Attempting to mask the ugliness of the Biden Administration’s ‘forgiveness’ of student loans, the President’s Democratic friends are comparing it favorably to the Payroll Protection Program (PPP), a program put in place during the pandemic that extended loans to businesses and then forgave these loans if the companies kept their employees. Here’s Sen. Bernie Sanders (I–VT) making the comparison:

“If we could afford to cancel hundreds of billions in PPP loans to business owners in their time of need, please do not tell me we can’t afford to cancel all student debt for 45 million Americans.”

This argument is lame. In this case, the massive $800 billion PPP that the government could “afford” to make is simply the inefficient and unfair disbursement of funds that the government is able to do because it has access to other people’s money – that is, to taxpayers’ money. What happened with the PPP provides no excuse to double down or pass an even worse program such as the ‘forgiveness’ student loans.

It’s also a bad comparison. The student-loan forgiveness move was done unilaterally and likely on very shaky legal grounds while the PPP was passed with bipartisan support by Congress – and passed when the economy was being forcibly locked down. Further, student-loan forgiveness helps only those kids who went to college using funds borrowed willingly. These debts are now to be paid off by many people who didn’t go to college because they couldn’t afford to and those who have already paid in full their collegiate debts.

In theory, the PPP applied to all “small” businesses not just to, say, green energy or other favored industry companies. (FYI, according to the Small Business Administration, 99.7 percent of businesses are “small,” thanks to its ridiculously large definition of the word “small.”) And loans from the PPP were designed to be forgiven from the get-go as an incentive for companies to keep their employees. There were no such expectations or requirements on students borrowing money to go to college.

Now, many people are foolishly glorifying PPP as if it was a wonderful program. As I have written here (and in many other places ever since the PPP was announced), it wasn’t close to being wonderful. By most accounts, the PPP was a $800 billion failure. It was regressive in its own way, in part because the companies most likely to apply for PPP loans were those who were big enough to know how to navigate the bureaucratic nightmare that is the Small Business Administration’s application process. Also, many of the companies that got loans under the PPP which were subsequently forgiven where never at risk of getting rid of their employees, since these workers easily transitioned to working from home. Most of the loans went to economic sectors that were among those least economically affected by the pandemic. Also, many PPP loans went to big companies (shocker!). Finally, the whole point of the PPP was for companies to keep their workers, but as is always the case with bailouts, it mostly benefited shareholders, not workers. Peter Suderman writes:

“A recent study of the program’s effects from the National Bureau of Economic Research (NBER) finds that the majority of the funds spent by the program went to business owners and shareholders rather than to workers themselves. Ultimately, “only 23 to 34 percent of the program’s funds went directly to workers who would have otherwise lost their jobs.”

The jobs kept in place by the PPP were preserved at very high cost—somewhere between $170,000 and $257,000 a year, far more than the typical earnings of affected workers, which are closer to $58,000 per year.

While the PPP was able to save some jobs, albeit at a very high cost, the overall result of the program was precisely the opposite of what was intended. The purpose of the program was to preserve the jobs of wage workers, not to funnel money to business owners. As David Autor, a Massachusetts Institute of Technology economist and the lead researcher behind the paper, told The New York Times recently, “it turns out [the money] didn’t primarily go to workers who would have lost jobs. It went to business owners and their shareholders and their creditors.” The program, he added, was “highly regressive.” “

So there you have it; PPP and student loan forgiveness are comparable after all. They are both terrible policies. The student loan forgiveness one is simply much worse.


Veronique de Rugy is a Senior research fellow at the Mercatus Center and syndicated columnist at Creators.