President Joe Biden took steps toward making good on a campaign promise to tackle student loan debt this spring. The move, however, faced critics from the left, with some saying the president had not gone far enough to help debt-burdened graduates, and the right, which argued that the government should not waive student debt.
In March, the Biden administration announced that it would cancel $1 billion in student loan debt for 72,000 borrowers who attended schools that closed abruptly or that used illegal or deceptive practices. The move streamlined the process for borrowers applying for assistance after a Trump-era policy that made it difficult to determine “appropriate relief,” according to a statement released by the Department of Education.
The Biden plan also permanently canceled student loan debt for borrowers with disabilities if their income falls below a certain threshold. The Trump administration had announced similar plans, but more than 40,000 applicants found their student loan debt reinstated after they failed to provide income verification paperwork.
In addition, the American Rescue Plan, the $1.9 trillion COVID-19 relief stimulus passed by Congress in March, exempts individuals from paying federal income tax on forgiven loan amounts for the next five years, making it more appealing for borrowers to seek forgiveness for their student loans. That provision was adapted from the Student Loan Tax Relief Act introduced by Sens. Elizabeth Warren (D-Mass.) and Bob Menendez (D-N.J.). It’s estimated that the average borrower earning $50,000 a year would save about $2,200 in taxes for every $10,000 of forgiven loans.
“This change clears the way for President Biden to use his authority to cancel $50,000 in student debt to provide a massive stimulus to our economy, help narrow the racial wealth gap and lift this impossible burden off of tens of millions of families,” Warren said in a statement.
Student loan debt is approaching $2 trillion in the U.S. Democrats have increasingly pushed for the government to cancel that debt; a resolution from Warren, Senate Majority Leader Chuck Schumer (D-N.Y.) and Rep. Ayanna Pressley (D-Mass.) calls on the president to cancel $50,000 in debt for people who borrowed from the federal government. That, the sponsors said, could increase household wealth for young people and could help close the racial wealth gap.
“During a time of historic and overlapping crises, which are disproportionately impacting communities of color, we must do everything in our power to deliver real relief to the American people, lift up our struggling economy and close the racial wealth gap,” Schumer said in a statement. “Democrats are committed to big, bold action, and this resolution to cancel up to $50,000 in federal student loan debt is one of the strongest steps the president can take to achieve these goals.”
Biden, however, said that he did not support that resolution, arguing that he does not want to cancel “billions of dollars in debt for people who have gone to Harvard and Yale.” The president said he would instead support canceling up to $10,000 per borrower.
Critics often argue that loan forgiveness would be a handout for more privileged people who could afford to go to college in the first place. Others argue that canceling debt would not stimulate the economy, that the burden of student loans should fall on borrowers rather than taxpayers and that addressing loan debt would not decrease the cost of higher education. Some conservatives have even said that student loan debt is a problem hyped by the left.
“We need to stop pretending that student loan debt is actually a ‘crisis,’” wrote Brad Polumbo, a fellow at the libertarian think tank Foundation for Economic Education. “The average monthly payment is $200-$299. If you can’t pay that, as a college graduate, it’s your own fault.”
Many opponents of student loan forgiveness also argue that other solutions, such as income-based repayment plans, offer a better fix.
“Rather than jumping straight to student debt forgiveness, which creates a moral hazard for current and future student borrowers and is poorly targeted, Congress and the administration should do a better job of informing borrowers about what options exist to make affordable payments, while simplifying options to remove confusion,” Sen. Bill Cassidy (R-La.) wrote in an op-ed. Cassidy added that repayment plans typically have debt forgiveness built in, usually after about 20 or 25 years of repayment.
Student loan forgiveness will likely remain a priority issue for many Democrats as they continue to push for President Biden to take further action in tackling America’s mounting student loan debt.
For more background, see the November 2009 issue of Congressional Digest on “Federal Student Loans.”
