The Future of Student Loan Debt Forgiveness
During Joe Biden's presidency, he has already canceled $11.5 billion in student loans. However, the total student loan debt as of 2021 was $1.73 trillion between 43 million borrowers. Biden did not promise to forgive all student loan debt but advocated during the 2020 campaign that the federal government forgives at least $10,000 of federal student loans for every loaner. For now, borrowers do not need to make payments until May 2022 due to the Biden administration's student loan payment pause. After May 1st, Biden will have to decide about his student loan debt forgiveness policy.
Senator Warren claimed that the president could cancel student loan debt by himself, citing that Biden has already canceled some student loan debt using his executive powers. However, there is a significant difference between using executive authority to forgive $10 billion for specific groups–such as those with permanent disabilities– and unilaterally wiping away 170 times as much debt. Furthermore, the executive branch only has the power to forgive student loan debt when Congress authorizes it to do so. The same would be true for Bernie Sanders, who promised to cancel all student loan debt during his presidential campaign. Progressives who refuse to acknowledge the legal reality of Biden's inability to cancel student loan debt may be passing the buck knowing that Congress is not prioritizing total student loan debt cancellation. Regardless of the political posturing of different factions within the Democratic Party, student loan debt forgiveness, or lack thereof, has significant ramifications for the American economy.
A poll earlier this year found that 34 percent of Americans approve of Biden's handling of the economy. Biden's handling of the economy is hard to measure because key metrics point in different directions. The unemployment rate in January 2022 was about four percent, a far cry from the rate of about 15 percent at the beginning of the pandemic. As of January 2022, the S&P 500 is up about 18 percent, with the Dow Jones up over 12 percent since Biden took office. A soaring stock market and low unemployment are causes for celebration for most presidents. However, over the last 12 months, the Consumer Price Index for All Urban Consumers–a critical measurement for inflation–shot up 7.5 percent, the most significant 12-month change in almost 40 years. In a moment where Americans are anxious about the economy, the Biden administration could look at student loan forgiveness as an economic stimulus rather than a righteous liberation of debtors.
Forgiving all student loan debt has drawn criticism from places like the Becker Friedman Institute at the University of Chicago. The Becker Friedman Institute argued that total student loan debt forgiveness is a regressive policy that benefits high-income earners because college graduates earn more on average than those without a college degree. Thus, wiping out the debts of people who earn more on average would disproportionately advantage those who will likely make more money throughout their lives.
Proponents of student loan forgiveness argue that student loan debt is bad for the economy, not just debtors. A Federal Reserve Bank of Philadelphia study found a negative correlation between student loan debt and small business creation. Every dollar spent paying off a student loan is a dollar that cannot be spent on anything else, including starting a business, buying a home, and so forth. Additionally, student loan debtors cannot use bankruptcy to help unburden themselves from their debts. Many other types of debts can be relieved through bankruptcy, including credit card debt and medical bills. The incongruity of the bankruptcy rules puts student loan debtors in an unfair position relative to other debtors.
For now, student loan debt forgiveness appears to be an issue wherein the ball remains in Congress's court. Biden currently lacks the political impetus to cancel all student debt, and he is also unable to do so legally. Biden seems unlikely even to make such an attempt as he handles the Ukraine situation, inflation, COVID-19 policy, Build Back Better, and a Supreme Court nomination. Student loan debt forgiveness remains an issue to be decided by the legislature.