By Terri Friedline, Dominique Baker and John W. Diamond
President Joe Biden announced a program to provide student debt relief to millions of borrowers of federal loans. The plan would offer up to US$10,000 in forgiveness for people who earn less than $125,000 – $250,000 for couples – and up to $20,000 for Pell Grant recipients. Biden also extended the pause on repaying federal student loan debt through Dec. 31, 2022, and has proposed a cap on income that can be used to calculate how much borrowers repay through income-driven repayment.
We asked three experts to explain the decision and its impact.
Relief makes real difference but ignores structural issues
Terri Friedline, Associate Professor of Social Work, University of Michigan
The Biden administration’s plan is an important step that I believe will make a real difference in many people’s lives. The White House estimates that about 20 million of the nation’s roughly 43 million student debt holders will see their entire balance canceled.
Despite this considerable impact, the plan is still limited. I hope it’s just the beginning in much-needed policy conversations about debt and education in the United States.
For one thing, Biden’s plan cuts less than 20% of America’s $1.75 trillion student debt tab.
In addition, the income cap of $125,000 focuses on borrowers’ socioeconomic class while ignoring the roles structural racism and sexism play in terms of who borrows and how much. For example, Black women borrow about $38,000 on average to finance their education, compared with $30,000 for white men. And because interest on student loans quickly accumulates, most Black female borrowers still owe their original balance 20 years after enrolling in school. By comparison, most white borrowers have paid off their loans completely within that time period.
The Biden administration will have to do more if it aims to adequately address these and the many other remaining structural problems with debt and education.
Andy Sacks/The Image Bank via Getty Images
Plan extends much-needed relief to Black borrowers
Dominique Baker, Assistant Professor of Education Policy, Southern Methodist University
When approximately 10,000 student loan borrowers had their private student loans randomly canceled from 2010 to 2017, researchers found that it ultimately enabled them to more easily move, change jobs and earn more money. The borrowers were also 11% less likely to default on credit cards or other loans.
I expect similar outcomes will flow from the Biden administration’s
decision to cancel federal student loans. And the decision to cancel up to $20,000 for those who received Pell Grants means that even more relief may flow to borrowers who are Black.
From the standpoint of racial justice, I believe this additional relief for Black borrowers is necessary because of centuries of systemic inequities. Such inequities include accumulating education debt through “predatory inclusion,” a practice in which Black people are offered access to things like college or buying a house but on exploitative financial terms that have long-term negative effects.
Black student loan borrowers are also often the most burdened by student loan debt. As one example, Black bachelor’s degree earners are more likely to default on their student loans than white students who earn a bachelor’s degree – 21% versus 4%, respectively. Even more startling, Black bachelor’s degree recipients default at a higher rate than white students who leave college with no degree – 21% versus 18%, respectively.
The Biden administration also has proposed changes to the income-driven repayment plan, which should help future undergraduate borrowers by reducing the monthly percentage of discretionary income borrowers would pay from 10% to 5% and increasing what counts as nondiscretionary income. That means borrowers will have more money that will not be used to calculate the percentage they owe each month.
I’d argue there is still work to be done to create an affordable college education. But today was an excellent start.
AP Photo/Gene J. Puskar
Loan forgiveness could fuel inflation
John W. Diamond, Director of the Baker Institute’s Center for Public Finance, Rice University
The price tag for Biden’s debt forgiveness plan is estimated at a little more than $300 billion.
While it will provide direct financial benefits for some people who currently owe money on federal student loans, I believe there will be another cost: higher inflation.
U.S. inflation is already rising at just below the fastest annual pace in 40 years, prompting the Federal Reserve to aggressively hike interest rates to reduce it, even at the risk of recession. Biden’s plan will make the central bank’s job tougher.
The upward pressure on inflation will result from increased spending by those who see their student debts reduced, as well as from the continuing moratorium on federal loan repayments. This higher demand for consumer goods – relative to a world without debt relief or a repayment moratorium – has the effect of driving up prices for current goods and services.
The Committee for a Responsible Federal Budget found that a similar though more modest version of debt forgiveness would lead to a measurable increase in spending on personal consumption, which would have the effect of driving up prices for all consumers. That was based on a plan to spend roughly $230 billion on debt forgiveness – at least $70 billion less than Biden’s plan.
Another side effect could be that Biden’s debt relief offers incentives to students entering or currently in college to take on additional debt in anticipation of future rounds of forgiveness. Economists call this moral hazard. Other research found that increases in student borrowing can result in bigger tuition increases.
Some research has pointed to positive economic outcomes for those who receive debt relief, such as less future indebtedness, greater job mobility and higher salaries. But these effects are based on a full discharge of student debt and not an incremental reduction like the one Biden announced.
Ultimately, loan forgiveness – whatever its merits – will likely lead to larger federal deficits and higher inflation. While it benefits those with student loan debt, those benefits should be weighed against the costs it imposes on others and the economy.
Terri Friedline is Associate Professor of Social Work at the University of Michigan. Dominique Baker is Assistant Professor of Education Policy at Southern Methodist University. John W. Diamond is Director of the Center for Public Finance at Rice University’s Baker Institute, Edward A. and Hermena Hancock Kelly Fellow in Public Finance, Adjunct Professor of Economics, Rice University.
The Conversation arose out of deep-seated concerns for the fading quality of our public discourse and recognition of the vital role that academic experts could play in the public arena. Information has always been essential to democracy. It’s a societal good, like clean water. But many now find it difficult to put their trust in the media and experts who have spent years researching a topic. Instead, they listen to those who have the loudest voices. Those uninformed views are amplified by social media networks that reward those who spark outrage instead of insight or thoughtful discussion. The Conversation seeks to be part of the solution to this problem, to raise up the voices of true experts and to make their knowledge available to everyone. The Conversation publishes nightly at 9 p.m. on FlaglerLive.
FlaglerLive relies on a strong core of donors. But they’re just a fraction of the 25,000 readers who daily depend on FlaglerLive for reliable, fearless reporting and analysis you cannot get anywhere else. If you’re still on the sidelines, we need you to join the Friends of FlaglerLive today. Elections, storms, the latest catastrophe - when dependable and factual local reporting will be more essential than ever, take a stand for integrity and have a direct voice in fostering serious journalism in your community. As little as $10 makes a difference, or better still, become a monthly donor: Become a "Friend of" FlaglerLive, a 501(c)(3) non-profit news organization. Donations are tax deductible. Think of it as buying a "scoop", in every sense of the term!
Reader Interactions
Comments
Leave a Reply
This site uses Akismet to reduce spam. Learn how your comment data is processed.
Lamo says
The impact of Biden period, has cost this country drastically…
concernedvoter says
It was Reagan who started the college student loan debt spiral. In the 1970s college education at a large University cost only $350 a year. I have a relative who graduated college in 2008 14 years ago with over $40,000 in student debt (nursing) and today, despite paying over $350 a month over those 14 years STILL owes $25,000+!!! It is outrageous. THANK YOU, President Biden, for caring about the futures of college students, especially those in eternal debt from a bank corp.
http://tech.mit.edu/V105/PDF/V105-N2.pdf
Anonymous says
Loan forgiveness will greatly impact the rise of inflation. Why hasn’t my husband’s loan been forgiven that he’s been paying even through the pandemic? Oh that’s right, because he doesn’t have a trust fund or come from money, he didn’t go to college to become a lawyer, doctor, surgeon, etc. Those are the people who are granted loan forgiveness that all tax payers will foot the bill for. Great job Joey!
ULTRA MAGA says
Student loan forgiveness is an TERRIBLE Biden idea that transfers the student loan debt to Taxpayers while increasing INFLATION ( which Hurts the lower income earners the Most)! Because most people do NOT understand the Law of Supply and Demand; I strongly recommend that Economics 101 be a required class in every American High School! I did NOT have student loans because I served in the Armed Forces(GI Bill) plus while attending my university I worked part-time at UPS loading trailer trucks. I graduated with a BS in BA (Double Major Marketing/Economics and Minor in History). My son worked his way thru Jr College and College ( only a $12,000 student loan which he paid off within 2 yrs). He now his Dream Job as a Commerial Airline Pilot.
Stephen Smith says
I would ask Do you feel the same way regarding all who recieved a PPP loan and had it forgiven. Was it fair to those who did not recieve one or paid it back? Seems loan forgivness is OK if Trump and the Republicans did it.
Dennis C Rathsam says
Hey Moe… Biden did it…period! How much does it cost????? Only the shadow knows!!! HA HA HA
A Concerned Observer says
Students go to school to learn. So what will each and every student learn by this bill? They will learn that they can enter into a contract by applying for a loan and agreeing to replay it within requirements of that loan but they can count on a socialist government stepping in and forgiving at least a part of that loan. Who believes this is a responsible lesson? What about a new car loan or a home mortgage loan? Should these loans also be forgiven and paid for by people who have no responsibility for the repayment? Who loses in this; the for profit lending institutions? Why should they be responsible? If they decide to increase the interest or demand payment earlier than contractually agreed to, will they get the same deal as the students? If these are government loans, the taxpayers are on the hook for it.
Sorry folks but a loan is a loan is a loan. If you want something (anything) that you cannot pay for up front, you apply for a loan. If approved, you are responsible to repay that loan within the stipulations of that contract. If you can’t pay for whatever you want and cannot abide by the lenders proposal, YOU GO WITHOUT IT. Live within your means is a lesson many people cannot seem to understand. Maybe this concept should be a lesson included in every student’s education.
Reality says
There is no “Cutting Debt”. There is only redistributing the burden onto those that did not borrow. A salient point that liberal democrats seldom grasp.
Mary Fusco says
Must be nice. I worked 2 jobs 60 hours a week for 8 years to pay back parent loans. My children have all paid back their student loans. Do we get a refund?
The ORIGINAL land of no turn signals says
This Ass Hat can’t give away tax payers money fast enough.
Unoriginal says
Hi bud, where was this same sentiment when Drumpf gave away TRILLIONS to shell orgs, congressmen and woman?
IMO, the more educated folks in our country, the better. It’ll help weed out the nimrods like you with terrible lopsided takes.
Samuel L. Bronkowitz says
Where were the people complaining about loan forgiveness when PPP loans were forgiven
Alphonse Abonte says
Could Biden’s Student Loan ‘Forgiveness’ Be A Scam ?
SCAM FOR VOTES?
Seriously, he stated it won’t be implemented until after the election this fall. Why? Hoping that this vote buying scam keeps the Dems in control?
They all know it is illegal. After the fall election will they announce that Biden made a mistake and not issue the student loan forgiveness and then use THAT as their reason to have him step down?
Whathehck? says
Cry me a river students get $10,000 or $20,000 (if Pelt Grant) loan forgiveness. What a shame students should get this horrendous fortune while our poor Consgressmen who struggle to make ends meet can only get 1/2 to over 2 millions loan forgiveness. Life is indeed unfair.
Marjorie Taylor Greene (R) also complained how unfair Biden’s student loan bill is yet she had $183,504 PPP loan forgiven. Rep. Vern Buchanan (R) also said that the bill is unfair to 87% of Americans who played by the rules, his rule forgave him $2,3 million in PPP loan.
Congressman Markwayne Mullin (R) also said it is unfair while enjoying $1.4 million loan forgiveness. Congressmen Kevin Hern +$1 million, Mike Kelly almost $1 million. Our own body shamer and dearest child molester Matt Gaetz $482.321.
I am heart broken for them, Yes Biden is really a villain.
Dennis C Rathsam says
Vote GOP & you wont get this BULLSHIT!!!!! Biden is fishing for votes, too bad its to late! These tax & spend baffoons in Washington rather go after Trump than deal with inflation, high gas prices, the cost of food, & the most important thing!!! Our border, drugs, murderes, rapest, & terroest invading our country!!!!! WE will pay a huge price for this stupitity!
MikeM says
Why does everyone have to pay for people’s bad decisions? Why can’t the universities with their billions of dollars in endowments and exorbitant tuitions pay up instead of the taxpayers. Those of us who worked hard at 2 and 3 jobs to pay our’s off are getting the shitty end of the stick. I say let everyone take the consequences fof their own decisions good or bad. Besides Biden and his minions are only trying to buy votes.
A.j says
Very little complaints about funding the Ukrainian war. Any help to the voters always draw complaints especially when helping the middle class. Joe and Dems you goy my vote. Who complained about the billions Trump and the Republicans gave to billion $ companies 2017. Republicans can give money to crazy countries very little complaints, Dems helping the little man, Republicans cry like little babies that need a bottle of milk.
Timothy Patrick Welch says
Seem like a “pork barrel” line item, just a thanks to higher education for their support.
Just taking with my niece, wondering if she will have to quite her job to qualify for the money…So funny
Alphonse Abonte says
Simply put, the government mandated Covid lock downs and is now using those government imposed lock downs as a pretense to student loan forgiveness to buy votes. Worst yet, the democrats found a loophole in Heroes Act that they can exploit to there political advantage.