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What Joe Biden Means For Your Student Loans

What Joe Biden Means For Your Student Loans

Canceling student debt has gone from pipe dream to possibility.
It was once an idea so far on the fringe that no major politician endorsed it. Then it was the pipe dream of far-left progressives. Now a push for President-elect Joe Biden’s administration to single-handedly cancel billions of dollars in student debt has taken hold in increasingly large segments of the Democratic Party, raising a real possibility, for the first time, that broad swaths of Americans may see some of their student loan debt wiped away.

The idea that Biden should wipe out student debt through executive action has exploded online in recent weeks as Democrats confront the real possibility that they may not control the Senate in January, dramatically limiting Biden’s ability to get substantive legislation — like pandemic relief — through Congress.

If the Senate remains in the hands of Mitch McConnell, progressives argue, student debt forgiveness will offer Biden a tantalizing prospect: He could deliver substantial economic relief directly to millions of Americans even in the face of congressional gridlock.

Will people actually see some of their student loan debt wiped away under Biden’s presidency? The answer is unclear, and Biden’s team is keeping quiet. But what was once a near impossibility is now a serious topic of discussion among Democrats — one that is unlikely to go away in the next four years.

In some ways, the possibility that Biden would use his executive power to forgive student debt appears unlikely. Such a sweeping, costly executive action would run counter to Biden’s moderate, compromise-focused political instincts, and those of his likely Cabinet picks. The idea has been opposed not just by Republicans but by some economists, who have questioned whether the measure would actually provide economic stimulus.

And Biden has signaled caution so far over the policy. His team would not comment on whether he was considering loan forgiveness through executive action or whether he believed current statutes permitted debt cancellation.

But Biden has said he supports forgiving $10,000 in student loans for all Americans, the kind of step that was itself unthinkable several years ago. And if passing a large pandemic relief bill in Congress becomes impossible, Biden is likely to face significant pressure to use other means to get Americans that forgiveness.

That pressure will be especially acute if the temporary pause on payments that the CARES Act implemented at the beginning of the pandemic ends in January, which it will without further action from Congress.

Sen. Elizabeth Warren has led the argument that it is within the president’s power to cancel federal student loan debt, since the executive branch — through the Education Department — originates and oversees student loans. She has been joined by Senate Democratic Leader Chuck Schumer, who is more moderate than Warren. Both hold substantial power in the Senate and sway in the party.

Together, they have called for the government to cancel $50,000 in student loan debt for each American — a significant chunk of money that would still limit forgiveness for doctors, lawyers, and others with larger student loan balances.

Warren’s involvement matters not just because she is a prominent voice, but because she has a long track record of pushing the Obama administration to take progressive actions around student debt and other progressive policies. Along with activists, she pressured the Obama administration to implement wide-scale student debt forgiveness for students defrauded by for-profit colleges in 2015 and 2016.

Warren allies say she is not likely to drop that kind of pressure campaign in a Biden administration. She will not be deterred, they say, if Biden is initially resistant to taking executive action on student debt.

The direct impacts on the economy of mass student loan forgiveness are unclear, a fact that could make a Biden administration hesitant. Economists have questioned whether it will do anything to actually stimulate the lagging economy — especially relative to the costs to the federal government.

“It would be an extremely poor stimulus,” said Marc Goldwein, a senior vice president at the Committee for a Responsible Federal Budget, a think tank focused on reducing government debt. “It would barely do anything relative to the current economic policy.”

The bipartisan group ran an analysis of the impacts of student loan forgiveness this week, after seeing the “buzz” around the policy, Goldwein said. The analysis found that debt forgiveness would do little to change people’s cash flow, he said, because many low- and middle-income borrowers are making relatively small payments on their loans or paying nothing at all.

People with large amounts of student loan debt, and large monthly payments, tend to be those with graduate degrees, Goldwein said, who have not seen their incomes suffer in the recession.

“For every dollar we spend on this, we’re going to get between less than a dime and a quarter of economic output,” Goldwein said.

Many in Biden’s new administration are likely to be aligned with Goldwein, and cautious not just about the cost of such a plan, but of the appearance of giving handouts to privileged Americans. Janet Yellen, his expected pick for treasury secretary, sits on the board of the Committee for a Responsible Federal Budget.

But Biden has also signaled a desire to work with progressives like Warren. And many Democrats have argued for student debt forgiveness as an imperfect way to deal with congressional gridlock.

“It’s important context to think about this in comparison to other policies you can execute via executive order,” said Bharat Ramamurti, who was the lead economic advisor on Warren’s presidential campaign and is currently a member of the Congressional Oversight Commission.

“You’re doing something concretely that will help a significant portion of adults in the US,” he said. “It’s hard to do that with other policy options.”

Tens of millions of Americans would immediately feel the effects of not having to send student loan checks to the government every month, Ramamurti said. And he argued that research on people whose student loans have been canceled shows there would be “ripple effects” on the economy that would go beyond what an economic analysis like the CFRB’s can measure: “If you take this debt off of people’s books, it affects the decisions they make.”

Republicans have already sought to paint student debt forgiveness as a giveaway to elites: By definition, student loan forgiveness would exclude tens of millions of Americans who never attended college.

But proponents of the policy point to the 36 million Americans who have student debt despite not ever receiving a college degree. And they have called it a matter of racial justice: Black Americans disproportionately hold more student debt and struggle to pay it off.

Toby Merrill, the director of Harvard Law School’s Project on Predatory Student Lending, was among the first to argue that student debt could be canceled through executive order, without congressional approval.

She said she doesn’t know whether Biden’s transition team is seriously considering the policy.

“But I would say that anyone coming in and looking at this economy, looking at all of our shared concerns around racial and economic injustice, looking at the enormous burden that student loans are placing on people, and the burden they’re placing on Black communities in particular — they would have to look at debt forgiveness.”
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