Biden announces a student loan forgiveness policy

Today president Biden announced a new policy for student debt forgiveness.

I’d like to summarize what it offers, share some thoughts, then invite you all to comment.

The plan specifies amounts to be forgiven: “The Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt cancellation to non-Pell Grant recipients.”  This only applies to people making under $125,000 per year.

The statement makes several points about timing.  First, loan payments, which have been paused since Trump in 2020, are paused one more time, then will restart: “the pause on federal student loan repayment will be extended one final time through December 31, 2022. Borrowers should expect to resume payment in January 2023.”

Second, forgiveness is following that schedule – i.e., isn’t starting now:

The Department of Education will work quickly and efficiently to set up a simple application process for borrowers to claim relief. The application will be available no later than when the pause on federal student loan repayments terminates at the end of the year.

The Chronicle of Higher Education note on the announcement reminds us that this timeline may be too optimistic, as lawsuits may slow things down.

There’s an interesting and appealing part about reducing payments for some via

a new income-driven repayment plan that protects more low-income borrowers from making any payments and caps monthly payments for undergraduate loans at 5% of a borrower’s discretionary income—half of the rate that borrowers must pay now under most existing plans.

One important detail on taxes: “Thanks to the American Rescue Plan, this debt relief will not be treated as taxable income for the federal income tax purposes.”

There’s an effort to address

the broken Public Service Loan Forgiveness (PSLF) program by proposing a rule that borrowers who have worked at a nonprofit, in the military, or in federal, state, tribal, or local government, receive appropriate credit toward loan forgiveness.

An important point from the official statement is the argument that it will not benefit wealthy people.  That’s been a criticism from those opposed to debt relief without means testing:

Biden loan forgiveness aimed at middle and lower class_2022 August 24

(This Department of Education statement prefers the phrase “targeted relief.”)

Another argument is that such forgiveness furthers racial justice:

Biden loan forgiveness -racial equity_2022 August 24

The scale of the plan is avowedly very ambitious:  

If all borrowers claim the relief they are entitled to, these actions will:

Provide relief to up to 43 million borrowers, including cancelling the full remaining balance for roughly 20 million borrowers.

(43 million is about 13% of the American population)

The plan also includes measures to try keeping college and university prices from rising, with language like “Protect future students and taxpayers by reducing the cost of college and holding schools accountable when they hike up prices” and “”colleges have an obligation to keep prices reasonable and ensure borrowers get value for their investments, not debt they cannot afford.”  However, it’s not clear what this might actually mean as specifics are few. There’s a bit about “continu[ing] to fight to double the maximum Pell Grant and make community college free.”  And this is just… open ended? “The Department of Education is announcing new efforts to ensure student borrowers get value for their college costs.”

More to the point is going after colleges by addressing their accreditors: “The [Department of Education] has re-established the enforcement unit in the Office of Federal Student Aid and it is holding accreditors’ feet to the fire.”  For-profit higher ed receives particular attention: “In fact, the Department just withdrew authorization for the accreditor that oversaw schools responsible for some of the worst for-profit scandals.” 

There are other hints about controlling prices, like this line about addressing career programs – does this mean vocational schools? “The agency will also propose a rule to hold career programs accountable for leaving their graduates with mountains of debt they cannot repay, a rule the previous Administration repealed.”  The administration will also create a new, public document: “an annual watch list of the programs with the worst debt levels in the country, so that students registering for the next academic year can steer clear of programs with poor outcomes.”  Lastly, this push for certain schools, with the administration “requesting institutional improvement plans from the worst actors that outline how the colleges with the most concerning debt outcomes intend to bring down debt levels.”

Thoughts:

I’m not sure if this plan would prevent the debt bubble from inflating right away.  The language about controlling college and university prices strikes me as vague, but I’ll check with some accreditors for their thoughts.

The national politics are tricky here. There’s a broad range of dislike for debt forgiveness, which Biden has to mollify: people who already paid their loans, those who are ideologically opposed to debt forgiveness, and folks who don’t see higher ed as an entitlement like public K-12, plus Republicans automatically opposing anything from this White House. For example,

 

Fox News, unsurprisingly, complained that this would add to the deficit. You can see some efforts to address these criticisms with the insistence on forgiveness not helping wealthier people. There’s also delaying repayment until after the November elections, which might make those of us paying off debt happier.

There is clear support from the Democratic left, like senators Sanders and Warren:

 

Perhaps we’ll see a cultural shift towards de-privatizing higher ed. This tweet brings the idea to my mind, suggesting a historical turn:

Or we might see this executive order become a party political football to be fought over through November’s elections, and possibly beyond.

On a personal note: I’m 55 and still paying off loans from three degrees.  My children are in their 20s, university graduates as well, and are filled with dread at the amount of debt they confront. Biden’s policy will help us, straight up.

Now over to you.  What do you make of this new development?

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5 Responses to Biden announces a student loan forgiveness policy

  1. I was a bit surprised it wasn’t more, although the “double if you had Pell” was an interesting angle. And I was surprised they didn’t consider eliminating interest, although they did include some sort of income-based repayment monthly cap. But nothing about making loans more equitably dischargeable in bankruptcy.

    Perhaps for some of this they preferred a legislative approach, but things still look fairly grim for Democrats’ keeping the House in November, which explains the transparently strategic “one last time!” forbearance on making payments until after midterm elections.

  2. CLB says:

    My work environment is over-exposed to those that would benefit from these policies and is a bit of an echo chamber, like those that created the policy. I also know many that are working in skilled trades and other types of jobs that did not choose college as a pathway. This makes me emotionally torn yet intellectually questioning the proposal and its benefits for the whole.

    The emphasis in the opposition’s argument that it is students with debt from elite colleges is simply false, most folks hold debt from public institutions. Student debt holders like AOC are leading them directly to that position because of her whining about her income relative to her Ivy League debt.

    I think this type of data regarding in-state and out-of-state enrollment decisions by students and families should be considered when discussing this topic. Within the battleground over enrollment cliffs, this is a very real piece of the puzzle. The public good factor in which investment in flagship and regional state institutions is rooted seems to decrease as more students opt to attend state-funded institutions in other states.

    https://www.jkcf.org/research/state-university-no-more-out-of-state-enrollment-and-the-growing-exclusion-of-high-achieving-low-income-students-at-public-flagship-universities/

    Peace.

  3. Dahn Shaulis says:

    Biden’s student loan debt plan makes sense politically and economically. Frankly, much of this debt was not recoverable. And this debt relief will reduce the enormous struggle that working folks face. Borrower Defense is another strategy that may be of help to consumers who were shortchanged by subprime schools and programs. And all of this assistance despite a relatively small student debt movement. Now how is all this debt relief going to be administered, and will there be viable legal challenges to block this progressive strategy?

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