Even CBO says all the savings are five years out. Sure they are.
by The Wall Street Journal Editorial Board, August 3, 2022
Progressives have demanded that President Biden cancel student debt since before he set foot in the White House. But now many seem to want him to hold off. Could they be worried that going ahead would jeopardize West Virginia Sen. Joe Manchin’s support for a budget reconciliation deal?
Last Thursday—the day after Mr. Manchin announced his agreement with Senate Majority Leader Chuck Schumer—107 Democratic Members of Congress wrote a letter to Mr. Biden urging him to extend the pandemic pause on student loan payments and interest accrual past Aug. 31 when it is currently set to end. For how long, they don’t say.
Interestingly, many of the signatories such as Senators Elizabeth Warren, Bernie Sanders and Mr. Schumer have complained that the forbearance extensions are insufficient and demanded debt cancellation. The White House earlier this summer indicated it may discharge $10,000 per borrower, and that an announcement would come before Aug. 31.
Doing so would cost the government $373 billion, according to a Brookings Institution estimate, and wipe out the $300 billion in putative budget savings from the Schumer-Manchin deal. There goes all of the supposed deficit reduction that Mr. Manchin negotiated in return for a climate spending blowout.
It’s much worse than that because on Wednesday the Congressional Budget Office said that in the first four years through 2026 Schumer-Manchin will increase the deficit by $22.2 billion. Over 10 years it would reduce the deficit by a mere $101.5 billion.
Those savings in the “out years,” as Congress likes to call the far end of the CBO budget window, are almost surely fictitious. It’s worth recalling how Democrats claimed in 2010 that budget savings from taking over the student loan market would be a money-maker for the feds and help pay for ObamaCare.
A new Government Accountability Office report finds that the $114 billion in savings the Education Department estimated from the direct student lending program have turned into a $197 billion loss and counting. If a bank made an error that large, executive heads would roll.
GAO attributes $102 billion of the discrepancy to pandemic forbearance. But another driver is repayment plans created by ObamaCare that let borrowers cap their payments at 10% of their monthly discretionary income and discharge remaining debt after 10 to 20 years. Many more borrowers have enrolled in these plans than initially forecast, partly because Barack Obama expanded them by fiat to millions of older borrowers.
Borrowers who have enrolled in these plans also borrow more and earn less than those who don’t. That’s at least partly owing to economic incentives, which CBO didn’t consider when it scored Democrats’ purported student loan reforms as a budget saver.
The student loan fiasco is a lesson to Americans and Mr. Manchin as Democratic leaders try to use government financial engineering to portray their prodigality as frugality. Savings from the corporate minimum book income tax, Medicare drug price controls and $80 billion for the Internal Revenue Service are part illusory as they will change economic incentives in ways budget scorers don’t expect.
After progressives get their tax-and-spending bill passed, their demands that President Biden cancel student loans will no doubt increase in volume again. He’ll surrender if he thinks it will stoke turnout among young people in November. Then Mr. Manchin will look as much like a budget chump as Republicans did for passing the chip spending bill.