The debates over the cancellation of student debt

As President Biden plans to deliver federal student loan relief through executive action, debates have raged over student debt forgiveness, including who would most likely benefit from student loan relief. such a decision. Experts and advocates unravel the key points on this issue.

“There’s a misconception that the average American who doesn’t have student loans or hasn’t repaid them finds student debt forgiveness unfair,” said Cody Hounanian, executive director of the Student Debt Crisis. Center (SDCC), a non-profit organization focused on ending debt. crisis. “But in reality, polls show that Americans find it unfair to go into debt for higher education in the first place.”

the Washington Post recently reported that the Biden administration, responding to public pressure, plans to reduce student loan debt by at least $10,000 for those who qualify. Top Biden aides are reportedly considering income caps to provide relief to people earning less than $125,000 to $150,000, or $250,000 to $300,000 for couples filing taxes together.

Biden told reporters last week that he would make a decision on canceling student debt “within the next two weeks.” But he said he does not consider forgiving $50,000 despite progressive Democrats like Sen. Elizabeth Warren calling on him to do so.

Those advocating for more student debt forgiveness point out that it could help close the racial and gender wealth gap. Student debt is disproportionately owned by people of color and women.

Yet opponents argue that high-income earners carry significant student debt. So those who would benefit the most from large-scale cancellation may not be the ones who need it the most.

A recent report of the Federal Reserve Bank of New York took a closer look at these issues. The analysis found that the total outstanding balance of student loans held by the federal government, including defaulted loans, was $1.38 trillion at the end of last year.

According to the report, canceling $10,000 of federal student loan debt per borrower would erase approximately $321 billion in debt. This would entirely eliminate the balances of about 11.8 million people, or 31.1% of federal borrowers.

The analysis also revealed that a smaller discount policy (i.e. $10,000 versus $50,000) distributes a greater share of this benefit to low and medium credit score borrowers as well. than to those living in low- and middle-income neighborhoods.

However, several advocates point to the difference between wealth and income to make sense of racial inequality with the cancellation of student debt.

The average white family has about 10 times more wealth than the average black family. According to reports, black borrowers from families in the highest income quintile also have higher default rates than white borrowers in the lowest income quintile.

In addition, about 40% of student borrowers have non-degree debt. Some argue that the focus on high incomes may miss these key populations.

“We also have this problem of individualization of student debt, but context is key,” said Ernest Ezuego, director of higher education policy and advocacy at Young Invincibles, a national advocacy group focused on student debt. support for young people. “We know that higher education is the surest path to economic stability and mobility. People do not take out loans with the joy of their hearts. They do this to protect not only their own future, but also that of their families and networks.

But the biggest question for many is what to do about college affordability. Canceling student debt does not address the waves of students who are still taking out loans to go to college or quitting altogether because of their finances.

“Student loan forgiveness is very retrograde,” said Dr. Phillip Levine, Katharine Coman and A. Barton Hepburn Professor of Economics at Wellesley College. “We have current and prospective students who are enrolled or enrolling who are going to face very similar issues.”

Levine is also the author of A Problem of Adjustment: How Complex College Fees Are Harming Students — and Universities. He noted that low-income students are being asked to pay tuition fees beyond what they can afford.

“It forces students to make sacrifices, which can take the form of extra work or more debt, or both, and neither is good for their academic performance, as it could cause them to drop out. or take on excessive debt,” Levine said. “Debt cancellation does not solve these problems for current students.”

But for Persis Yu, director of policy and legal counsel for the Student Borrower Protection Center advocacy group, debt cancellation remains a critical step. As she said, “we have to walk and chew gum at the same time.”

“To torture the analogy, the student loan system is bleeding, and yes, it’s a band-aid, but we need band-aids,” Yu said. “You can’t fix the system while it’s bleeding. Again. We have to master it. This is a multi-step process.

Yu added that the cancellation would eliminate a substantial portion of the federal student loan portfolio, making it easier to implement larger reforms.

It’s still unclear what exactly Biden’s student debt cancellation plan will look like. Whatever the plan, Yu stressed that relief should be easy for borrowers to obtain.

The Department of Education’s long-standing dysfunctional student loan programs, such as the Civil Service Loan Forgiveness Program (PSLF), underscore how borrowers can easily squeeze through bureaucratic cracks rather than hold their promises.

“The more barriers you put up, the harder it will be for the people who need this relief the most to get it,” said Yu, who advocates no means testing with debt relief. “How can we make sure that people on the lowest incomes or those who don’t have access to a computer can get relief? We need to make this as automatic as possible and as simple as possible.

Natalia Abrams, president and founder of the Student Debt Crisis Center, noted that no matter where the numbers land, Biden’s eventual decision will be one to watch.

“Regardless of the amount of debt forgiven, and we believe as much as possible should be forgiven, it’s a victory for legal authority to do so,” Abrams said. “It proves that the White House agrees that it has the power to cancel debt. So if we can cancel the debt of 10 million borrowers today, we can cancel the debt of more tomorrow.

Rebecca Kelliher can be reached at [email protected]

Julio V. Miller