’s episode, we get into the nitty-gritty of President Biden’s student loan forgiveness plan. We’ll discuss what it actually does, what the costs are to you, including whether or not this will make inflation worse, and if it’s even constitutional. Joining us to break it all down is Brian Riedl. Brian Riedl is a senior fellow at the Manhattan Institute, focusing on budget, tax and economic policy. Previously, he worked as chief economist to Senator Rob Portman and as staff director of the Senate Finance Subcommittee on fiscal Responsibility and Economic Growth.
He also served as a director of budget and spending policy for Marco Rubio’s presidential campaign and was the lead architect of the 10-year deficit reduction plan for Mitt Romney’s presidential campaign. His writing and research has been featured in many publications, including the New York Times and the Wall Street Journal. He’s also a frequent guest on national TV network. So you’re probably already very familiar with him, but we are delighted to have him on She Thinks. Brian, thank you so much for being here.
Brian Riedl:
Thank you for having me, Beverly. I appreciate it.
Beverly Hallberg:
This is an exciting topic, a daunting topic in many ways. Many people have lots of opinions on Biden’s student loan forgiveness plan, but I thought this would be a good place to just start with some of the basics. I thought we would start with what exactly does this do. There’s a lot of information about it, but if you had to summarize what we should know, why this is important, how do you explain that?
Brian Riedl:
What the president did is by executive order, that is to say, without even going through Congress, and we’ll get into whether that’s allowed. By executive order, the president required the Department of Education to forgive between $10,000 and $20,000 of student loan debt per borrower who is currently earning up to $125,000. $10,000 gets forgiven if you did not have Pell Grants. $20,000 in loans gets forgiven if you did have Pell Grants. That’s a way to provide extra benefit to those who qualify for Pell Grants as generally being lower income. So overall, a couple that is earning up to $250,000 a year could collect up to $40,000 in loan forgiveness. Now, this is not future forgiveness. This is forgiveness for past borrowing. So those who are borrowing money now today will not be immediately eligible for it to be forgiven.
Beverly Hallberg:
So as far as this executive order goes, what was the president able to do this underneath? I’ve heard reports that this was because of COVID and he was able to finagle this to apply to COVID. Is that correct?
Brian Riedl:
There are different legal arguments given. Some of it actually goes back to the Heroes Act after 9/11, which gives the government some ability in an extreme national catastrophe to forgive certain kinds of debt. Yes, you mentioned COVID, they’re essentially calling COVID an extreme national catastrophe like 9/11, and using it to provide broad based loan forgiveness, rather than say narrow forgiveness to an individual whose family died in 9/11. They’re doing it broadly nationwide using a pandemic that, for the all intents and purposes, wound down a year ago. This is probably not constitutional. It’s probably not legal, but we’ll see.
Beverly Hallberg:
Yeah. I find found it interesting that a lot of people who were in support of this, you saw this all on Twitter, making the comparisons of the student loan forgiveness to the PPP loan. So the forgiveness for businesses who were forced to shut down during COVID, I personally am one who got the first payout for my business during that time, because we were forced to shut down. I personally was offended by that because it’s, in my opinion, a completely different scenario to be forced to stop working during some national or international catastrophe versus you deciding to take out a loan and then later on somebody saying, “Don’t worry about it. We’re going to forgive that for you.” Don’t you see this as two different things?
Brian Riedl:
Absolutely. What happened with PPP was essentially, as you say, the government shut down your business and then gives you money to make sure your employees can still be paid. It was essentially a grant program to keep paying employee wages for businesses that were shut down. They called it a loan program just to make sure that you would be qualified and so that they could make sure that if you actually don’t have to pay the money back, you have to pass certain qualifications. So they technically called it a loan program.
Ultimately, it was a grant program to reimburse salaries of jobs that had been shut down. That is a completely different situation. Versus somebody taking out a loan voluntarily to go to college. A loan that’s going to raise your lifetime income by well over a million dollars and then simply having to pay back your loan as part of your lifetime income that you’re earning. Very different from the government reimbursing you for shutting down your business.
Beverly Hallberg:
So I want to go back to what you were saying about how much money you can make and still receive loan forgiveness. So you said if you’re a married couple, I believe you said up to $250,000 and $125,000 a person, just want some clarification on this. Do you have to have a certain type of degree? Or could you have a women’s studies major or can you have a philosophy degree? Can it be anything you want and still get forgiveness?
Brian Riedl:
Anybody who went to college gets forgiveness. It doesn’t matter what you majored in. It doesn’t matter what your degree is. You could have a degree from Harvard Medical School. It could be one of your first years out of Harvard Medical School, so you’re only making 125,000 the first year, you’re going to get loan forgiveness, even though you’re going to make millions over your lifetime. It doesn’t matter if you have a silly degree or a degree that’s going to earn you a lot of money. It doesn’t matter if you graduated or did not graduate. If you have a student loan, you get it forgiven. As long as you are earning under $125,000 a year individually, you will qualify for 10 to $20,000.
Beverly Hallberg:
Will people have to sign up for this or is this something where people will be getting a notice in the mail that their loan has been forgiven? What is the process like?
Brian Riedl:
That’s still being determined by the Department of Education. It looks like people will receive notification from the Department of Education that you qualify. You’ll probably have to go on to the Department of Education website and verify. They’re assuming a pretty high take-up rate here. They’re going to make sure, according to the Department of Education, that it’s very simple, that people don’t fall through the cracks, but the specifics are still being determined on how it’ll be administered.
Beverly Hallberg:
But what we do know is that this money will have to come from somewhere. Nothing is free. So the question is, what does this mean for the rest of America? So let’s even consider somebody who’s making $50,000 a year in some type of trade. Their taxes are going to go up to pay for somebody’s college debt that that person decided to take out on their own and potentially they can make up to $125,000 a year. It is that person making $50,000 a year that’s going to have to pay for their loan, correct?
Brian Riedl:
Yeah, exactly. I mean, let’s just step back at who this benefits first. Two-thirds of millennials carry no student debt at all. Either they didn’t go to college, they worked their way through college or they already paid back their student loan. Older generations have even less student debt because there was less college attendance from older generations. So it’s a pretty narrow part of the population that’s actually getting this benefit. In terms of how the cost is going to be distributed, keep in mind, we already have $300 billion cost of the federal government from the moratorium in making student loan payments that began under COVID.
That’s going to be added to the national debt. If Washington is not going to collect this $900 billion to $1.3 trillion, the national debt is going to rise. That means in the short term, interest payments will rise in the federal budget by about $50 to $70 billion a year. Eventually, as the debt gets bigger, we all know how unsustainable the national debt is, at a certain point, taxes have to align with spending and the debt is going to have to be addressed. So at a certain point, taxes are going to rise.
That’s going to affect all families, waitresses, welders, people who paid back their student loans, they’re all going to have to pay the higher taxes. But that’s not all. In the short term, there’s inflation. According to Jason Furman, who was the chief economist in the Obama White House, this policy is going to hike inflation by about 0.3 percentage points. That’s about $200 per household in higher prices. So what that means is the rest of the families out there are going to be paying about $200 in higher inflation, higher prices, and they’re going to have to pay the future higher taxes.
So as you said, nothing is free. This is going to be paid for. It is a massive redistribution from the professional class, the upwardly mobile professional class with college degrees down or redistribution to them from those who didn’t go to college or who paid back their student loans.
Beverly Hallberg:
Well, I think Americans are doing the math themselves. There is a recent study by CNBC and it said that 59% of Americans are concerned that the student debt forgiveness will make inflation worse. So yes, people are seeing this. They’re concerned. Of course, this is on top of a lot of spending that the Biden administration has already done. Previous administrations have spent too much, including Republican administrations. I think when you talk about the debt and how high it is and that it’s not sustainable, I feel like we’ve heard that for so long.
How bad is the debt? Do you think we are getting to that point where we’re not going to be able to put this back in the bag, that it’s just far too bad for us to be able to climb ourselves out of it? How should we view the debt and this being added to our debt?
Brian Riedl:
Well, on top of the last couple of years, this is very daunting. Before the pandemic started, the debt was about $16 trillion, and that was the cumulative national debt that we had built up since the founding was $16 trillion. Just since the pandemic, it’s gone from $16 trillion to $25 trillion. We’re talking about the debt held by the public, $16 trillion to $25 trillion. Some of that was the pandemic, but a lot of other debt we’re getting is President Biden.
We had the $1.9 trillion American Rescue Plan, $550 billion for infrastructure, massive increase in annual discretionary appropriations, a veteran’s bill that could cost $660 billion. We’re looking at about a trillion dollars in student loans, $200 billion semiconductor bill. Overall, the debt that again was about $16 trillion a couple years ago is going to go to $45 trillion a decade from now. It’s really remarkable from $16 trillion to $45 trillion. At a certain point, coming up sooner rather than later, this is going to push up taxes because it’s completely unsustainable, especially on top of 74 million retiring baby boomers. The numbers just don’t add up.
We had been warned for decades that when the baby boomers retire, the debt was going to skyrocket. Well, the baby boomers are retiring right now. Instead of raining in this debt, we’re adding new spending. We’re already going to see the interest cost. A decade from now, CBO projects that interest is going to be 3% of GDP for the first time ever and that assumes low interest rates. We’re going to be spending more on interest than on defense. Within the next couple decades according to CBO, interest will be the most expensive program in the federal budget and will cost at least half of all your taxes. Again, that assumes low interest rates.
So it’s not that we’re going to have a crisis tomorrow or the next day, but the next couple years, when you’re running trillion dollar deficits even during peace and prosperity, at a certain point, financial markets are going to panic, interest rates are going to rise and we’re going to see some pretty ugly tax hikes until we get this under control.
Beverly Hallberg:
Well, even with that, I think a lot of Americans are concerned about the debt. The one thing that we keep hearing from the Biden administration is that a lot of the spending that he’s done, and you listed them all there, will help with deficits, that actually this benefits us and us trying to reduce our deficit. What do you say to that narrative?
Brian Riedl:
Yeah, they’re flat out lying. I mean, one thing we heard recently was that the student loan $600 billion was paid for by the pandemic spending ending. So essentially, we did a temporary huge increase in spending to deal with the pandemic, trillions of dollars in order to keep the economy afloat during the pandemic. But we were told, of course, that that was going to be temporary. It was just going to be during the pandemic. Well, now they’re saying we’re going to take the savings from the pandemic ending and put it into new spending. We’re going to put it into student loan bailouts. This is absurd.
This is the equivalent of imagine you have a $100,000 expense one year that you go into debt, and then next year you buy a $50,000 sports car and say, “Well, I don’t have a $100,000 medical expense this year so I’m going to take the savings and buy a sports car.” You are in debt to begin with and that was a one-time expense. So the arguments that President Biden is bringing down the deficit and saving money with these bills is patently absurd.
Beverly Hallberg:
Well, I want to take a brief moment to talk to you, our listeners. You may know the Independent Women’s Forum is the leading national women’s organization dedicated to enhancing people’s freedom, opportunities and wellbeing. But did you know that we are also here to bring you women and men on the go the news? You can listen to our High Noon Podcast, an intellectual download featuring conversations that make a free society possible. Here, guests like Ben Shapiro and Dave Rubin discuss the most controversial subjects of the day. Or join us for a happy hour with At The Bar where host Inez Stepman and Jennifer Braceras chat on the latest issues at the intersection of law, politics and culture. You can listen to past episodes at iwf.org or search for High Noon or At The Bar in your favorite podcast app.
Brian, I want to get to you another potential solution to maybe people struggling to pay off student loan debt. How about we lower the cost of what college and universities cost as a whole? We are talking about an industry that has seen high inflation, higher than the majority of products in this country. Why have college costs gone up so much? Why aren’t we addressing that versus just saying we’re going to forgive that massive loan that you have?
Brian Riedl:
That’s a great question, Beverly, and that’s one of the reasons the student loan bailout is so destructive. It doesn’t at all deal with the underlying problem of college costs rising and college tuition rising. We’re just throwing money at the problem. We’re throwing a band-aid on the problem. In fact, the bailout’s actually going to make the problem worse. One reason college tuition rises so quickly is because of federal student aid. Essentially, universities are going to charge as much as they can and as much as students are able to pay. So what happens is when the government increases student loans, increases Pell Grants, universities see that people have more money and they raise tuition to capture the aid.
This has been widely studied. In fact, the Federal Reserve that its own study a couple years ago where they determined that for every dollar in increased student aid from the federal government, tuition increases 60 cents in response. That’s according to the Federal Reserve. Essentially, what’s going to happen again is we’re going to get this bailout and universities are going to see that students are going to borrow more money now in anticipation of future bailouts and they’re going to raise tuition. Where’s the money going though? That’s a good question.
If universities are raising tuition so much, are they putting it into instruction? Not necessarily. We have seen an explosion in universities of essentially middle management bureaucracy and bureaucrats, and all of these new middle managers, diversity counselors, student counselors, middle managers, university administrators, massive increase in administration. There’s also been a huge increase in building on universities, even beyond really what they need. Where the money is not going as the classroom. As a matter of fact, professors are teaching fewer classes and they’re hiring adjuncts, adjunct faculty and paying them very low wages to do a lot of the teaching.
So what’s happening is, again, universities are taking advantage of all the aid. They’re raising tuition. They’re putting a lot of it in the middle management. They’re putting a lot of it into administrators. They’re not putting as much of it into faculty or instruction. There’s a lot of new building that even goes beyond what a lot of universities need. It’s a bubble that the federal government is contributing to with this aid.
Beverly Hallberg:
So let’s talk about why this happened to begin with. President Biden has said that the reason he did all of this is because it was a promise he made in the election. That is true. He did make this promise. Is this all just trying to lead up to the midterms and he’s trying to make sure there isn’t a red wave, like many people are saying is inevitable?
Brian Riedl:
This is politics. Ultimately, the recipients of this bailout are urban, upwardly mobile professionals and college graduates. This is primarily a Democratic constituency. There’s a lot of people in red America getting the bailout too, but it is mostly a blue America bailout. The interesting thing about this is you could say the source of this bailout is also influenced by the fact that Democratic campaigns and offices are staffed by young college graduates who have their own student loans and who pushed this issue with their bosses out of self-interest.
In fact, we heard that in the Biden White House, Biden himself, the president, was initially skeptical of a major bailout, but that his own staff, most of whom had come from the Elizabeth Warren team, made appeals based on their own student loans. That helped persuade the president. See, it’s an interesting question. Why are we bailing out student loan debt as opposed to say medical debt? Medical debt probably would help more people at the lower end of the spectrum. Why aren’t we bailing out credit cards, home loans, auto loans?
What’s so special about student loans, especially when it’s the wealthiest people and the college graduates who hold loans? Why do they get the bailout as opposed to other kinds of debt? I think if you simply look at the politics of the Democratic constituency, and in fact, the staff of Democratic elected officials, you see that there’s a lot of Democratic self-interest here.
Beverly Hallberg:
It makes you wonder whether or not Democrats are for the working class anymore. It’s also makes me wonder too if the reason why President Biden didn’t mention this in his nationwide speech last week when he talked about the soul of the nation. He didn’t mention the student loan debt forgiveness plan. Do you think he’s running from it because it is polling poorly. We have heard some Democrats explain some skepticism in reference to this.
Brian Riedl:
It is polling poorly. I think overall their hope is that a lot of the Democratic base that was too dispirited to vote will vote. That may very well be the case that this increases turnout among younger Democratic voters who may have been disappointed with the president. But there’s a good chance this is going to cost them votes among swing voters. As a matter of fact, look no further than a lot of the Democrats running in purple states. Michael Bennett, the more moderate senator from Colorado openly came out against the bailout in his tight reelection race and said the president should have done something much smaller and much targeted to lower incomes.
Tim Ryan who’s running for the Senate in Ohio, another purple state, probably trending even more red, has come out against the bailout saying it rewards college graduates too much and burdens the working class. The fact that even Democrats who need the vote of swing voters are running against this is all the evidence you need that it’s not polling well. Don’t take my word for it. Take the word of the Democrats who actually need votes from the middle. This is not good politics for them. As a matter of fact, this might mobilize a lot more conservative voters who had been kind of on their heels last couple months as the Democrats picked up some momentum.
Beverly Hallberg:
Well, let’s round out this whole conversation by talking about the legal side of this. So for example, Arizona’s Republican attorney general said that he and others were looking to bring a legal challenge to the president’s plan. What are we seeing from attorney generals? What are the potential legal implications? Do you think it’s possible that this will never see the light of day because people will see this as unconstitutional and there will be too much pushback?
Brian Riedl:
I could say that this is clearly unconstitutional because the Constitution requires that no money may be spent from the Treasury unless it is first appropriated by Congress. Congress did not appropriate this money. The president is trying to spend $600 billion by himself through executive order without going through Congress. Again, they’re relying on the Heroes Act and claiming that there’s a loophole in a national emergency. That’s really a big stretch here. The question that we’re facing though, even among people who generally agree in the legal profession that it’s unconstitutional is who has standing to sue. You have to be directly affected and harmed and proved personal harm to sue.
Now, personally, my non-lawyer opinion is that anybody should be able to sue because we’re all going to be suffering the inflation, the higher taxes, the higher tuition. We’re all going to be suffering that effect. But the legal scholars tell us that you need a more narrow definition of legal standing to sue. Right now, the attorneys general are huddling and figuring out who would have the legal standing to file a lawsuit. They’re also working with Senator Ted Cruz on this issue.
Their view is that possibly student loan processors may be close enough to the issue that they have legal standing to sue. Once they determine this, once they find out who has the legal standing to show direct harm, you get it into the legal system. Once it’s into the legal system, the impression that I get is that it would be at least six to three that the court would strike this down as unconstitutional. Some scholars have suggested it could even be more than six to three that this is blatantly unconstitutional. It just comes down to who has standing to bring it to court.
Beverly Hallberg:
Well, we’ll have to wait and see. Final question for you before you head off. So I know a lot of Americans like myself, we see what’s going on. We follow Twitter, we watch the news and we get frustrated when we see what’s happening economically. What is it like as an economist hearing what’s said, hearing the lies, seeing the debt go up? It’s got to be so frustrating for you.
Brian Riedl:
It’s intensely frustrating because so much of what we see is just flat out wrong. The president puts out these statements about all the jobs he’s created. He didn’t create jobs. The pandemic simply ended. The jobs that the government had shut down were simply reopened. The president taking credit for deficit reduction when the cumulative effect of the legislation he has signed has increased the debt by trillions. It’s a tough economy right now. Inflation is rising. Frankly, the president’s policies are making inflation significantly worse. We face the risk of a recession. It’s really tough as an economist to see the White House not only not doing anything about inflation, but actually making it worse, making the deficit worse and putting these irresponsible policies out. But all we can do is fight it with facts and information and that’s what I try to provide.
Beverly Hallberg:
You do that so well and you talk about complex issues in such a simplistic way for the laymen like us to understand. So we so appreciate your work and we appreciate you joining us on She Thinks today. Brian Reidl, senior fellow at the Manhattan Institute, a pleasure to have you on today.
Brian Riedl:
Thank you, Beverly.
Beverly Hallberg:
Before you go, we want to let you know that Independent Women’s Forum relies on the generosity of supporters like you. An investment in IWF fuels our efforts to enhance freedom, opportunity and wellbeing for all Americans. So please consider making a small donation to IWF by visiting iwf.org/donate. That’s iwf.org/donate. Last, if you enjoy this episode of She Thinks, do leave us a rating or a review, it does help. We’d love it if you shared this episode so your friends can know where they can find more She Thinks. From all of us here at Independent Women’s Forum, thanks for watching. Brian, that was great. Thank you so much.
