I was going to begin this musing with “don’t get me started,” but it’s too late for that. I could rant all day about how unfair it is to take money from one group and give it to another, especially when blue-collar taxpayers will end up footing the bill for white-collar kids. Giveaways like student loan forgiveness are properly the role of those fat university endowments, not the government. It’s easy to see that the cozy relationship between intelligentsia and government is alive and well. If you want class warfare, this is a great opening sortie.

Setting my rant aside, let’s focus on what this scheme might mean for the economy.

The economists at Wharton Penn University estimate the student loan forgiveness program will cost a mid-range estimate of $485 billion over ten years, and this total accounts only for college-completed existing loans. Add another $50 billion for students currently enrolled but not yet graduated and another $70 billion for new take-up rates for lower-income borrowers under new rules, and the WPU cost estimate jumps to $605 billion. Since many details are yet unknown and variables like behavioral changes in new loans cannot be accurately estimated, WPU put the final likely cost at just over $1 trillion.

I fear we can expect similar dynamics as with other government money boondoggles like electric vehicle tax credits for new buyers: new EVs experienced price hikes. Unlimited money chasing finite services should send college prices to the moon, a problem we are already well acquainted with. The well-to-do with young children will now pay twice. Their taxes will go up to pay the tuition of forgiven borrowers, and since demand is seemingly price inelastic, colleges will hike their kids’ tuition in the future. Discouragingly, these programs tend to seed more of the behavior that got us here in the first place, thus beckoning a fresh version of it in the future.

This week, in a note of fitting irony, UT announced a new English course studying the song lyrics of Taylor Swift. Hey, if we’re wasting mom and dad’s tuition money, we might as well do it right, huh? Plato is so yesterday, bro. There are always unintended consequences.

I wish I could say this is the worst of it. Unfortunately, the United States is already experiencing extreme inflation. This program will add gasoline to the fire that the Fed has already admitted is difficult to control. The effect should be almost immediate. That’s because most college borrowers will quickly curtail making payments fearing that they will be sending good dollars after bad. That saved cash will get consumed, a welcome relief to the financial pressure these same people are already experiencing. Did I mention that we can trace current inflation to past government giveaway programs? Also, Goldman Sachs published analysis last week stating that the program won’t be inflationary. I guess existing inflation will provide cover for future inflation, conflating the ramifications of this program with other inflation drivers.

Funding for this will come from the savings of the population’s top 20%, the portion of the income curve that pays nearly 85% of all tax receipts. These people are investors. So we’re essentially taking future investment and converting it to current consumption – the textbook formula for inflation creation.

Goldman will be eating their words on this one.

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