October 6, 2022

But Biden has never shied away from making it clear that he doesn’t support the $50,000 in debt cancellation they’ve been pursuing and has voiced concerns about canceling debt for borrowers who graduated from elite schools like Harvard University – essentially adhering to the idea that wide-scale student loan debt cancellation often benefits wealthier borrowers. Those concerns have been repeated not only by fiscally conservative Democrats like Sen. Joe Manchin of West Virginia but also by more mainstream moderates, including Transportation Secretary Pete Buttigieg, Speaker of the House Nancy Pelosi of California and Sen. Amy Klobuchar of Minnesota.

“I understand the impact of the debt and how it can be debilitating,” Biden said last year, the last time he publicly spoke about the issue. “There’s a whole question about what universities are doing. They don’t need more sky boxes.”

Until now, the administration, led by Cardona, has issued several rounds of targeted federal student loan forgiveness totaling more than $32 billion in relief, including $13 billion for 1 million borrowers whose schools misled them on job placement and expected salaries or shuttered suddenly before they could finish their programs, as well as $9.6 billion for 175,000 borrowers through the Public Service Loan Forgiveness Program and $9 billion in discharges for more than 425,000 borrowers who have become permanently disabled.

The announcement Wednesday to cancel up to $20,000 in student loan debt for certain borrowers – one that’s taken Biden 19 months to finally support – has some higher education policy experts lamenting that it does little to alleviate the root cause and has political strategists scratching their heads wondering who it’s intended to motivate ahead of the midterm elections, especially with party motivation already seemingly supercharged by the Supreme Court decision stripping women of their constitutional right to abortion access and the current FBI investigation into former President Donald Trump.

“This has taken up all of the oxygen on higher education and it is a Band-Aid on an open wound,” says Lanae Erickson, senior vice president for social policy and politics at Third Way. “We are going to be back to $1.6 trillion held in student loan debt in five years. Are we going to do this every five years? You have to reform the system. You’re basically just giving a handout to a bunch of colleges that are leaving people worse off.”

“Most frustratingly, it’s just the latest example of Democrats being caught in the Twittersphere and not understanding the real world experiences of their coalition,” she says. “We have been hemorrhaging non-college educated voters. What is the quickest way to remind them that we do not care about them? It’s to focus entirely on people with higher education debt.”

Those concerned with the plan’s fiscal implications point to troubling estimates from the Committee for a Responsible Federal Budget, which calculated that $10,000 in loan forgiveness would erase the deficit reduction recently achieved through the Inflation Reduction Act and add as much as 15 basis points to the inflation rate.

[ MORE: Feds Cancel $8.1B in Student Loan Debt ]
Notably, a recent analysis from the University of Pennsylvania’s Penn Wharton Budget tracker estimates that a one-time $10,000 debt forgiveness would cost about $300 billion with an income cap of $125,000 but would benefit the top 60% of earners more than any other earnings group. Eliminating the income threshold – as many progressives are urging – would boost the cost to $344 billion, while increasing the amount of debt canceled to $50,000 would raise the cost to $980 billion.

“Every dollar spent on student loan relief is a dollar that could have gone to support those who don’t get the opportunity to go to college,” Larry Summers, former treasury secretary under President Bill Clinton, said in a series of social media posts ahead of the announcement. “Student loan debt relief is spending that raises demand and increases inflation. It consumes resources that could be better used helping those who did not, for whatever reason, have the chance to attend college.”

In addition, questions abound, including from Republicans calling foul, about whether Biden has the executive authority to cancel student loan debt on its own, with concerns rooted in the Supreme Court’s recent decision to strike down certain climate rules from the Environmental Protection Agency as an inappropriate use of White House powers. The decision held, among other things, that major new policies require congressional authorization if the question at issue is of economic and political significance.

Anticipating such criticism, the Education Department published a legal memo on Wednesday that draws from a provision in a 2003 law that officials say gives the president power to waive or modify rules on federal student loans. The Justice Department also published a memo detailing how the administration has the authority to cancel student loan debt.

Moreover, while the common thinking is that student loan cancellation is supported broadly by young Americans – a voting bloc Democrats are trying to energize ahead of an election cycle that’s historically not as popular for turnout – recent polling from the Institute of Politics at the Harvard Kennedy School shows that only 38% support total debt cancellation. Support for full cancellation has increased 5 percentage points since 2020, the poll shows, but preference for the government helping with repayment decreased 8 points.

Biden was firm that the decision to finally offer student loan debt cancellation is the right one. According to Education Department estimates, among borrowers who are no longer in school, nearly 90% of relief will go to those earning less than $75,000 a year. No individual making more than $125,000 or household making more than $250,000 – the top 5% of incomes in the United States – will receive debt cancellation.

“We’re taking an economically responsible course,” he said, noting that restarting student loan payments would bring about $50 billion back into the Treasury annually, and that combined with ongoing deficit reductions – estimated to total $1.7 trillion this fiscal year alone – the plan is fiscally sound.

“There is plenty of deficit reduction to pay for the program many times over,” he said, adding that no one pushed back when the federal government forgave small business loans during the pandemic.

“No one complained that those loans caused inflation,” he said. “They needed help and it was the right thing to do. So the outrage over helping working people with student loans I think is simply wrong. Dead wrong.”

“I understand that not everything I’m announcing today is going to make everybody happy,” he continued. “But I believe my plan is responsible and fair. It focuses the benefit on middle class and working families and helps both current and future borrowers and will fix a badly broken system.”

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