Neither Party Is Solving the Household Debt Problem
How ideological rigidity and political incentives are driving worse outcomes in health care, student loans, and retirement and failing to address Social Security solvency
Abstract
American households are moving toward greater financial distress, yet neither major party’s policy process is structured to improve household solvency. This memo examines four interlocking areas—health insurance, student debt, private retirement savings, and Social Security solvency—and shows how each party’s governing incentives produce predictable failures.
Republicans remain anchored to low taxes, limited government, and market primacy, constraining their ability to address structural burdens already embedded in household balance sheets. Democrats are divided between progressive ambition and centrist caution, leading to temporary programs, fiscal sunsets, and executive-branch workarounds that fail durability tests.
Bipartisan reliance on gimmicks and brinkmanship shifts uncertainty onto households and delays unavoidable tradeoffs. Policy failures in health care and student loans suppress private retirement saving, which in turn makes Social Security reform politically and economically infeasible. The result is a stable political equilibrium and an unstable household outcome: solvency risk is repeatedly deferred until it reappears as a fiscal cliff, a premium spike, or automatic benefit reductions.
Introduction
American households are on a path towards increased financial distress and neither major political party has an agenda which could lead to better financial outcomes for American households.
Both parties have consistently put the ideological whims and political needs of their party over the best interests of American households.
Both parties have reinforced this pattern through the routine use of fiscal gimmicks that obscure the true cost of their policy commitments. Temporary programs, artificial sunsets, and delayed implementation are repeatedly used to reduce headline budget scores while shifting real costs and uncertainty onto households. The fiscal imbalance inherited from the Obama administration, the Trump-era tax cuts that were designed to expire and later required renewal, and the enhanced ACA premium tax credits all reflect a bipartisan willingness to rely on temporary structures rather than durable policy design. These tactics allow elected officials to claim restraint while avoiding the political consequences of fully funding their priorities.
At the same time, both parties have shown a persistent willingness to postpone meaningful Social Security reform. By deferring adjustments to benefits, eligibility, or financing, policymakers preserve short-term political advantage at the expense of long-term solvency, leaving future households with fewer options and higher risks.
Republican policy thinking remains anchored to low taxes, limited government, and market primacy. These principles are internally coherent, but constraining when applied to problems that are structural, long-term, and already embedded in household balance sheets.
Republicans routinely favor tax and benefit cuts regardless of the cost to vulnerable households. Moreover, Republicans fail to recognize that required adjustments to entitlements to restore solvency to the Social Security Trust funds and put the nation on a more stable fiscal trajectory require reforms which reduce medical and student loan debt and increase private retirement savings.
Democrats are less unified than Republicans. Progressive Democrats are wedded to expensive politically unfeasible options. – Medicare-for-all and debt-free college even when less expensive solutions exist. Centrist Democrats are aware of the economic tradeoffs, but they consistently favor policy proposal designed to placate the political base of their party rather than thinking through the solutions which will work.
The purpose of this memo is to highlight the processes inside both parties which lead to bad policies and financial outcomes in four areas – health care and health insurance, student debt, retirement savings, and trust fund solvency. The memo builds on many of the memos previously published on this blog. The starting point for this discussion is health care and health insurance because the current dispute over the renewal of the ACA premium tax credits illustrates the potential pitfalls of prioritizing politics over the search for better economic solutions.
Health Insurance
Health insurance is the clearest illustration of how both parties subordinate household financial stability to ideological positioning and short-term political incentives. The result is a system that exposes households to rising premiums, volatile coverage, and unaffordable out-of-pocket costs, while leaving the underlying cost drivers largely untouched.
Republican Failures
Earlier generations of Republican policymakers recognized that a purely employer-based system was incompatible with a modern, mobile labor force. Proposals advanced by figures such as John McCain and Mitt Romney acknowledged the need for viable insurance options for individuals outside traditional employment relationships. That recognition has largely disappeared from current Republican policy thinking.
Today, there is far more internal unity within the Republican Party around a narrower, more rigid approach to health insurance policy. While there are occasional expressions of concern from individual lawmakers, they have not translated into meaningful constraints on party action.
Medicare cuts were enacted as part of the 2025 tax legislation despite public reservations from a small number of Republican senators, including Senator Josh Hawley of Missouri—a state highly reliant on Medicare. This pattern is not unique to Missouri: many Republican-controlled states have populations that depend heavily on Medicare and Medicaid, yet Republican lawmakers have repeatedly supported legislation that reduces or constrains these programs. Party discipline and tax priorities have consistently outweighed constituent exposure to health care costs.
Today’s Republican approach combines Medicaid cuts, opposition to ACA subsidies, and an overreliance on Health Savings Accounts (HSAs).
Cutting Medicaid while simultaneously undermining state exchange plans reduces coverage options for precisely the populations most exposed to job instability, health shocks, and income volatility. These are not abstract effects: failure to renew the enhanced ACA premium tax credits would produce an immediate affordability crisis for millions of households, forcing higher premiums, plan downgrades, or outright loss of coverage.
Republican promotion of HSAs as a substitute for insurance affordability reflects a deeper disconnect from household balance sheet realities. HSAs can work for some households when paired with high-deductible plans—particularly higher-income families with stable cash flow who can fund accounts consistently and absorb upfront costs. But for many lower- and middle-income households, even this structure is difficult in practice. When HSAs are linked to bronze or catastrophic plans, the model often becomes untenable: deductibles are too large relative to income, leading to delayed care or foregone treatment rather than meaningful cost management. In these cases, the approach shifts financial risk onto households without addressing underlying medical prices, while delivering tax benefits that disproportionately accrue to those already least financially constrained.
Recent House action underscores that this unity is not absolute, but it remains politically costly to break from the party line. Four Republican members from swing districts voted with Democrats to allow a vote on extending ACA premium tax credits, signaling localized electoral pressure rather than a broader shift in Republican health policy thinking. These defections highlight the gap between national party priorities and district-level exposure to rising insurance costs.
More broadly, Republicans continue to prioritize tax reduction and fiscal retrenchment without acknowledging that household solvency is already impaired by medical debt and insurance volatility. Entitlement reform discussions that ignore the central role of health costs in driving household distress and federal spending are fundamentally incomplete.
Democratic Failures
Unlike Republicans, Democrats are not unified on health care policy. That diversity of views could, in principle, support pragmatic reform. In practice, it has produced a pattern of rhetorical ambition paired with policy temporariness and institutional fragility. Democrats routinely acknowledge that health insurance affordability is a central threat to household solvency, yet their governing choices repeatedly defer durability in favor of internal coalition management.
The most consequential Democratic failure was the decision to make the enhanced ACA premium tax credits temporary. This was not a technical necessity or a Republican imposition; it was a strategic choice made by the Biden administration and a Democratic Congress. Rather than permanently securing the most effective affordability mechanism in the current system, Democrats chose to allocate political and fiscal capital to a broader set of expansive initiatives, including climate and environmental programs, large-scale infrastructure investments, industrial policy subsidies, and price-control and prescription drug provisions championed by progressive factions. Because these initiatives were pursued simultaneously under budget reconciliation constraints, Democrats relied heavily on temporary authorizations, phase-ins, and sunsets to keep headline costs within procedural limits. As a result, millions of households were left exposed to a scheduled affordability cliff, turning a stabilizing policy into a recurring source of uncertainty tied to election cycles.
Progressive Democrats bear particular responsibility for distorting the party’s health care agenda. It is startling, though no longer surprising, that Medicare for All continues to be reintroduced—most recently in 2025—without a credible transition plan from the existing system. The proposal remains largely unchanged despite years of evidence that such a transition would be economically disruptive, politically fragile, and deeply unsettling for households with employer-based or exchange coverage they value.
Medicare for All now functions less as a governing proposal than as an ideological marker. Its persistence reflects its role in progressive identity politics rather than its feasibility as a policy framework. This comes at a real cost: by centering an all-or-nothing vision, progressives crowd out incremental reforms that could materially improve affordability and stability within the existing system. Most notably, the proposal would eliminate state insurance exchanges, the most functional and adaptable institutional achievement of the ACA. Democrats thus undermine their own most successful reform by refusing to treat it as permanent infrastructure.
Centrist Democrats are not unaware of these tradeoffs. Many recognize that permanently extending ACA subsidies, improving exchange design, and reducing out-of-pocket exposure would deliver immediate gains to household solvency. Yet they have consistently chosen to accommodate progressive messaging priorities rather than force hard internal decisions. The result is a pattern of sunsets, pilot programs, and temporary fixes that weaken both household planning and insurer participation.
More broadly, Democrats share responsibility for failing to confront the structural drivers of health care costs. While they are more willing than Republicans to acknowledge market failures, they have not produced a coherent strategy to restrain cost growth without expanding federal exposure to budgetary risk. Nor have they meaningfully addressed the labor disincentives created by subsidy phaseouts or the instability caused by linking coverage to employment, despite clear evidence that expanding and stabilizing state-based exchanges—or further decoupling insurance from jobs—would reduce coverage losses during job transitions and economic downturns. These omissions reflect a deeper reluctance to make tradeoffs explicit, even when doing so would improve long-term outcomes.
In sum, Democratic health care failures stem not from denial of the problem but from an inability to prioritize durability over coalition politics. By favoring symbolic ambition and temporary relief over institutional permanence, Democrats have left households exposed to the very instability they claim to oppose.
Both Party Failures
Both parties share responsibility for ignoring the core structural problems in health insurance. Neither has offered a serious strategy to control medical cost growth, which continues to drive premiums, deductibles, and out-of-pocket expenses higher than household income growth. Insurers respond by rationing care through narrow networks, aggressive claim denials, and extended review processes—mechanisms that shift administrative and financial burdens onto households while eroding trust in coverage.
Both parties also ignore the high implicit marginal tax rates embedded in ACA premium subsidies. As income rises, households can face steep effective penalties through subsidy phase-outs, discouraging additional work or income gains. This interaction between health insurance affordability and labor incentives receives little attention despite its direct impact on household economic behavior.
Finally, both parties have failed to address the systemic fragility created by tying health insurance to employment. Job transitions, layoffs, and economic downturns routinely trigger coverage disruptions precisely when households are least able to absorb them. This linkage amplifies financial stress during recessions and reinforces the cyclical nature of medical debt accumulation.
In aggregate, these failures reflect a shared unwillingness to treat health insurance as a core component of household solvency rather than a partisan symbol. Until both parties shift from ideological signaling to structural reform, health insurance will remain a central driver of financial instability for American households.
The most troubling feature of current party governance is a growing willingness to govern by brinkmanship. The ongoing dispute over extending the ACA premium tax credits illustrates how both parties are prepared to play chicken with household financial stability in pursuit of political leverage. If this conflict is not resolved, many households reliant on state exchanges will face sharply higher premiums or the loss of insurance altogether. This episode raises a more consequential question: if both parties are willing to risk disruption in a program affecting millions of insured households, will they exercise greater restraint when confronting far larger and more politically sensitive challenges, such as the automatic benefit reductions triggered by Social Security trust fund insolvency?
Student Debt Failures
As with health insurance, student debt policy failures can be traced to a combination of Republican rigidity and focus on tax policy, Democrats emphasizing the whims of the progressive base over solid durable policy, and bipartisan reliance on structurally weak solutions. The result is a system that increases borrowing costs, extends repayment horizons, and undermines household balance sheets at precisely the stage of life when families should be building savings.
Republican Failures
Republicans are highly unified in their view that federal aid to students should be tightly limited and that higher education should not be broadly subsidized. Republican lawmakers have repeatedly argued that workers who did not attend college should not be asked to subsidize those who did, framing student aid as an issue of fairness rather than long-term economic capacity. This position has translated into policy choices that prioritize fiscal restraint over borrower sustainability.
Republicans now largely own federal student loan policy following the comprehensive overhaul enacted in the 2025 tax legislation.
That legislation replaced the SAVE income-driven repayment program with the Repayment Assistance Plan (RAP), which is substantially less generous for many borrowers. Under RAP, monthly payments are higher for a large share of borrowers, income protections are weaker, and some borrowers will now be required to make payments for up to 30 years before any remaining balance is discharged.
RAP introduces sharp payment increases tied to each $10,000 rise in adjusted gross income, creating abrupt effective marginal tax rate cliffs that discourage income growth and career advancement. In addition, RAP payments are not indexed to inflation. Over time, this lack of indexation will steadily increase the real burden of student loan payments, leading to higher delinquency, extended repayment periods, and growing household financial stress.
Republicans have also imposed tighter limits on federal direct student loan borrowing. While intended to constrain costs, these limits will raise borrowing costs for students in high-cost professional programs, particularly young doctors and lawyers. Increased reliance on private credit may deter entry into lower-paying but socially valuable specialties, including primary care and public interest law.
More broadly, Republicans fail to recognize that higher student debt burdens directly impair households’ ability to save for retirement. This omission is particularly consequential given Republican interest in reforming Social Security. Any successful effort to reduce reliance on Social Security benefits requires higher levels of private retirement savings, a goal incompatible with prolonged, inflation-unprotected student loan repayment.
Democratic Failures
Democratic student debt policy has been overwhelmingly shaped by efforts to satisfy progressive demands for free college or universal debt-free education. Proposals advanced by Senator Bernie Sanders and Senator Elizabeth Warren have centered on large-scale federal financing of tuition or broad cancellation of existing student debt, often without sufficient differentiation between borrowers facing genuine affordability constraints and those capable of financing higher education with more limited support.
The fundamental problem with this approach is that public resources are finite and fungible. Many households can already pay for college without this level of government assistance or would require far less support than these proposals provide. Expansive student debt subsidies at this scale necessarily divert funding from other costly priorities, including health care affordability, childcare, housing, infrastructure, climate adaptation, and long-term entitlement solvency. These tradeoffs are rarely confronted directly.
President Biden’s student debt strategy, like the ones advanced by the progressives in the party, did not seek to provide debt relief in the most economically efficient way. In his first attempt at broad loan cancellation, the administration relied on emergency powers under the HEROES Act of 2003, asserting that the COVID-19 pandemic justified sweeping debt relief. That effort was rejected by the Supreme Court, which concluded that the statute did not authorize such a large-scale restructuring of federal student loan obligations.
Following that decision, the administration pursued a second approach grounded in the Department of Education’s authority under the Higher Education Act, particularly provisions allowing the Secretary to compromise, waive, or release federal claims. This second effort was narrower in scope but remained legally contested and institutionally fragile.
At the same time, the Biden administration advanced the SAVE income-driven repayment program, which substantially reduced required payments and accelerated forgiveness for many borrowers. While SAVE improved short-term affordability, it relied heavily on long-term loan discharge rather than repayment and proved politically vulnerable. Legal challenges, administrative uncertainty, and subsequent policy reversal under the Trump administration underscored the program’s lack of durability.
President Biden faced genuine political and legal opposition, but the broader failure remains unchanged. His administration did not establish a student loan framework capable of surviving beyond his presidency. By prioritizing maximal relief and symbolic alignment with the progressive base, the administration crowded out the development of a more modest but durable repayment system that could have provided long-term certainty for borrowers.
Both Party Failures
Both parties rely heavily on income-driven repayment (IDR) programs as the primary mechanism for managing student debt burdens. For many borrowers entering the workforce with low starting salaries, IDR plans are the only feasible option for avoiding delinquency. However, excessive reliance on IDR shifts the system toward prolonged repayment, administrative complexity, and eventual loan discharge rather than affordability and predictability.
A more effective approach would reduce costs on conventional loans during the early years of repayment, when borrowers are most financially constrained. Lower interest rates or capped payments during the first several years after repayment begins would reduce dependence on IDR while preserving incentives to repay principal and limiting the need for large-scale forgiveness.
Financing such reforms would require reallocating existing subsidies rather than expanding total costs. Options include eliminating the tax deductibility of student loan interest, replacing some loan discharges with zero-interest treatment after a fixed repayment period such as 20 years, and making greater use of IRS-administered collection mechanisms, including offsets against tax refunds and certain credits. These changes would improve repayment efficiency while reducing both fiscal exposure and long-term household financial strain.
Taken together, the failures of both parties have produced a student loan system that is harsher than necessary, less durable than advertised, unevenly targeted toward the borrowers most in need, and an inefficient use of taxpayer resources, while remaining vulnerable to future retrenchment driven by fiscal pressures, legal challenges, and renewed inflation concerns. The result is a system poorly aligned with broader goals of household solvency, workforce development, and retirement security.
Private Retirement Savings
Unlike health insurance and student debt, private retirement savings policy is not an area of complete legislative paralysis. Republicans largely succeeded in enacting their preferred framework, and Democrats, in turn, achieved many of their stated objectives—but neither side has sustained a stable, durable policy regime. The core failure is less inaction than pendulum governance: shifting priorities, episodic attention, and reforms designed for short-term wins rather than long-term household outcomes. As a result, retirement policy oscillates between expansion and retrenchment without the consistent focus required to meaningfully improve participation, adequacy, or resilience.
