Biden signals he’s ready to call in student loans
The White House is also carefully considering how much student debt to reduce for each borrower. Biden told reporters this week that the amount would be less than $50,000 per person. Administration officials have also signaled that the White House will cut at least $10,000 per qualifying borrower, the people said, taking a position Biden himself appeared to support in a private meeting with the Hispanic congressional caucus. The government has also discussed limiting forgiveness to student loans, except for those taking out loans for professional degrees in fields like law and medicine, the people said.
“There are various suggestions in the administration on how this can be structured,” said a person involved in the discussions, who spoke on condition of anonymity to reflect private conversations. “Over the past week in particular, administration and congressional staff have focused the debt relief conversation on how best to fulfill the President’s desire to ensure that the most economically vulnerable people with student debt benefit from any measures. “
The Washington Post first reported this week that at a recent meeting of Hispanic lawmakers, Biden signaled that he intended to take significant action on student debt relief. On Thursday, the president publicly confirmed that he was “watching the matter closely” and expected to make a decision “in the next few weeks.” The administration has already extended a Trump administration moratorium on loan repayments, initially triggered by the coronavirus pandemic, to August 31.
Biden’s recent remarks sparked a major debate over whether the forgiveness of student debt would benefit really needy borrowers or primarily help wealthier college graduates who chose to take out hefty loans. White House officials are considering adding the income caps to deflect Republican arguments — echoed by centrist Democrats as well — that debt relief rewards higher-income college graduates who don’t need government assistance.
A White House spokesman declined to comment on internal discussions, but said in a statement that the administration is reviewing options that could be taken to provide relief while calling for the president’s support for cutting student debt in the amount of $10,000 relegated by law. The government has also taken measures that have resulted in more than $17 billion in loan cancellations for more than 700,000 borrowers, the spokesman said. The continuation of interest and payment moratorium on student loans has saved 41 million student borrowers tens of billions, the spokesman said.
But the proposed loan waiver would go much further. In 2019, the most recent year for which data is available, 97 percent of all student debt was held by people falling below the $150,000 per single and $300,000 threshold, according to Matt Bruenig, founder of the People’s Policy Project per couple earned left-leaning think tank. According to the nonprofit Committee on Federal Budget Responsibility, which advocates for curbing federal debt, $10,000 in debt relief would cost about $245 billion for each student borrower. The average amount borrowed by college graduates who took out loans to pay for their degree in 2020 was $28,400, according to the College Board. 54 percent of borrowers owed less than $20,000, while 10 percent owed at least $80,000.
Even a much tighter income limit is unlikely to appease critics of student loan forgiveness. Student debt is held primarily by Americans with above-average incomes, and the poorest 20 percent of Americans by income holds only 8 percent of total student debt, according to the People’s Policy Project. In 2019, 44 percent of adults earning less than the median of $47,500 had no education beyond high school, compared to just 19 percent of those earning more. Conservative economists and Republicans have already spent the week shaming Biden for the idea of forgiving college loans.
“That’s the base of the Democrats — high-income, aspiring urban professionals. Subsidizing college graduates with often expensive degrees is going to really offend those who didn’t go to college as well as those who paid off their student loans,” said Brian Riedl, a conservative policy analyst at the Manhattan Institute, a supporter of the centre-right think tank. “That’s a slap in the face”
But Biden is facing significant pressure to take significant action, especially during the collapse of the rest of the White House’s economic agenda aimed at reducing health care, housing and other household expenses. The Congressional Hispanic Caucus and the Congressional Black Caucus are among those who have urged the government to take aggressive action, in part because black Americans make up a disproportionate share of student debtors. Blacks make up 16 percent of the US population but owe 23 percent of the nation’s student debt.
The US could have given thousands of student loans but never told the borrowers about it
Rep. Alexandria Ocasio-Cortez (DN.Y.), who has pushed the White House to forgive student debt, said the administration should cancel up to $50,000 per borrower and expressed concern that $10,000 would not represent a significant improvement for many people. For Americans with $30,000 or more in debt, removing $10,000 of that total would not materially affect their monthly payment obligations, a plight exacerbated by falling inflation-adjusted wages for millions of workers, she said.
While student debtors, like college graduates as a whole, have higher average incomes than Americans as a whole, those who owe student loans are much less wealthy than most college graduates. According to the People’s Policy Project, more than half of student debt is held by people without wealth. The richest 20 percent of the population owe only a small fraction of college debt.
“I don’t believe in a cut, especially for so many frontline workers who are drowning in debt and would probably be left out of relief,” Ocasio-Cortez said. She added that a statewide income limit doesn’t take into account the much higher cost of living in some parts of the country. “If you forgive $50,000 in debt, you really dent inequality and the racial wealth gap. It’s not $10,000.”
Economist Larry Summers, who served under Presidents Bill Clinton and Barack Obama, said he would prefer Biden to approve policies that target half the population that isn’t in college, which has less net income than those who did. He also said there were “concerns” that canceling student debt could increase inflation, depending on the total amount of loans made.
Still, Summers stressed that the government’s current policy — a moratorium on loan payments — is less well-targeted than one that would reduce the debt of a specific segment of the population.
“I’d much rather that people who haven’t gone to college have priority over people who have. Period,” Summers said. “But it’s better to do a limited, targeted program than blanket relief.”