Student Loans vs. PPP

The Biden administration and their friends in the media are pushing the notion that it is OK to forgive student debt because the government forgave PPP debt. This is sophistry and here is why.

The coronavirus pandemic triggered the global reaction to shut down large sectors of the economy which could have led to a cascade failure of economic systems. If left unchecked this could have led to a global economic depression that would have been many times more lethal than the virus itself.

To mitigate this potential collapse, the Trump administration, along with bilateral support in Congress, passed the Coronavirus Aid, Relief and Economic Security (CARES) Act. The CARES act contained a number of provisions to provide economic support for citizens and especially workers. Provisions included and expansion of unemployment benefits, direct payments to low and middle income families, and direct funding to states and localities. Also part of the CARES Act was the Paycheck Protection Program (PPP).

The purpose of the PPP was to provide business with funding to retain employees during the pandemic so the unemployment insurance system wasn’t overwhelmed. The PPP gave businesses money not to fire employees so those employees would continue to pay into the unemployment insurance system rather than be taking money out of the system.

The PPP grants were conditional on the company actually retaining the employees they promised to retain. To qualify for the grant the company had to retain their employees at existing compensation levels for up to 24 weeks and at least 60% of the grant must go directly to payroll. During this period, the interest on the “loan” was deferred. If the conditions were not met, the company would have to start paying off the loan.

The PPP grants were managed by the Small Business Administration (SBA) and were labeled as “loans” for several reasons. The SBA partnered with local banks that were familiar with managing loans but not so much with grants. By using the banks’ existing loan infrastructure the PPP grants could be processed efficiently.

It was always the intent that if the conditions of the PPP loan were met then the loan would be forgiven, turning it into a grant. It was a loan in name only unless the company failed to meet the employee retention requirements.

Compare this to student loans. Borrowers are sold on the notion of taking out student loans so that they can secure an education that will make them more valuable in the workforce and allow them to earn more over their working career. Students believe they are buying a thing of value that will benefit them later.

In 1958, the federal government began issuing student loans under the National Defense Student Loan. This was followed in 1965 by the Federal Family Education Loan Act (FFEL) which guaranteed student loans from third parties. This made cash for tuition more available and resulted in a sharp rise in tuition prices, which have nearly quadrupled (adjusted dollars) since 1970, four times faster than inflation.

In 2010, Congress ended FFEL and replaced with the Federal Direct Loan Program, removing the middleman lenders.

When in college, students have a negative income compared to someone who started work right out of high school. When they graduate they are in a financial hole with four to eight fewer years to catch up. They need to earn 40% to 60% more just to be at parity in 20 years.

Current total student debt tops $1.6 trillion from 45 million borrowers. Total domestic college and university endowments (cash and investments on hand) are nearly $700 billion as a result of this huge transfer of wealth from taxpayers to these education institutions; a transfer accelerated by government loans and loan guarantees.

Where PPP grants helped businesses of all sizes retain and therefore help their employees, student loans are taken out by individuals to buy something they think is valuable and will help them in the future.

Companies took 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 does not have the power for debt forgiveness. That power is reserved for Congress. However, even without the legal authority, the Biden administration seems intent of doing it anyway.

What do you call it when you don’t have legal standing to take money from someone and give it to someone else but you do it anyway?

Theft.

It’s just common sense.