President Joe Biden’s decision to forgive federal student loan debt for those who meet certain income requirements is now the latest political hot potato. Progressives insist that this decision does not go far enough in easing the burden of student debt. Republicans are angry that only a minority of Americans benefit from the decision and argue that only Congress can cancel the debt.
Student loans have become expensive as tuition fees have skyrocketed. Many factors have contributed to the problem, including lax borrowing regulations and educational institutions seeking federal loan dollars with little regard for student education. The large payments made it more difficult for young people to find a financial basis to buy a house and raise a family.
A long time ago, the rest of the developed world solved the problem of tuition fees. Much of Europe and Canada offer free or minimal tuition to qualified students. Only in America do we insist on making our students pay for such a basic and important right as higher education in a complex world.
Federal student loan debt soared to $1.6 trillion for 45 million borrowers. Since 1980, the total cost of tuition for public and private four-year colleges has nearly tripled, even after adjusting for inflation. Nearly a third of borrowers are in debt but without a diploma because the expense forced them to give up.
Biden promised during the 2020 campaign to provide student debt relief. A pause in federal student loan repayments was imposed during the pandemic, which Biden has now extended through the end of this year. The new tuition plan takes three additional steps. First, low-income students who have qualified for Pell grants (need-based federal financial aid) will receive up to $20,000 and non-Pell grant recipients up to $10,000 in debt forgiveness. High income earners who currently earn more than $125,000 will be excluded from this program.
Second, the student loan system will be made more manageable for current and future borrowers by cutting undergraduate loan payments in half. Most borrowers now pay 10% of their discretionary income in loan repayments. This will be reduced to 5%.
Third, the inefficient and outdated Civil Service Loan Cancellation (PSLF) program will be improved. This will ensure that borrowers who have worked in non-profit organizations, the military, or for government entities receive proper credit for federal loan forgiveness.
Biden also promised to work with higher education to reduce the cost of attending colleges and universities. The Department of Education will announce new rule-making efforts to ensure students receive value for their tuition. Biden will continue to push for another campaign promise to make two years of community college free for all Americans.
Republican objections to the above plan came quickly and furiously. Attacking student loan forgiveness was seen as a way to regain political ground lost to Democrats following legislative victories in Congress and the former president’s mounting legal troubles. The remainder of this commentary will examine each of the objections.
Loan cancellation will increase inflation: This objection does not stand up to economic analysis. The pandemic pause in loan repayments will end at the end of the year when the first forgiveness adjustments appear on loan statements. At that point, resuming student loan repayments will suck more cash out of the economy than debt relief will add. Goldman Sacks has calculated that the forgiveness program should cancel about $400 billion in debt. However, the income-increasing effect will only increase gross domestic product by 0.1% in 2023 and by a lesser amount in subsequent years. This has a minimal effect on inflation.
Loan forgiveness benefits few Americans: There are currently approximately 45 million student borrowers in the United States. When my generation went to university, it was possible to work during the summer and during the school year to pay for our studies. In recent decades, states have cut funding for public colleges, putting tuition out of reach without a loan. This thwarts the strong public interest in helping students graduate with minimal debt. They can then perform the tasks demanded by our advanced economy, become taxpayers, buy homes, and raise the next generation of educated Americans.
Before you get mad at students getting a financial windfall, remember that during the pandemic, thousands of businesses received large government loans that were forgiven. Additionally, the former president was able to expand his real estate empire by filing for bankruptcy six times and defaulting on his bank loans.
Only Congress can cancel the debt: Republicans believe that without congressional authorization of a specific loan cancellation program, the president lacks the power to cancel student loan debt. While there are legal arguments for and against, Republicans appear to have the upper hand given the makeup of the Supreme Court.
At the end of the day, I feel like voters who get debt relief are very happy with it and will remember it when they vote in November and beyond. Conversely, Americans upset by the decision will have much shorter memories and be swayed by other issues like abortion and voting rights.
If Republicans are able to gain procedural status to mount a legal challenge to Biden’s executive order, conservative courts will likely rule that only Congress can forgive student loan debt. Biden will forever be recognized for his efforts by millions of grateful students.
Gary Stout is a Washington lawyer.
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