Understanding Biden’s options on student loan forgiveness

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President Joe Biden has considered canceling some government student loan debt. Such a move could help ease the burden on borrowers of $1.6 trillion in federal education debt, a figure that has more than tripled in the past 15 years. As a candidate, Biden had said he supported a congressional action plan, but with no movement on the horizon, some Democrats are pressuring him to use his executive authority, which could strengthen the party’s base ahead of the November elections. The most frequently cited version of what is under consideration would be to forgive $10,000 per borrower. It’s a notion that has been welcomed by some, and called both too much and too little by others. In the meantime, Biden has taken more targeted action.

1. Who would Biden’s plan help?

According to data from the Department of Education in March 2022, more than 45 million borrowers hold federal student loans, including parents who borrowed for their children’s college education, as well as about 30 senior executives of Biden. The administration has not yet decided on the outlines of the proposal, but aims to focus relief on low- and middle-income people. In earlier discussions, his plan was designed to cover both current and former students, including those who dropped out without earning a degree. About 15.2 million borrowers — just over a third of the total — could see their federal loans forgiven by $10,000 in debt forgiveness, according to Department of Education data.

2. Who would be left out?

Another 27 million borrowers have debt between $10,000 and $100,000. Only 3.3 million owe more than that, including about 900,000 who have debt over $200,000, a group that likely includes many current or former graduate students. The Department for Education could not say whether the forgiveness would extend to parents who borrowed for their children. Biden has said he will not accept calls from progressive Democrats to cancel up to $50,000 in loans per borrower.

3. What has Biden already done?

On his first day in office, he ordered the Department of Education to extend the federal student loan payment freeze that now extends through the end of August and keep the interest rate on hold. at 0%, which means that there is no accumulation of interest during the freeze. . Collection efforts are also suspended. Payments were first suspended in 2020 as part of the pandemic relief effort, but do not apply to private loans. The Biden administration has already pardoned targeted amounts. This most recently includes the $5.8 billion student debt that the government says was defrauded by the defunct Corinthian Colleges Inc., a for-profit chain of universities. The June announcement said the loans held by 560,000 borrowers were the largest discharge in the Department for Education’s history.

3. What is the case for the debt cancellation plan?

When the idea was first floated in the 2020 campaign, part of the rationale for canceling debt and pausing payments was to prop up an economy weakened by the pandemic. That seems less appropriate now, as the United States faces the highest inflation in decades. Some forgiveness could help prevent troubled borrowers from defaulting, which can hurt credit reports. Some advocates see the issue as generational equity, saying no previous cohort must have entered adulthood with such a burden of debt. There is also an element of racial equity: canceling $10,000 of debt would cancel the loan balances of 2 million black borrowers and reduce the gap between blacks and whites in the share of people with student debt by 9 to 6 percentage points, according to data cited by Senator Elizabeth Warren. from the University of California Merced and Princeton University.

4. What are the reviews saying?

That the plan would be unfair to those who have already paid off their student loans or gone to college to avoid debt. Some economists point out that in a general forgiveness, some of the benefits would go to high-income students, especially those who have gone on to higher education, a path that can lead to higher-paying professions like law or medicine. Some progressive activists, like Warren, have called for forgiveness of up to $50,000 in loans, while others have called for deeper relief for targeted groups, like students who haven’t completed their education. Some student loan advocates stress the importance of making forgiveness automatic, or at least reducing the bureaucratic hurdles that have plagued other student loan repayment programs to help struggling borrowers. And people on all sides point out that debt cancellation does nothing to change the economics of education that produced the borrowing in the first place – the rising price of higher education.

5. How might forgiveness work?

The administration has not yet specified this. One idea, proposed by Matthew Chingos of the Urban Institute, is to link forgiveness to the resumption of loan repayments when the moratorium is over. One of the biggest challenges for the Department of Education will be getting borrowers to start making payments again after years of not being needed. The job will fall to loan managers who are hired to collect payments and help borrowers get into the paying habit and stay on track.

More stories like this are available at bloomberg.com

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