The Biden administration and their friends in the media are pushing the idea that it’s okay to write off student debt because the government wrote off PPP debt. This is sophistry and here is why.
The coronavirus pandemic triggered the global response to shut down large sectors of the economy, which could have led to a cascading failure of economic systems. Left unchecked, it could have led to a global economic depression that would have been several times more deadly than the virus itself.
To mitigate this potential meltdown, the Trump administration, with bilateral support from Congress, passed the CARES (Coronavirus Aid, Relief and Economic Security) Act. The CARES Act contained a number of provisions aimed at providing economic support to citizens and in particular workers. Provisions included and expansion of unemployment benefits, direct payments to low- and middle-income families, and direct funding to states and localities. The Paycheck Protection Program (PPP) was also part of the CARES Act.
The purpose of the PPP was to provide companies with funding to retain employees during the pandemic so that the unemployment insurance system would not be overwhelmed. The PPP gave companies money not to lay off employees so that those employees would continue to pay into the unemployment insurance system rather than take money out of the system.
The PPP grants were conditional on the company actually retaining the employees it promised to retain. To qualify for the subsidy, the company had to retain its employees at existing pay levels for up to 24 weeks and at least 60% of the subsidy had to go directly to payroll. During this period, interest on the “loan” was deferred. If the conditions were not met, the company would have to start repaying the loan.
PPP grants were administered by the Small Business Administration (SBA) and were called “loans” for several reasons. The SBA has partnered with local banks familiar with loan management but not so much with grants. By using banks’ existing lending infrastructure, PPP grants could be handled efficiently.
The intention was always that if the conditions of the PPP loan were met, the loan would be cancelled, turning it into a grant. It was a loan in name only, unless the company fails to meet employee retention requirements.
Compare that to student loans. Borrowers are sold on the idea of taking out student loans so that they can get an education that will make them more valuable in the job market and earn more in their professional careers. Students believe they are buying something of value that will benefit them later.
In 1958, the federal government began providing student loans under the National Defense Student Loan. This was followed in 1965 by the Federal Family Education Loans Act (FFEL) which guaranteed student loans from third parties. This made tuition money more available and led to a sharp increase in tuition prices, which have nearly quadrupled (in adjusted dollars) since 1970, four times faster than inflation.
In 2010, Congress ended FFEL and replaced it with the federal direct lending program, eliminating intermediary lenders.
When in college, students have negative income compared to someone who started working right out of high school. When they graduate, they find themselves in a financial hole with four to eight less years to catch up. They must earn 40 to 60% more to be at parity in 20 years.
Current total student debt exceeds $1.6 trillion from 45 million borrowers. Total national college and university endowments (cash and available investment) are nearly $700 billion due to this huge transfer of wealth from taxpayers to these educational institutions; accelerated transfer through government loans and loan guarantees.
Where PPP grants used to help businesses of all sizes retain and therefore help their employees, student loans are taken out by individuals to buy something they feel is valuable and will help them in the future.
Companies have taken PPP grants to help their employees. Students took out loans to help themselves. The difference is obvious.
Last year, House Speaker Pelosi claimed the president had no power to cancel the debt. This power is reserved to Congress. However, even without the legal authority, the Biden administration appears intent on doing so anyway.
What do you call it when you don’t have the legal status to take someone’s money and give it to someone else, but you do it anyway?
It’s just common sense.
• • •
Brent Regan is the chairman of the Kootenai County Republican Central Committee.