Student loan debt relief could worsen inflation and 5 Reasons Why Student Loan Forgiveness Is a Bad Idea

by Rod Williams, August 25, 2022- It is immoral to tax poor people who never went to college to pay the debt of wealthier people who borrowed money to go to college and that is what student loan forgiveness does. The research has been done and that is a fact.  Student loan forgiveness is unfair to the parent who sacrificed to send their child to college. It is unfair to the students who worked their way through college, or the students who borrowed but repaid their student loans. 

Forgiving the debt of students who went to college for four or more years and partied and made unwise decisions about what to study is a moral hazard.  A "moral hazard' exists when an incentive increases one's exposure to risk because one does not bear the full costs of that risk. If someone chooses to take on massive amounts of debt to get a worthless or nearly worthless degree, they should pay the consequences of that decision. If not, then there is no incentive to make wiser decisions.

In my view, there needs to be massive reform of higher education.  While the student experience is a fun and enriching experience, it is not necessary to attend college on campus in a traditional setting to master the course material.  Higher education, in my view, should take advantage of technology and encourage more online learning and testing at testing sites. I am a lifelong learner and have taken many of the classes offered by Great Courses.  The world's best teachers teach many of these courses. By taking online courses such as those offered by Great Courses, along with supplemental reading, online or phone consultation, and testing one could become every bit as educated as the student who sits in a classroom. One does not have to be in a classroom to learn.  A campus experience is still desirable but should be an option instead of mandatory. A combination of online learning and campus learning should evolve as a new norm. 

The more student loans the government guarantees, the less incentive educational institutions have to hold the line on cost and the less incentive there is for education reform. Not everyone should qualify for a student loan. The qualifications for a student loan should be risk-based. Student loans should be evaluated for the risk the same way car loans or home loans are evaluated. Also, not everyone should be shamed or persuaded to attend college. Trade schools should be presented as a respectable alternative to traditional college.

In addition to the moral hazard of student loan forgiveness, the incentive it provides for increasing the cost of higher education, and the basic unfairness of it, there are other reasons.  Recently, Congress passed a bill called The Inflation Reduction Act, which may or may not reduce inflation but most likely will have minimal impact.  If it actually would reduce inflation, as some argue, then student loan forgiveness underminds any inflation reduction in the bill.  

Fox Business News reports that Larry Summers warns student loan debt relief could worsen inflation. Larry Summers is a Harvard University professor who served in both the Clinton and Obama administrations Here is an excerpt from that article:

Former Treasury Secretary Larry Summers on Monday warned the Biden administration against "unreasonably generous" student loan relief, arguing that additional spending could exacerbate the ongoing inflation crisis. ...

"I hope the Administration does not contribute to inflation macro economically by offering unreasonably generous student loan relief or micro economically by encouraging college tuition increases," he wrote in a series of tweets.

Writing in Forbes, Zack Friedman gives 5 Reasons Why Student Loan Forgiveness Is A Bad Idea. Zack Friedman is a highly credentialed Wall Street money manager, best-selling author, and the Founder & CEO of Mentor (mentormoney.com), a leading online financial marketplace.  In the article, he concurs with and summarizes the analysis of Senator Roy Blunt who gave a speech on the Senate floor opposing President Biden's proposal for student debt forgiveness.  I am not going to give the details of each of the five reasons, but am listing them below. For details, follow this link. 

1. Student loan forgiveness disproportionately benefits wealthier Americans.

2. Biden doesn’t have the legal authority to cancel student loans

3. Biden has shown no commitment to wide-scale student loan forgiveness

4. Biden should lower inflation rather than cancel student loans, which can increase inflation

5. Student loan forgiveness won’t lower the cost of college

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The Bastiat Society of Nashville presents "How Covid Exposed a Moral Sickness- and Almost Everyone is Infected."

Register Here

AIER’s Bastiat Society program in Nashville will host an in-person event with Ben Bayer, Fellow and Director of Content at the Ayn Rand Institute.

During the Covid pandemic, people on the political left generally favored stricter pandemic controls (lockdowns, mask and vaccine mandates, etc.) and other statist economic measures in the name of the public good and usually criticized their opponents as “selfish.” The evidence suggests their policy decisions were not driven by any corruption or conspiracy, but by the moral values they openly championed. Importantly, this doesn’t mean their policies were justified or excusable. If those policies were unjust and destructive, it’s a sign that there is something flawed about the moral values that actually motivated them: the values of selfless sacrifice that are regarded as commonplace on both the left and right. This talk will explore how the Covid pandemic put pressure on American politicians, left and right, to reveal their true core values, what it really means to act on those values, the fundamental problems with these values, and a rational alternative.

Schedule:

• 6:00 - 6:30 pm: Networking
• 6:30 - 7:15 pm: Presentation
• 7:15 - 7:30 pm: Q & A

Ticket Prices:

• $0 for Founding Members
• $10 for Annual Members
• $20 for Non-Members
• $0 for Actively enrolled university students who register with a .edu email address. Those who register with a non-.edu email address will be unregistered and asked to purchase tickets at full price.

Location: Richland Country Club, 1 Club Drive, Nashville, TN 37215

More about the speaker:

Ben Bayer is a fellow and director of content at the Ayn Rand Institute. He teaches in the Objectivist Academic Center and gives talks and interviews for ARI. He writes and edits for ARI’s online publication, New Ideal. Bayer holds a PhD in philosophy (University of Illinois, Urbana-Champaign) and among other positions, was a visiting assistant professor at Loyola University in New Orleans for seven years. His writing focuses primarily on the application of philosophy to contemporary cultural and political controversies.

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Link

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Canceling Student Debt Would Undermine Inflation Reduction Act

The Committee for a Responsible Federal Budget, Aug 16, 2022 - The recently-passed Inflation Reduction Act (IRA) will reduce budget deficits by roughly $275 billion while pushing fiscal policy in the right direction to assist the Federal Reserve in its fight against inflation. However, a possible announcement from the White House to offer across-the-board student debt cancellation could undermine the bill’s disinflationary gains and deficit reduction.

Simply extending the current repayment pause through the end of the year would cost $20 billion – equivalent to the total deficit reduction from the first six years of the IRA, by our rough estimates. Canceling $10,000 per person of student debt for households making below $300,000 a year would cost roughly $230 billion. Combined, these policies would consume nearly ten years of deficit reduction from the Inflation Reduction Act.

Debt cancellation would also wipe out the disinflationary benefits of the IRA. The Congressional Budget Office, Penn Wharton Budget Model, and Moody’s Analytics all found the IRA would have virtually no effect on inflation in the near term at the macroeconomic level. Our analysis is somewhat more optimistic since the bill’s micro-economic effects and side deals related to permitting and energy explorations can put downward pressure on prices.

However, debt cancellation would boost near-term inflation far more than the IRA will lower it. We previously estimated that a one-year pause could add up to 20 basis points to the Personal Consumption Expenditure (PCE) inflation rate. Using a similar analytical method, $10,000 of debt cancellation could add up to 15 basis points up front and create additional inflationary pressure over time.

Although there was no inflation in the month of July, inflation has surged at record levels over the past year and core inflation remains well above target.

The IRA gave Washington an opportunity to show it was finally serious about helping the Federal Reserve tackle inflation and begin to address our $24 trillion national debt.

Broad student debt cancellation – whether by extending the pause, forgiving balances, or both – would undermine the benefits of the IRA and demonstrate a lack of seriousness in addressing our nation’s economic challenges.

Rod's Comment: I opposed the Inflation Reduction Act for several reasons and doubted it would do much to reduce inflation. I had reservations about hiring 87,000 new IRS agents was one reason I opposed the IRA.  I did think, however, that the rhetoric coming from some on the right was over-the-top and histrionic. Several organizations which I think of as fiscally responsible offered luke-warm support for the IRA including The Committee for a Responsible Federal Budget. Other ogranizations I think of as fiscally responsible opposed it but without wild histrionics. They concluded it would do little to decrease inflation and might actually be mildly inflationary. 

Another reason I opposed the IRA is because the supposed additional revenue was on the back end and the increased spending was on the front end.  I had no confidence that a Democratic Party government would continue responsible spending.  Well, it has not. It now appears the Democratic Party is still committed to increased unpaid for government spending.  Since the spending included in the IRA is front-loaded, if student loan forgiveness passes or even is again deferred, the effect of the Inflation Reduction Act will be more inflation; not less. For more analysis of the IRA follow this link, this link and this link.  

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The Inflation Reduction Act won’t bring 87,000 new IRS agents with guns to your front door despite the memes you saw on Facebook and what right-wing radio pundits told you.

By Laura Saunders, Wall Street Journal, Aug. 19, 2022 - ...Some of the funding’s opponents have said the 87,000 hires will be armed. According to an IRS spokesman, the only agency staffers allowed to carry guns are 2,100 special agents in the criminal investigation division, and they make up less than 3% of the total current IRS workforce of about 80,000.

According to Natasha Sarin, a Treasury official overseeing the IRS, about 1,000 of the hires will be special agents, with many replacing departing agents. In the late 1990s, the agency had 3,500 special agents. (To read more of what is really in the Inflation Reduction Act as regards new funding for the IRA, follow this link:What $80 Billion More for the IRS Means for Your Taxes.)

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Nashville stadium committee members spar over use of taxpayer funds for $2.2B dome

By Jon Styf | The Center Square,  Aug 19, 2022 -  Thursday’s Nashville East Bank Committee Meeting was scheduled to be about the city’s capital improvement obligations at Nissan Stadium.

But a portion of the meeting was ultimately a preview of a central point of the Metro City Council’s ultimate debate on approving nearly $2 billion in bonds that will be paid for with an estimated $1.5 billion in public funds for a new estimated $2.2 billion stadium.

"One thing I do want to just insert back into the conversation is that Metro’s liability, as I understand it today, is sales taxes and hotel taxes per se, and so it’s not that Metro taxpayers themselves are being asked to pay for all of that," said Council member Brett Withers, who represents the area that includes the stadium. "I just wanted to clarify what our obligation for the city is the sales tax and hotel tax."

But committee chair and at-large council member Bob Mendes quickly objected to that characterization of the planned funding for a new stadium, saying the committee members had reached an agreement to use the committee as an information-gathering resource for the council and not a place to advocate for or against a deal.

"Three-quarters of $1 million of G.O. (general obligation) bonds in the CIB and 130 acres where half our sales tax will go and some of that sales tax is going to be moving out of one capture down on this side of the river to another capture on the other side of the river," Mendes said. "So the notion suggested in your comment that it’s essentially free to taxpayers is not really accurate."

Mendes was referencing the explanation given by economists that sales and dollars spent at a new stadium in district would not be new spending in Nashville but instead would be spending transferred from other areas of the city, where those sales taxes are currently collected and are part of the city’s budget.

The bonds are expected to be paid for by Nashville’s portion of taxes for sales at the stadium and half of the taxes from sales on 130 acres planned to be developed outside the stadium. Tennessee has conceded a 5.5% sales tax at the stadium and 2.75% sales talks in the future development outside the stadium while also approving a 1 percentage point increase in a hotel-motel tax in Davidson County.

Discussion also centered on how long a new stadium would be expected to be usable after the current Nissan Stadium, which opened in 1999, has been open just 23 years.

"The original MOU (memorandum of understanding) on the current stadium called it a 50-year stadium," Mendes said. "So I think we’re going to have to kick the tires extra hard. Just calling it a 50-year stadium doesn’t make it so. At least last time it didn’t."

Council member Kevin Rhoten agreed, stating that a new stadium better have a longer lifespan.

"If I’m going to pay $2 billion for something and put a roof on it, I expect it to last 50 years," Rhoten said. "If it’s a house or any building downtown, you expect it to last 50 years."

Metro Nashville Sports Authority Executive Director Monica Fawknotson spoke to the committee, saying that an agreement with Venue Solutions Group on a Nissan Stadium city obligations study expected to cost at least $250,000 has not been finalized but is close.

In late July, Metro Law Deputy Director Tom Cross said that it would take VSG an estimated 14 weeks to complete its work once a contract was finalized.

The study is aimed at providing the city with an independent opinion after Titans CEO Burke Nihill estimated the city’s repair obligations for Nissan Stadium under its current lease would be $1.839 billion.

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Report: Cost of renovated speedway at Nashville Fairgrounds has increased to $100M

By Jon Styf | The Center Square, Aug 16, 2022  - A deal to renovate the Nashville Fairgrounds Speedway is still not complete and will now cost $100 million instead of $75 million, according to a report from the Nashville Banner.

Much of that funding is expected to come from $17 million directly appropriated from the state in this year’s budget and by the state and Metro Nashville giving all sales tax funds back to the speedway. In 2021, the speedway was purchased by Speedway Motorsports, which owns tracks across the country including Bristol, Charlotte, Atlanta and Las Vegas.

The Banner also reports that Nashville’s Convention and Visitors Bureau will make $1 million annual payments toward the fund to pay off the bonds for 20 days per year of use of the speedway.

According to a financial audit, the Convention and Visitors Bureau received $10 million from Metro Nashville and nearly $5 million in federal grants as part of its $21 million in funding in the fiscal year ending in June 2021. The Tennessean reported in 2018 that most of the Convention and Visitors Bureau funding then came through hotel taxes.

According to the Banner, the change in cost will require the bond debt payments to increase from $4 million to $5 million per year.

The sales tax deal on purchases at the speedway went into effect more than a year ago after it was signed into law by Gov. Bill Lee.

According to the fiscal note on that bill, the track currently brings in $65,400 in taxes per year but that number could grow to an estimated $734,000 per year if a NASCAR Cup Series race comes to the fairgrounds.

If a Cup Series race came to Nashville, it would lead to an estimated $14 million in taxable revenue.

Economists have shown, however, that taxes collected a new sports stadiums are not new money but are instead displaced spending from elsewhere in a community.

So those sales taxes currently collected elsewhere in Nashville that would go to the state and city would instead go to the speedway in the future to pay the debt on the renovation.

"When it comes to collecting tax money for stadiums, there is no found revenue," sports economist J.C. Bradbury from Georgia’s Kennesaw State University previously said. "When you introduce a new tax, it’s mainly local people who are paying it, so they’re just not spending it somewhere else. There’s not a free lunch.”

The Banner reported that both Bristol Motor Speedway and the city commissioned studies on the revenue potential for a redeveloped track but nothing studies have been made public and neither entity would release those studies.

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