This brief was originally published by Jia Williams on November 11, 2021. It was updated and republished by Thomas Lee on June 20, 2022.
Introduction
In recent decades, about 45 million college-educated Americans have collectively amassed $1.75 trillion in student loan debt, leading to decreased national Gross Domestic Product, sustained generational inequality, and increased loan delinquencies. In the past decade alone, student loan debt has increased by 91% from 2011. This increase in national student loan debt is not a new development, as the cost of higher education has been on the rise since President Reagan cut federal spending on higher education by 25% in the 1980s. It rose again after the Great Recession of 2007, when the government cut higher education spending once more. The effects of these budget cuts are seen in higher tuition, less aid to low income students, and more student debt than ever before.
President Biden’s Policies So Far
The election of President Joe Biden has brought on a resurgence of demand for student loan forgiveness in many different capacities. So far, Biden has only enacted targeted loan cancellation for three groups of student loan borrowers—borrowers with total and permanent disabilities (TPD); borrowers under the Borrower Defense to Repayment Rule (BD Rule); and most recently, students under the Public Service Loan Forgiveness Program (PSLF). As of May 27, 2022, Biden has canceled over $18.5 billion in student loans for targeted groups.
Students under the TPD borrowers category have a disability that prevents them from earning an income and subsequently paying their loans. Eligible borrowers under this program automatically had their loans discharged if they passed a data match between the Department of Education (DoE) and the Social Security Administration or between the DoE and the Department of Veteran Affairs. Borrowers who believe they qualify as a TPD borrower can also obtain certification from a licensed doctor to confirm that they are totally and permanently disabled.
The BD Rule covers borrowers who were defrauded by their schools or who’s schools were closed before they could complete their degree. Students who were defrauded by their schools were intentionally misled by their universities about the education programs offered or attended universities that violated state laws such as consumer protection statutes. Other qualifying conditions under the BD Rule include employment rates that differ from what was advertised, misrepresentation of the transferability of credits, and misrepresentation of graduate placement rates and salaries, among others. In March of 2021, about 72,000 borrowers under the BD rule were awarded a total of $1 billion in loan cancellations. Borrowers received an additional $500 million for 18,000 borrowers again in June, and received another $1.1 billion in late August for an additional 115,000 borrowers who were defrauded..
The PSLF Program was started by Congress in 2007, but has been underutilized due to its complexity and poor management. The purpose of the program is to cancel student debt for public servants after they’ve paid 120 on-time monthly payments for 10 years. On October 6th, the DoE announced a waiver that would allow borrowers in the program to count payments from federal loan programs and repayment plans that were not previously eligible under the program. The waiver is temporary and will be accepted only until October 31, 2022. The DoE expects this waiver to bring 550,000 borrowers a total of $1.74 billion in student loan relief.
In total, Biden has canceled $7.8 billion for more than 400,000 student loan borrowers with a TPD, $2 billion for 105,000 student loan borrowers under the BD Rule, and $6.8 billion for 113,000 borrowers under the PSLF Program. Along with the loan cancellations, the administration has extended student loan relief for temporary student loan forbearance through August 31, 2022. Temporary student loan forbearance suspends or lowers student loan payments temporarily for borrowers.
Future Policies from the Biden Administration
In the future, Biden hopes to improve student loan financing for student loan borrowers, hold student loans servicers accountable, enact more student loan cancellation programs, improve policies concerning student loan debt collection, streamline the process of applying for student loan debt forgiveness and cancellation, as well as hold colleges and universities accountable for misleading students about education programs and loan financing. There are a multitude of ways his administration plans on accomplishing these goals. To start, the DoE aims to establish a committee that will be tasked with rewriting regulations to improve the student loan crisis. Their responsibilities entail addressing issues in the BD Rule, in interest capitalization on federal student loans, in Pell Grant eligibility for prison education programs, and in the PSLF Program, as well as exploring TPD charges further. They also aspire to make student loan forgiveness more accessible by eliminating the required application and 3-year monitoring period for people who qualify for TPD.
After months of internal discussion over how to structure loan forgiveness for tens of millions of Americans, it appears that President Biden plans to forgive $10,000 in student debt per borrower. Canceling $10,000 in federal student loans for every borrower would wipe out the student loan debt for over 16 million people, representing around a third of all borrowers, according to the Center for American Progress. However, the White House plans to limit debt forgiveness to Americans who earned less than $150,000 in the previous year, or less than $300,000 for married couples filing jointly. Biden’s executive action to cancel student loans would almost certainly be limited to federal student loans only. It is still unclear whether Biden would limit the relief further to only Direct federal student loans or government-owned federal student loans, or whether it could also include commercially-held FFEL-program student loans as well. The Department of Justice is currently reviewing his executive authority to cancel all student loan debt. If it is concluded that he does not have authority to do so, responsibility will fall on Congress to pass legislation that will enact widespread student loan forgiveness.
Arguments For Student Loan Forgiveness
Progressive Democrats believe that full student loan forgiveness is possible under the Biden administration and are advocating for student loan forgiveness of up to $50,000 per borrower who earns less than $250,000 a year. At the head of the push for student loan forgiveness are Massachusetts Senator Elizabeth Warren and Senate Majority Leader Chuck Schumer of New York. They, along with Representative Ilhan Omar of Minnesota and Representative Alexandria Ocasio-Cortez of New York, believe that student loan debt is preventing a generation of student loan borrowers from advancing in life. They cite recent research that shows current generations are getting married and starting families at older ages than previous generations. Overall, they believe that student loan debt cancellation, in any capacity, is necessary to decrease generational and racial wealth disparities and increase opportunities for young Americans. Biden is hesitant to forgive $50,000 per borrower, but has expressed a willingness to forgive up to $10,000 per borrower.
Arguments Against Student Loan Forgiveness
Republican politicians have been actively opposing this view and believe it will promote fiscal irresponsibility. Representative Steve Stivers of Ohio explains that borrowers will incur student debt rashly if they assume the government will cancel it. Senator John Thune of South Dakota, also advocates against student loan forgiveness for this reason. Republican politicians also believe that the federal government cannot afford canceling student debt, especially during a time of economic downturn due to the COVID-19 pandemic. Full student debt cancellation does not address the root causes of the student debt crisis and could even potentially exacerbate the issue due to irresponsible debt accrual. Some also raise the point that total student loan forgiveness is regressive because of its disproportionate benefits for high-income earners who took out more loans to pay for higher levels of education. These individuals are already more likely to pay off student loans without the added advantages of federal student loan forgiveness, leading many to believe that widespread student loan forgiveness is an uneven wealth transfer.
An analysis from the Brooking Institute addresses the concerns of both perspectives and asserts that student loan forgiveness could be progressive and reduce social inequities and increase economic opportunity—but only if debt cancellation is contingent on post-college earning and family income. For example, someone earning $170,000 a year with $65,000 in student loan debt is comparatively in a better position to pay off loans than someone earning $60,000 a year with the national average of $36,000 in student loan debt. The proposal to cancel all student loan debt is estimated to cost $1.6 trillion, making it one of the largest wealth transfers in U.S. history, greater than 20 years of spending on unemployment insurance, the Earned Income Tax Credit, and Food Stamps. As opposed to these programs, widespread student debt cancellation would largely benefit higher income, better educated, likely white borrowers. From this perspective, targeted student loan cancellation based on post-college earnings would be less costly than widespread loan cancellation, while still helping to mitigate racial disparities and generational inequity.
