Needed: Student Debt Forgiveness-- Biden Is Making A Terrible Mistake To Not Act On This
Recently, Outagamie County Executive Tom Nelson, the progressive candidate for the Senate seat Ron Johnson is disgracing, told me about a really interesting idea he had, one that he hadn't publicly announced yet because he's still working on the details. But the idea is to forgive family farm debt. I was very enthusiastic and today when I started working on this post about student debt forgiveness, Nelson told me that "college loan forgiveness is not just the right thing to do-- it would be an economic boon for the entire country of which few sectors would be left untouched. Think about it. College graduates moving into the job market could buy a new home, a new car instead of usury fees that drain spending and confidence. Why Democrats aren't making a bigger deal out of this... you got me."
Another Democrat I turned to for some wisdom on the subject is Alan Grayson, former Orlando congressman and now the progressive challenging Marco Rubio, an alternative to the poinlesss New Dem Schumer has chose to run. He's thought a lot about it and said that "First of all, public college should have been free all along, the way it’s been for the City College of New York since the 1800’s. Therefore, any student loan debt for public college should be forgiven. Second, there is just no way that a college diploma should cost as much as a house. Because that’s what people actually have been paying, some of that debt should be forgiven; students have been overcharged and ripped off. Third, as Elizabeth Warren has pointed out, students should be able to borrow from the government at the same interest rate that the government pays (adjusting for defaults). There is no reason why the Government should make a profit from financing education."
The Hill published a piece about it yesterday, with lots of whining about "how we gonna pay for it?" Morgan Harper, the progressive running for the open Ohio Senate seat answers that generically on her website: "How we pay for it-- "Close tax loopholes. Avoid endless wars. Invest in us.." Most of her platform revolves around job creation and affordable higher eduction is part of that. Like Grayson, she's a proponent of debt-free public education. "Ohio’s public schools and universities," she wrote, "were the engine that built our middle class. But today, the future of Ohio’s young people is being erased by unequal school funding and massive student debt. We need to take federal action to forgive student debt, and invest massive resources in public colleges, trade schools, and community colleges to make sure young people are prepared for the jobs of the future here in Ohio." She has 3 points in her detailed jobs plan that impact higher education:
Free community college and trade schools for all
Full student loan debt forgiveness
Expanding trade schools to professional areas of future need, and building entrepreneurship programs into all of them
Here's what you need to know about how DC sees the issues around load forgiveness:
President Biden has renewed the pandemic-related pause on student loan payments three times during his presidency, as calls to issue blanket loan forgiveness grow louder. If it is determined the president has the authority to forgive some student loan debt, it is unclear how the government will pay for it and what could immediately happen to the economy.
Biden said on the campaign trail and early in his presidency he was open to eliminating at least $10,000 in student debt per borrower. Since then, prominent lawmakers, including Senate Majority Leader Charles Schumer (D-NY), have been urging the president to act on and take his campaign promise further by canceling up to $50,000 of student debt per borrower.
The administration is unsure whether Biden holds the legal authority to issue blanket student debt forgiveness and previously asked the Education Department to review whether the president can cancel payments. Advocates argue that today’s payment freezes have set the legal basis to forgive loans with an executive order.
An estimated 43 million people hold student loans, collectively totaling around 1.6 trillion, with the average borrower owing around $36,000. Lawmakers and debt advocates suggest loan forgiveness would immediately boost the economic outlook for millions, offering a path toward financial security-- especially for historically marginalized groups. But experts say that the money freed from debt won’t immediately influence the economy and they question from a policy standpoint where the money to pay for student debt forgiveness might come from.
Some lawmakers have argued loan forgiveness would act as an economic boom, potentially infusing billions immediately into the nation’s GDP.
That would be a relief to countless borrowers as a national poll by CNBC found 62 percent of U.S. adults said federal student loans negatively affect their mental health. Debt hasn’t impacted Americans equally either, with CNBC’s poll finding 24 percent of Black adults reporting they have federal student loan debt, compared to only 14 percent of white adults.
But Adam Looney, a fellow at Brookings Institution and executive director of the Marriner S. Eccles Institute at the University of Utah, said any change would not be felt right away.
“It’s not like you get a check, a stimulus when the federal government enacts a trillion-dollar COVID relief plan that's a trillion dollars and it goes into people's pockets, and they get to spend. Student debt relief, it trickles out over the course of a decade or more,” Looney told Changing America.
Yet Thomas J. Vicino, associate dean of graduate studies and a professor of political science at Northeastern University, said that no longer having a monthly student loan payment could free up $300 a month more immediately. While it’s not clear how Americans will choose to spend or save that money, Vicino says many borrowers put off buying a home or car or even starting a family-- all of which carry long-term consequences for the economy.
“If you actually go out and then spend it, you go buy more, you might buy a car more quickly than a house,” Vicino told Changing America. “So, any sort of economic behavior that we would see would have an impact. If people just save the money, and save for a down payment on house, that's the long term.”
Legal consequences are also likely, as Vicino suggested the more student debt the president tries to cancel, the greater the chances of a legal contestation. A president canceling student debt stirs up larger questions around the government’s authority to enforce, pay, compromise, waive and release these loans.
Instead of leaning on Congress to find a solution, Biden could issue an executive order and, “we can see if it stands up to a potential legal challenge,” said Vicino.
If the Biden administration concludes it holds the legal authority to issue blanket student loan forgiveness, the cost will vary depending on how much debt is forgiven per borrower. Looney analyzed data from the Department of Education and found forgiving all outstanding federal student loans would cost $1.6 trillion.
Forgiving student debt up to $50,000 per borrower would cost about $1 trillion. If Biden follows through on his campaign promise and forgives $10,000 per borrower, that would cost the federal government about $373 billion.
In total, 43 million borrowers could benefit from some form of blanket debt forgiveness.
Looney points out that if Biden chooses to forgive all $1.6 trillion in federal student loan debt, it will become the costliest social spending initiative-- outpacing unemployment insurance, the earned income tax credit and food stamps.
Looney says “there’s not an obvious offsetting legislative tax increase.”
“But you know, it's a trillion dollars that adds to the national debt. It increases the amount of debt service, the debt the federal government has to spend servicing the debt,” Looney said.
“That means that there are fewer resources available to other spending programs, and higher taxes will be required in the future. So, there are real tradeoffs in a sense of, there is a budget and so the more you spend on one program, the less you have available to spend on other programs,” he added.
But the federal government isn’t the only institution that handles student loans. Though the government issues and owns about 92 percent of student loan debt, the remaining amount is owned by private banks and simply managed by the government. This is known as federal family education loans (FFEL). If the president has the ability to move forward with some level of student debt forgiveness, both loan programs would need to be addressed.
This makes issuing blanket student debt forgiveness a contentious issue, Vicino says.
“It’s like erasing debt on the balance sheet. Whereas the federal FFEL, they are not direct loans, the overwhelming majority of that $250 billion is actually held by private banks. We’re just talking about erasing dollars and that is easier to do because you don’t need any transfer to a private bank from the direct loan program,” Vicino said.
Those FFEL loans may also influence how Biden could come to terms with debt forgiveness-- by simply erasing outstanding debt and taking it as a loss or using federal dollars to pay off outstanding balances.