Rahm Emanuel, then chief of staff to President-elect Barack Obama, famously issued what has come to be known as Rahm’s rule: “You never want a serious crisis to go to waste. And what I mean by that [is] it’s an opportunity to do things that you think you could not do before.”
Emanuel argued that the 2008 financial crisis afforded the new Obama-Biden administration the opportunity to “do things” they couldn’t otherwise. Trillions of dollars in higher spending later, President Biden recently dusted off Rahm’s Rule for yet another purpose — justifying his administration’s college debt cancellation plan.
The plan is controversial. Experts estimate it will cost taxpayers between $500 billion and $1 trillion over the coming decade, all added to the federal debt. The Wall Street Journal suggests “there has never been an executive action of this costly magnitude in peacetime….Nothing comes close to this half-trillion-dollar or more executive coup.” Vulnerable Democratic candidates are rejecting the proposal, and economists Larry Summers and Jason Furman warn of serious inflationary effects from cancelling loans for 43 million Americans.
For President Biden, the plan also marks an abrupt about face on presidential authority. In April 2020, just after Congress enacted the mammoth CARES Act, then-candidate Biden said “the next recovery package” should include “an immediate cancellation of a minimum of $10,000 of student debt per person.” At the height of the pandemic, Biden thought it was Congress’ job — and not the President’s — to legislate debt cancellation. House Speaker Nancy Pelosi (D-CA) was even more explicit in July 2021, stating that “People think that the President of the United States has the power for debt forgiveness. He does not. He can postpone. He can delay. But he does not have that power. That has to be an act of Congress.”
The Biden administration repudiated that position, while pointing to the waning pandemic as the crisis that permits them to act without Congress. The Washington Post notes that the unemployment rate for college graduates is now just two percent so “it’s hard to make the case that college graduates are still facing an unprecedented crisis.” Nonetheless, the administration argues their action is consistent with a 2003 statute behind the current college loan payment pause. As Secretary of Education Miguel Cardona put it, “this is targeted relief based off of [the] pandemic." The Trump Department of Education took the opposite view, and the courts may ultimately decide the fate of the Biden policy.
The bigger picture suggests that the pandemic is an all-too-convenient excuse. How do we know?
Because prominent Democratic lawmakers proposed college debt cancellation well before its onset in early 2020. Sen. Elizabeth Warren (D-MA), while campaigning for president in June 2019, called for the cancellation of up to $50,000 of debt for 95 percent of borrowers. Fellow presidential candidate Sen. Bernie Sanders (I-VT) went a step further, proposing that same month to cancel all Americans’ college debt. Then-candidate Joe Biden was late to the debt cancellation party, but his eventual running mate Kamala Harris in July 2019 proposed “to cancel up to $20,000 in student debt for borrowers who received Pell grants,” as the Biden-Harris administration has just done.
This is only the latest example of the administration applying Rahm’s Rule during the pandemic. The expanded child tax credit paid to 65 million children under the March 2021 American Rescue Plan is another. That policy had nothing to do with the pandemic, as evidenced by the administration’s subsequent calls to make the expanded benefit permanent. Yet new monthly federal checks paid even to non-working parents during the second half of 2021 effectively revived work-free federal welfare, long a liberal goal. Those expanded monthly checks have since expired — perhaps until the next crisis strikes.
If implemented, the administration’s college debt cancellation plan is similarly unlikely to be the end. In fact, it might even be an accelerant for more debt. Why would parents save for college and pay out of pocket when they could take out loans in anticipation of a future taxpayer bailout? And what liberal politician won’t promise to relieve those and other debts for key constituencies — especially in an election year? It would be foolish to expect otherwise if the costs can again be passed on to federal taxpayers. That will be especially likely when future crises strike, and another generation of politicians dusts off Rahm’s Rule.
Matt Weidinger is a Rowe Fellow in poverty studies at the American Enterprise Institute. Tim Sprunt is a research assistant at the American Enterprise Institute.
