COVID Invoked for More Redistribution From Workers to Doctors and Lawyers

August 26, 2022 Updated: August 26, 2022

Commentary

And it’s gone!

We are referring to the $300 billion of taxpayer funds that will go down the tubes at the stroke of Joe Biden’s pen upon his impending cancellation of $10,000 of student debt. And in the case of married couples, that covers households with incomes up to $250,000!

The legal claim to justify this action as invoked by the Department of Education: it is “a program of categorical debt cancellation directed at addressing the financial harms caused by the COVID-19 pandemic.”

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Only 37 percent of Americans have a 4-year college degree, only 13 percent have graduate degrees, and just 3 percent have a Ph.D. or similar professional degree. Yet a full 56 percent of student loan debt is held by people who went to grad school and 20 percent is owed by the tiny 3 percent sliver with Ph.Ds.

So Biden’s debt cancellation plan would amount to taking money from a plumber to pay the debt of a lawyer. Here’s the breakdown by degree status of who will get a $10,000 gift from Joe:

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Not surprisingly, student debt outstanding and share of debt repayments (prior to the COVID moratorium, which is still in effect and likely to be extended through year end by Biden) is highly skewed to the upper end of the income ladder.

Thus, the highest-income 40 percent of households (those with incomes above $74,000) owe almost 60 percent of the outstanding education debt and make almost 75 percent of the payments. By contrast, the lowest-income 40 percent of households hold just under 20 percent of the outstanding debt and make only 10 percent of the payments.

Nor do even these figures capture the full difference in payment burdens. That’s because a growing share of borrowers participate in income-driven repayment (IDR) plans, which do not require any payments from those whose incomes are too low and limit payments to an affordable share of income for others.

As a result, out-of-pocket loan payments (pre-moratorium) are extremely concentrated among high-income households: Fully, 73 percent of payments in 2019 were accounted for by the top 40 percent of households.

On the other hand, few low-income households enrolled in IDR are required to make any payments at all, explaining why the bottom 40 percent of student loan households accounted for just 10 percent of payments in 2019.

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Approximately 43 million student loan borrowers in the United States owe a collective nearly $1.75 trillion in federal and private student loan debt as of August 2022, according to the Federal Reserve Bank of St. Louis. But when you look at the average amounts owed, the case is crystal clear: Student debt is overwhelmingly an investment in professional credentialization that should never have been an obligation of the taxpayers in the first place.

And now between subsidized interest rates, the COVID moratoriums, and Joe Biden’s $10,000 cancellation, it amounts to a taxpayer subsidy of the most affluent class of American citizens.

While the average U.S. household with student debt owes $58,957, according to NerdWallet’s 2021 household debt study, here is the breakdown by degree earned:

Debt type Average debt
Bachelor’s degree debt $28,950
Graduate school loan debt $71,000
Parent PLUS loan debt $28,778
Law school debt $145,500
MBA student debt $66,300
Medical school debt $201,490
Dental school debt $292,169
Pharmacy school loan debt $179,514
Nursing school student debt $19,928: Associate Degree Nursing (ADN) $23,711: Bachelor of Science in Nursing (BSN)$47,321: Master of Science in Nursing (MSN)
Veterinary school debt $183,302

So the question recurs. What’s up with this absurd plan to redistribute income to the tippy-top of the economic and social ladder?

You could answer that query with “November 8th 2022” and be done with it, but that wouldn’t actually get to the bottom of the matter.

The truth is, after $6 trillion of COVID stimmies—most of which were monetized by the Fed—there is no fiscal standards left in Washington at all. And Donald Trump and the GOP were every bit as culpable as Biden.

Indeed, Biden’s pending $300 billion student debt giveaway is a piker compared to the massive debt cancellations under the GOP’s PPP loans (payroll protection plan).

More than 11.8 million Paycheck Protection Program (PPP) loans were issued as of June 30, 2021, with 708 borrowers receiving the maximum loan amount of $10 million.

Yet of that massive outpouring of “loans,” the Small Business Administration (SBA) data shows that about 94 percent of PPP loans that were approved in 2020 had been forgiven as of December 2021!

Overall, only $28 billion of all PPP loans, which totalled upwards of $800 billion, remained unforgiven as of February 2022, a recent Bloomberg News analysis suggested. And as of April 2022, the average dollar amount forgiven was $95,700.

In short, the bipartisan duopoly is in the free stuff business in a manner that wasn’t even imaginable two decades ago. Joe Biden is just the latest politician to jump on the bandwagon—an outbreak of fiscal incontinence that has far less to do with the inherent spending propensity of democratic politicians than it does with the money-printing madness of the unelected central bankers who actually run the nation’s financial affairs.

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Originally published on David Stockman’s Corner, reposted from the Brownstone Institute

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

David Stockman is senior fellow of Brownstone Institute. His career in Washington began in 1970, when he served as a special assistant to U.S. Representative, John Anderson of Illinois. From 1972 to 1975, he was executive director of the U.S. House of Representatives Republican Conference. Stockman was elected as a Michigan Congressman in 1976 and held the position until his resignation in January 1981. He then became Director of the Office of Management and Budget under President Ronald Reagan, serving from 1981 until August 1985. After leaving government, Stockman joined Wall Street investment bank Salomon Bros. He later became one of the original partners at New York-based private equity firm, The Blackstone Group. Stockman left Blackstone in 1999 to start his own private equity fund based in Greenwich, Connecticut. He is the author of many books on politics, finance, and economics. He runs the subscription-based analytics site ContraCorner.