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Student loan forgiveness: White House playing ‘legal Whac-A-Mole,’ CRFB SVP says

Committee for a Responsible Federal Budget SVP Marc Goldwein joins Yahoo Finance Live to discuss the legal challenges ahead for President Biden's student loan forgiveness program and fiscal responsibility.

Video transcript

- Well, millions of Americans hoping for student loan forgiveness are waiting for online applications to open this month, but the Biden administration's plan could cost more than $400 billion, and could give higher earners greater benefits. Another issue is mounting legal challenges in recent weeks. Biden administration seems to have reacted to this with some scaling back of those measures.

Let's bring in Marc Goldwein. He is SVP and senior policy director of the Committee for a Responsible Federal Budget. Marc, good to talk to you today. Let's talk about some of those legal challenges and what steps the administration has now taken.

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We've got borrowers with privately held student loans no longer qualifying for relief. You've been quite critical of the initial announcement from the administration. What do you think is going to-- what do you think this policy is going to look like once we go through all these legal hurdles?

MARC GOLDWEIN: Well, look. The administration is playing legal whac-a-mole right now. I think the issue is it's very likely the courts are going to rule this illegal if it comes to court. So the administration is trying to prevent it from coming to court by making sure nobody has standing.

Private lenders complain, you prevent people from rolling over their-- consolidating their private plans. People that are in the income-driven repayment plan plan, you create an opt out. So the administration is trying to cut off legal channels for people to challenge this in court. But if it does get challenged, I think there's a decent chance it's not going to make it.

- What do you mean when you say it's not going to make it? I mean, are we talking about a complete cancellation of the program?

MARC GOLDWEIN: That's a possibility. I'm not a lawyer, I'm an economist. What I can tell you how much this cost. But the authority the president's using for this unilateral cancelation was really an authority meant to cancel debt for troops coming back from Afghanistan. It wasn't meant for every single person in the pandemic. It's meant for people with financial hardship.

And so I think there's a good chance courts are going to look at this and say, the president overstepped his authority. Spending is really the authority of the Congress, not of the president.

- Let's talk about some of the criticisms when this first came out. You said that this was largely targeted towards those at the top half of the income spectrum. 57%, you say, to 65% of the extended pause and cancelation go to help those who are in the higher earning bracket. Has that thesis changed for you at all? As you point out, the administration has done this legal whac-a-mole and tried to evolve the program.

MARC GOLDWEIN: Yeah, I don't think it's going to change it that much. When we were just talking about canceling $10,000 per person, this plan was very regressive. The administration fixed some of that by basically doubling the cost for people that were on the Pell grants program. But what we found is still up to 2/3 of the benefit would go to the top half.

I don't think any of these changes are going to change it much. Remember, a lot of the people that were in private loans are people that have been in default for a long time and maybe just got out of it. And so I think they're going to look, distributionally, pretty similar.

- As you point out, since this policy was first announced, the administration has been hit both from the left as well as the right, with those saying it doesn't go far enough, and others saying this is just simply irresponsible. If, in fact, your thesis holds-- and I realize you're not a lawyer-- but these legal cases really come to try and halt the program in some way, what do you think should be done in terms of targeting those who have debt? Is there a way to go about this policy without the wider bracket that we have heard from the administration? And more importantly, is there appetite in DC to pick up that discussion again?

MARC GOLDWEIN: I hope that if the courts rule this illegal, we're out of money, we actually have to think. And I hope the administration will reach out to the relevant committees in Congress and actually work on legislation to focus on higher education costs and value themselves. Because that's the real problem, is tuitions continue to rise fast, and people aren't getting as much value for that tuition.

There are also things we can do to improve, for example, the income-driven repayment program to make sure that nobody's really-- or that fewer people are really stuck with debt. But that's not going to happen with some kind of across-the-board cancellation. The current proposal, I think, is mainly going to just add a lot to inflation, drive up higher edge costs, and give a lot of windfall benefits to folks that don't really need it.

- Marc, I do want to ask you about another headline number that came out this week. Gross national debt surpassing $31 trillion. We're talking about just $1 trillion being added in a nine-month span. Obviously, borrowing is going up because of rates going up. What does this mean, ultimately, for the fiscal health of the country?

MARC GOLDWEIN: Well, we're in big trouble. Look, we have the highest inflation rate in 40 years. That's in no small part because of these very high deficits we've been running. We also are headed towards record levels of debt, even as a share of the economy. We're going to be higher than World War II.

And with the Fed now raising interest rates to try to fight inflation, there's a very real risk that debt becomes unsustainable. We face one of these interest rate spirals that just a year ago people were saying wasn't possible.

- Marc Goldwein, SVP and senior policy director of the Committee for a Responsible Federal Budget. Good to talk to you today.