Biden Administration Gives Hope for Student Loan Forgiveness
In 2020, borrowers in the United States found themselves in a total of $1.56 trillion of student debt.
President Joe Biden extended President Donald Trump’s pause on student loan payments on January 21, which suspended loan payments and included a 0% interest rate on existing loans. The Biden Administration’s new plan aims to forgive at least $10,000 of student debt per person on federal loans following the pause. It would continue to lessen the financial burden on individuals struggling due to COVID-19.
"The President has and continues to support canceling $10,000 of federal student loan debt per person as a response to the Covid crisis," said White House press secretary Jen Psaki at a briefing on February 4th.
While the Biden administration has listed $10,000 as the minimum amount, Senate Majority Leader Chuck Schumer (D-NY) and Senator Elizabeth Warren (D-MA) called for Biden to forgive $50,000 per borrower in early February. Senator Bernie Sanders (D-VT) and Warren have pushed for a student-debt cancellation plan since 2019, but a definite plan has yet to come.
Despite the recent calls for student debt forgiveness, some individuals have been able to apply for debt forgiveness through different measures. The federal government offers both teacher and military loan forgiveness among qualifications, but only 0.3% of student loan debt is forgiven.
While the Biden Administration has developed an outline to offer student loan forgiveness on a wider scale, Congress has yet to confirm the plan. However, 56% of all US adults support the federal government canceling $10,000 in federal loan debt per borrower, according to a Morning Consult survey from January 2021. Three hundred twenty-eight organizations have also signed a letter to Biden and Harris to cancel student debt, demonstrating considerable support for the effort.
From a constitutional standpoint, student loan forgiveness remains possible. The Department of Education can legally cancel student loan debt, according to a letter from lawyers at Harvard’s Legal Services Center written to Warren. Because Democrats hold the majority in Congress, student loan forgiveness appears likely. However, the GOP has yet to offer full bipartisan support.
Proponents of student loan forgiveness argue the measure would help eliminate debt for millions of Americans. 2020 saw a total of 45 million loan borrowers, and forgiveness on loans would keep them from paying some or all of their debt. Money saved from student loan debt could be placed elsewhere to limit the financial toll of COVID-19. Money saved from loan forgiveness can also help stimulate the economy by allowing borrowers to use the money to buy property or support small businesses.
According to the Congressional Research Service, “every state and the District of Columbia reached unemployment rates greater than their highest unemployment rates during the Great Recession.”
The $10,000 student loan forgiveness plan would eliminate debt for 15.3 million borrowers or 33.6% of all individuals suffering from student loan debt. However, the plan would leave people with student debt greater than $10,000 to continue making payments, arguably providing less assistance to those who may need it more.
Laura Beamer, the lead researcher at the Jain Family Institute, claims lower-income individuals would benefit more than others with lower amounts of debt.
“People who are low-income are going to be benefiting the most, even just looking at their debt-to-income ratios before and after debt cancellation," Beamer said in an interview with Business Insider. "Those getting $10,000 in student loan relief, the impact for households as a portion of their income freed up is dramatically greater for lower-income households.”
While the plan would produce some effect on general wealth distribution in the United States, it could help close the racial wealth gap.
After obtaining a bachelor’s degree, black college graduates owe an average of $7,400 more than white graduates. When graduate school is taken into consideration, the gap increases to $25,000. In the workforce, black men with the same experience and education as their white counterparts earn $1,400 less. While the $10,000 plan would help close the gap, new data from the Roosevelt Institute indicates $75,000 in student debt forgiveness would be a more appropriate number.
Roosevelt Institute also suggests that greater debt forgiveness would increase household wealth and extend to helping the economy. According to Student Loan Hero, the class of 2019 graduated with an average of $29,900 in student loans.
While average debt student loan debt in the United States may seem steep, other nations deal with the same issues. The average student loan debt in Sweden is approximately $21,000, but students put the money towards living expenses since schooling is free.
However, Sweden’s interest rate on these loans is much lower, staying at 0.13% in 2018. Borrowers pay incrementally as well, with payments increasing by 2% each year to accommodate the first several years after college when income may be lower.
Although student loan forgiveness can relieve a financial burden from millions of Americans, some opponents argue the measure would be unethical.
Former United States Secretary of Education Betsy DeVos opposes student loan forgiveness, questioning the measure’s morality.
“It’s fundamentally unfair to ask two-thirds of Americans who don’t go to college to pay the bills for the mere one-third who do. And it’s even more unfair to those who have held up their end of the bargain and paid back their student loans themselves to subsidize those who don’t save, plan, and pay,” said DeVos.
Despite Devos’s qualifications remain questionable, as she lacks formal experience. “She was never a certified public school teacher, principal, superintendent, state chief or school board member; nor did she earn a degree from a public postsecondary institution,” a US News article said. President Trump even vetoed a measure she proposed to increase qualifications for existing student loan forgiveness plans.
Matthew Noyes, who owed $27,000 in student loans after attending college, agreed with Devos.
“I gave up a lot to accomplish what I did, but debt “forgiveness” would punish taxpayers like me for our hard work and frugality—just so others don’t have to take responsibility for their own choices,” said Noyes in a Foundation for Economic Education article.
The economic impact of the $10,000 plan has left some Republicans concerned. Senator Mitt Romney (R-UT) was among critics of the plan, questioning if the government’s excess spending would be necessary on top of existing COVID-19 stimulus relief checks.
Concern about the Biden Administration’s plan’s economic impact also lies in the cost and limited additions to the GDP.
According to a Goldman Sachs report, the United States government would spend $300 billion to eliminate $10,000 of debt for every borrower and receive less than 0.1% to the GDP. The same report found Schumer and Warren’s $50,000 plan would cost $800 billion but would only give the GDP a slightly larger boost. The slight GDP changes would indicate only a minimal benefit to the economy; a higher GDP demonstrates a healthier economy.
Despite concerns about the cost of student loan forgiveness, total federal debt at the end of 2019 was $22.8 trillion. The United States will contribute $934 billion to military spending alone between October 2020 and September 2021, showing student loan forgiveness as a percentage of other priorities.
Mark Kantrowitz, publisher and Vice President of research for Savingforcollege.com, said that despite opposition, Democratic control of Congress makes student loan forgiveness more likely.
“Generally, Democrats support loan forgiveness while Republicans do not,” said Kantrowitz.
While Republicans generally question economic impact, the plan may see some success in the near future. According to Kantrowitz, student loan forgiveness is “more likely than not.”