U-M expert: Biden’s proposed student debt forgiveness plan is too limited
Experts are reviewing a new student loan forgiveness plan for millions of borrowers who are below a $125,000 income cap that was announced by President Biden.
The action, which also extends a pause on federal student loan payments from month’s end to January, isn’t ideal because the proposed $10,000 debt elimination should be a full cancellation of student debt, says Terri Friedline, associate professor of social work at the University of Michigan.
What is your initial assessment of Biden’s plan?
Biden’s plan is far too limited to make a difference in people’s lives. Student loan debt is $1.75 trillion. Over 80% of that amount would remain in place under Biden’s plan of $10,000 in cancellation. And any decision to cancel debt up to a certain income level will add unnecessary administrative burdens. Cancellation still goes to the bottom 60 percent of earners regardless of whether there is an income cap. So what could be a simple policy will be that much more difficult to implement.
In addition, an income cap focuses on socioeconomic class while ignoring the fact that student loan debt is also racialized and gendered. Black women graduate with an average $38,000 in student loan debt—nearly quadruple the amount that the Biden administration has floated for cancellation. And this number doesn’t account for women who didn’t graduate yet are still paying for the costs of a degree they don’t hold and therefore can’t use to their advantage in the labor market. Regardless of degree or whether they graduated, Black women borrowers hold an average $52,000 in student loan debt compared to only $12,000 for white borrowers.
The best approach is full cancellation. This approach recognizes, as numerous scholars and organizers have pointed out, that the federal government actually owes a debt to student loan borrowers. Student loan borrowers are paying the price for decades of policy decisions that have divested from public education and enabled predatory lending.
Outstanding student loan debt is $1.75 trillion dollars—an amount that some project will approach $3 trillion over the next 10 years. And the federal government has bailed out banks and forgiven loans provided through the Paycheck Protection Program.
Canceling student loan debt would have a range of consequential outcomes. People would be able to pay their rent, feed their kids, take care of their health and invest in their futures. And full cancellation is consistent with what the government owes borrowers who did what they were supposed to.
Opponents to a full cancellation of debt (some Democrats and Republicans) say this could put the country in further risk of high inflation, putting more burden on taxpayers. Is that an accurate assessment?
This assessment is inaccurate. Student loan payments have already been on hold for two years. So, as others like Harvard scholar Susan Dynarski have pointed out, the risks for inflation have already occurred. And if there were costs associated with debt cancellation, taxpayers would not be financially responsible for it. What is a risk to the economy is millions of borrowers not being able to afford their monthly payments when those payments restart all of a sudden. The average monthly student loan payment is about $400. The Biden administration is essentially asking borrowers to give up food, school clothes for their kids, dental and eye doctor appointments in order to begin making these payments. And remember, since payments were paused in March 2020, decisions have been made to eliminate things like the expanded Child Tax Credit and free school lunches. Communities around the country have experienced massive and expensive climate emergencies like flooding, droughts, and wildfires. One in six households are at risk of having their utilities shut off. Student loan payments aren’t a switch that the Biden administration can now just flip back on without causing real harm.
For low-income borrowers, will eliminating $10,000 make a significant impact or would it be better if Biden had payments delayed?
About 60 percent of low-income borrowers would be impacted by $10,000 in cancellation. But debt cancellation of $10,000 is so, so meager that in this case something is not better than nothing. And this is almost the equivalent of nothing when you compare the policy response to the actual $1.75 trillion size of the problem.
I study debt. During the pandemic, about the time when student loan payments were paused, colleagues and I were interviewing people about their debt. Specifically, we interviewed Black, Latina and Native women—the people disproportionately affected by odious student loan debt. Women described their student loans as violence, a violent relationship and the only way to escape it was through death. Meaning that they expected to live their entire lives and die still owing student loan debt. Debt cancellation of $10,000 would not change these women’s experiences in any meaningful way. And Black and brown women in particular deserve the dignity of a policy response that meaningfully acknowledges their experiences. Biden’s plan does not do that.
What should the administration tell individuals who paid their debt in a timely manner but complain about this new proposal?
The people saying, ‘Well, what about me?’ first of all, are not making a good faith argument. They are essentially saying that other people should suffer just because they did. Yet if they did pay off their debt, their experiences are not the same as most student loan borrowers today. They are an exception to the rule. And this argument, ‘What about me?’ confuses and confounds their own individual experience with what has been happening at a systemic level. They are trying to make an individual claim about a systemic problem. The Biden administration’s responsibility—the responsibility of public policy—is to focus on the systemic level and to not get distracted by these individual claims.
Who stands to benefit from student loan debt cancellation?
Who wins and loses across the different policy decisions to cancel student loans is an important question about power. As the Debt Collective says, which is the debtors’ union that has consistently organized to support full cancellation, your debt is someone else’s asset. $1.75 trillion dollars represents a lot of debt for people and families. And it also represents a lot of assets for wealthy investors, money that wealthy investors can convert into profit and power for themselves.
Over 90% of student loan debt is insured by the federal government. And 80 percent of student loan asset backed securities benefit from this insurance. This means that wealthy investors are nearly guaranteed their money even if borrowers default. So, while everyday people and our economy win with a full cancellation policy, wealthy investors lose and their power is disrupted. But under Biden’s policy that leaves 80% of student loan debt intact, wealthy white investors win and many borrowers, especially Black and brown women borrowers, still have crushing loan debt.