Before abortion rights grabbed national attention this week, student loans and competing proposals on how to handle the nearly $1.7 trillion in debt owed by more than 40 million Americans were at the top of the White House agenda. President Joe Biden appears to be preparing for a plan to cancel at least some debt before the current pause on loan repayments expires in September – just weeks before the midterm elections.
Biden has never been a big fan of using the presidency to write off debt, but after meeting with members of the Congressional Hispanic Caucus last week and facing plummeting approval ratings over the an election year, reports suggest action is coming. His press secretary and chief of staff both said he would announce a plan or extend the current payment break again to give him more time to make a decision.
Biden has already extended the pause four times (former President Donald Trump issued the first pause, then extended it twice), representing about $200 billion in savings, but pressure from liberal activists and Democratic lawmakers are getting stronger. Student loan experts told Vox that it’s important to use two frameworks to understand what kind of debt relief is coming: the amount of money that will be forgiven and who will receive that forgiveness.
Progressives want Biden to go big, pushing for the most forgiveness with the lightest eligibility requirements. They say the stakes are high for Biden and his party, given the high likelihood that Democrats will lose control of Congress after this year’s election – in part due to low Democratic voter turnout in the mid-term elections. tenure and the lackluster enthusiasm of activist-minded young voters and other grassroots members of the party.
The first scenario: Biden forgives up to $10,000 in student loans
That seems like a likely option. During the 2020 Democratic primaries, Biden said he supported congressional action to eliminate up to $10,000 in student loans, while his leftist rivals argued for more ambitious proposals. Reports suggest he has since become more willing to use executive action to cancel federal loans, but he doesn’t seem likely to implement that option without strings attached.
“[T]The goal, it’s true, is to make sure it targets the people who need help the most,” White House press secretary Jen Psaki said last week. Administration officials have debated these eligibility requirements, which could include a limit based on income using tax returns or pay stubs (likely a $125,000 income cap), if the institution attended by the borrower was a public or private school, the type of loan that was taken out and whether the loan was used for undergraduate or graduate studies.
The move would certainly bring relief, canceling the debt of about 32% of borrowers, or about 13 million people, according to an analysis prepared for Sen. Elizabeth Warren (D-MA) by academics from the Roosevelt Institute, a group of progressive thinking. Two million black borrowers would have their debt erased, and among borrowers who now owe more than they did when they took out a loan, this level of relief would reduce the debt of 14% of those borrowers to zero.
But the average student debt Americans hold is around $30,000, meaning the vast majority of debt holders would still be responsible for the payments. Any pardon amount is unpopular with conservative figures, and progressives like Rep. Alexandria Ocasio-Cortez (D-NY) argue the figure wouldn’t make a meaningful difference to many people. And the $10,000 figure would cost about $373 billion to deploy, about as much as the amount the federal government has spent on welfare (the temporary assistance program for needy families) over the past 20 last years.
Yet there is broad support for this decision, including among young people, and while canceling any amount of student debt contributes to inflation, this option inflicts the least damage.
The second scenario: Biden cancels between $10,000 and $50,000 in student loans
This option seems a little less likely, but not out of the question. Biden said he’s looking at less than $50,000 in pardons per person, about what Warren and Senate Majority Leader Chuck Schumer (D-NY) have demanded.
Biden probably wouldn’t hit the maximum amount here and would likely stick to the $125,000 income cap, the experts told me. But any additional $10,000 in relief over the first $10,000 would make huge differences for less well-off borrowers, according to the Roosevelt authors: “Every dollar of student debt cancellation counts, but bigger is bigger.” , the better to advance racial equity and economic security.” Charlie Eaton, assistant professor at UC Merced, and four other researchers write.
With $20,000 of relief, the student loan debt of half the borrowers, or about 20 million people, would be erased. Each additional increase of $10,000 leads to an additional increase of almost 10% in the number of debt-free borrowers. But that $50,000 total figure would cost about $1 trillion — more than has been spent on Pell Grants or housing assistance since 2000 — and has weaker but broad support among Democrats, independents and young people. It would also make inflation somewhat worse, but not as much as full debt cancellation.
The third scenario: Biden cancels all student loan debt for everyone, or for borrowers with more than $50,000 in debt
This option has extremely low odds of happening, not just because Biden has said more than $50,000 in relief is off the table. The total price of $1.7 trillion would be more than the federal government has spent on Earned Income Tax Credit or Unemployment Insurance since 2000, and would increase the rate of inflation by 0.1 to 0.5 percentage points over a 12-month period, according to the Fiscally Conservative Committee for a Responsible Federal Budget. Universal debt cancellation would also disproportionately benefit many of the wealthiest Americans, since more than half of outstanding debt is owed by people with college degrees.
Yet progressives are pushing this option the hardest, and groups like the Student Debt Crisis Center are calling for the suspension of all eligibility requirements or applications. Herein lies a tension: targeting relief goes a long way to ensuring that low-income borrowers receive the bulk of the aid, but the Ministry of Education cannot afford to implement implements a massive screening effort to review applications. Right now, the Department is already struggling to implement smaller, targeted relief efforts that the Biden administration has already rolled out, according to Adam Minsky, an independent student debt attorney.
“Even though it’s wide enough [requirements], there are a lot of legitimate concerns that some kind of means test or other mechanisms to limit eligibility could be a huge problem administratively,” he said. “The Ministry of Education is already strapped to quickly implement all of these changes, and you are going to add something else on top of that that could potentially impact millions and millions of borrowers.”
Inaction seems unlikely, but each of these measures is a political gamble. Although sort of relief polls do well, it’s not the main concern of most voters. As the Atlantic’s David Frum has written, canceling student loans carries the risk of being seen as “a tax on voters the Democratic Party desperately needs to win back,” non-educated Americans and the working class, while slowing down efforts to fight inflation and leaving only a few of his party’s most progressive members happy.
Whichever path you choose, Natalia Abrams, president of the Student Debt Crisis Center, told me that progressives will have won at least one battle. The president’s legal authority to cancel student debt is an open question, but “if that happens, President Biden will agree that the president and the Department of Education have the authority to cancel student debt,” said Abram. “We can keep pushing for more. We can agree that it is leverage and if they can cancel $10,000, they can cancel $50,000. And then they can cancel everything.