How Biden Wants to Trim a Mountain of Student Debt

Among the economic issues facing the new Biden administration is how to help alleviate the weight of $1.7 trillion in student debt, a figure that had ballooned from $1 trillion in 2012. All but about $100 billion of that money is owed to the federal government by some 43 million people. President Joe Biden has said he supports a plan forCongress to cancel as much as $10,000 in debt for federal student borrowers, in part as a response to the pandemic. It’s a proposal that’s been welcomed by some, and called both too much and too little by others.

1. Who would Biden’s plan help?

It would cover both current and former students, including those who dropped out without completing a degree. About 15.3 million borrowers –- a bit more than a third of the total — could have their federal loans wiped out, according to the most recently published Education Department data. An additional 27 million have debt of between $10,000 and $100,000. Only 3.2 million owe more than that, including about 900,000 who have debt exceeding $200,000, a group that likely includes many current or former graduate students. TheU.S. Education Department couldn’t provide an estimate of the proposal’s cost, or say if the forgiveness would extend to parents who have taken out federal loans to pay for their children’s college.

2. Can Biden do this on his own?

Biden has said he wants it to be part of legislation. (U.S. Senator Elizabeth Warren, in her own campaign for the party’s presidential nomination, said she wouldn’t wait for Congress and wouldwipe away debt on her first day as president.) Biden has used executive orders to take some related actions: On his first day in office, he directed theDepartment of Educationto extend a freeze on federal student-loan payments through September and keep the interest rate at 0%, which means no accumulation of interest during the freeze. Collection efforts are also paused.

3. What’s the argument in favor of the debt-canceling plan?

That it would reduce stress on those who borrowed for school and give the economy a boost by allowing them to spend money that otherwise would have gone back to the government. The proposed amount of $10,000 per person would also deliver concentrated economic benefit to borrowers of color, according to Toby Merrill, founder and director of the Project on Predatory Student Lending atHarvard Law School. She said there are a disproportionate number of such borrowers in the group who would have their whole debt wiped out. It would remove their risk of future default, she said, adding that, “Many of these borrowers also happen to be among those most severely impacted by the coronavirus and our current economic crisis.”

4. What are the arguments against?

Not all experts agreed with Merrill.

* Jason Delisle, a visiting fellow at theAmerican Enterprise Institute, said the relief should be directed to people who need it most, rather than for all borrowers. “It seems terribly unfair,” he said. “Typically people with student debt are in relatively good shape.” Job cuts during the pandemic have hit hardest among less educated groups.

* Michael Katz, who has advised colleges and students about financial aid for 40 years, said that “Broad-brush solutions are easy to administer, make for big headlines, but do not always get to the people who need them most.” He said the amount of debt forgiven should in part be based on the amount of cumulative indebtedness and in an ideal world, potential earnings, he said.

* Thomas Shapiro, a professor of social policy atBrandeis University, said such “minimal” relief would do nothing to narrow a 20-to-1 wealth gap between White and Black households with student debt. And it wouldn’t address the factors that had created the student debt crisis in the first place, he said.

5. What other ideas are out there?

Biden has proposed making tuition free for students attending public universities whose families earn $125,000 or less per year. He has also discussed making community college free. When Senator Bernie Sanders sought the Democratic nomination, he pledged to guarantee that public universities, Historically Black Colleges and Universities and trade schools would be tuition-free.

The Reference Shelf

• AQuickTake giving background on student debt in the U.S.
• The student loan plans proposed byElizabeth Warren andBernie Sanders.
• Aletter from over 230 advocacy groups endorsing the cancellation of student debt.
• AnOp-Ed by Beth Akers of theManhattan Institute arguing for limiting debt forgiveness to $5,000 per student, andone byMary Clare Amselem of theHeritage Foundation arguing against the idea entirely.

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