Student loans and the decline of Social Security

Last month, the Biden administration announced that it would wipe out an estimated $1 trillion owed to the county.  No vote, nor authorization from Congress.  The money simply appeared as if by magic.

While the administration's decision is limited to student loans, the existence of magic money is apt to cause problems for the broader government.  Specifically, it is likely going to be a problem for Social Security and those who depend upon the program.

In the case of Social Security, the program's finances have deteriorated over decades primarily because Congress has been unable to build any consensus on a suitable mix of higher taxes and benefits reductions.  As difficult as it has been to find that middle ground in the past, compromise will only become more elusive as voters seek to add more magic and less sacrifice.

It is hard to fault the reasoning: if we can print billions of dollars for those with outstanding student loans, we can certainly print trillions for seniors on Social Security.  Reality, on the other hand, is vastly different, and will be exceedingly difficult for elderly voters to accept.

President Franklin D. Roosevelt designed Social Security based on individual contributions to ensure that "no damn politician" would ever scrap his program.  He specifically rejected the idea of general fund subsidies, which he called a mistake.  FDR also rejected the "pay-as-you-go" financing that the government uses today to pay the bills.  According to FDR, payroll taxes would give workers a legal, moral, and political right to their benefits.

This structural protection for workers explains why there is a cap on taxable wages.  It isn't a matter of fairness.  It is politics through and through.  FDR knew that without an earned sense of benefits, Congress would annually debate the question of who does and who does not need benefits.

For some background, in 1937, the Supreme Court ruled that the Social Security Act was constitutional based on the power of Congress to spend money to promote the general welfare of the nation.

Here comes the problem for the program created by magic money.  While supporters claim that the program alleviates poverty, the fact is that the largest checks generally go to those who need the money the least.  For example, the Bidens collected a combined $54,665 in 2021.

It is possible to argue that such a program is constitutional when the money comes from the people who collect.  On the other hand, it is not possible to argue that spending general tax dollars on those who need the money the least promotes the "general welfare" of the nation.

Even if the magic money policy did not face a court challenge, politicians would have to explain the need of payroll taxes to working voters, who likely would prefer to finance the program with magic money rather than individual contributions.

If we allow Social Security to devolve into a welfare program, the expense of benefits will compete for resources against every other priority in the public domain — things like student loan reform.  From that moment on, Social Security will be purely a political benefit of voting for the candidate who promises the most benefits from the public treasury. 

As that scenario unfolds, student loan reform will emerge as a material threat to the year-to-year paychecks of seniors because student loans in default can cause the garnishment of benefits.  Workers stuck with unreformed student loans will see that debt as a benefit cut in the future.

In theory, Social Security is an earned benefit.  Thus, there is no room in Social Security for magic money.  As soon as we flush cash from the sidelines into the program, Social Security has been scrapped.  

All we will have left is a highly unstable welfare program that delivers benefits that vary year to year depending on the amount of magic that politicians are willing to put into the system.

Brenton Smith ( is a policy adviser at The Heartland Institute, with work appearing in nationally recognized publications including Barron's, Forbes, MarketWatch, The Hill, USA Today, and more.

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