Calculations are preliminary, but Marc Goldwein of the Committee for a Responsible Federal Budget (crfb), a think-tank, reckons Mr Biden’s pen stroke will cost between $400bn and $600bn. Having just dubbed its recently enacted climate-change and tax plan the Inflation Reduction Act—because it would reduce net federal expenditures by $300bn over the next decade—the White House might as well call this effort the Inflation Acceleration Action. Whereas most pandemic-relief programmes lapsed months ago, everyone holding student loans, rich or poor, has not had to make payments since March 2020. That has cost the federal government an estimated $60bn a year, making it twice as expensive as the mortgage-interest deduction afforded to homeowners (which now costs $30bn annually).
The analogy to the mortgage-interest deduction is apt in another way. It is hardly progressive. Owners of houses have higher incomes and wealth. Those with college and graduate degrees may start their working careers in greater debt, but command significantly higher wages later in life. According to the Bureau of Labour Statistics, the wage premium for a worker with some college education relative to one with just a high-school diploma is 11%; for a completed bachelor’s degree it is 65%; for a professional degree it is 138%.
When researchers at the Penn Wharton Budget Model, an academic costing outfit, evaluated the impact of a blanket forgiveness of $10,000 (even with a qualifying income cap of $125,000), they found that 69% of benefits accrued to those in the top 60% of the income distribution. The extra boost to Pell-grant recipients, which was a surprise, will make the move a bit less regressive. But the final verdict is unlikely to be a coup for the proletariat.
