President Joe Biden said Thursday he is “considering dealing with some debt reduction.”
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Two years since candidate Joe Biden tweeted that student borrowers should have at least $10,000 of their debt forgiven, the administration is “in the process of taking a hard look” at whether it should happen, now-President Biden told reporters yesterday.
The administration has taken several measures to relieve the burden of student debt, but so far, that has not included across-the-board student debt cancellation. Why the long equivocation over such a prominent campaign promise? Despite what cancellation advocates say, universal debt forgiveness poses economic and political challenges.
Borrowers of federal student loans have not had to repay their debt or accrue interest since early in the pandemic. The Biden administration announced its sixth extension of that pause earlier this month, giving millions of borrowers a break until at least Aug 31. In addition to the extension, the Department of Education will move to give borrowers in default a “fresh start” by allowing them to begin repayment in good standing and erasing the default from their credit record as a result.
The administration has canceled more than $17 billion in loans held by over 725,000 borrowers, according to the Department of Education. But those cancellations have targeted individual groups of borrowers, including many defrauded by lenders. Some advocates and lawmakers continue to push for longer extensions and broad cancellation of debt.
Student loans affect Americans from nearly every walk of life, though not equally: More women and people of color have debt than other groups. Influential Democrats want Biden to go beyond the $10,000 minimum he pledged during the campaign. Sens. Elizabeth Warren and Chuck Schumer have argued that the next president should cancel up to $50,000 of student debt, saying it would boost the economy and close the racial wealth gap. Forgiveness could also provide a swell of popularity for the Biden administration, especially among young voters whose presence or absence will be critical to determining whether Democrats can keep the House in the fast-approaching midterms.
Cancellation advocates have argued a broad cancellation would help stimulate the economy, as borrowers put funds toward consumption instead of debt repayment. But the effect would be limited. Reports by the Committee for a Responsible Federal Budget and the Urban Institute find that the economic return of even full debt cancellation would be low compared to the cost. Canceling all of the $1.5 trillion in outstanding student debt held in 2020 would only provide a near-term stimulus of about $360 billion. The effects of that stimulus would also be poorly targeted: The highest-income 40% of households owe almost 60% of the outstanding education debt and make almost three-quarters of the payments. A broad-based cut in debt would undeniably help low-income borrowers. But it would come at the cost of helping out some future doctors, lawyers, and other advanced-degree holders who are likely to be fine repaying their debt anyway. Those distributional effects give the administration strong reasons to consider canceling lower amounts of debt rather than a universal wiping clean of the slate.
Cancellation may also have an undesirable effect on one of the most touchy political and economic subjects today: inflation. The Committee for a Responsible Federal Budget estimates that, given current unique inflationary pressures, canceling all student debt could increase the inflation rate by between 10 and 50 basis points in the 12 months after repayment is scheduled to begin. A full debt cancellation isn’t on the table, but the political sensitivity of inflation is so high that the administration will need to think carefully about any steps that could exacerbate the problem.
And then there is the complicated question of how to do it. Biden said in 2021 that it would require Congress to deliver amounts beyond $10,000. Scholars at Harvard Law School’s Legal Services Center, among other legal experts, disagree, arguing that the administration has the current legal authority to carry out a “broad debt cancellation plan.” Student loan experts have also proposed creative workarounds, such as unilaterally changing some loan terms to ease borrowers’ burdens.
If there is a solid legal argument for why Biden can’t cancel student loans, he hasn’t made it yet. In April 2021, the president requested a report on his legal authority to cancel up to $50,000 in student loan debt. More than a year later the findings of that report have not been released. What we do know is that the report exists, according to documents obtained via a Freedom of Information Act request reported by the New Yorker. This says something in itself: The unknowns in debt cancellation at this point are more political than legal.
Analysts have read politics into the administration’s decision to continue rolling over the repayment pause. Doing so gets the administration closer to Election Day with a key political tool in its pocket. An October surprise in the form of debt cancellation could potentially garner support from key demographic groups.
Take young Americans. “It’s critical from the Democrats’ perspective that not only every young person turns out [in November] but that they bring two friends,” said John Della Volpe, director of polling at Harvard’s Institute of Politics.
But this one issue alone isn’t likely to be determinative for young voters. “Young people are motivated to vote when they see that voting can make a tangible difference in their lives and the lives of others. It’s difficult to offer up a carrot a few weeks before the election and expect people to turn out,” Della Volpe said.
And if debt is wiped out today, what about those who take out loans tomorrow? A one-time action wouldn’t stop future generations from bearing the high cost of an education. A precedent would be set, and the administration would face even more pressure to cancel loans again and again down the road.
Cancellation of student loan debt might have seemed like a no-brainer on the campaign trail. But deep into an economically and politically challenging presidency, it may present more problems than it’s worth. Biden speaks often of his sympathy for highly indebted student borrowers, and that may well drive him to do more. As he said yesterday, “some debt reduction” is a live possibility. But the fact that Biden hasn’t yet delivered the stroke of a pen his critics want may itself be the strongest indication that he fundamentally believes large-scale, outright student-debt cancellation isn’t the best way to deliver relief.
Write to Stevie Rosignol-Cortez