During his campaign, President Joseph Biden proposed creating a program that provides undergraduate or graduate student debt relief of $ 10,000 for each year of national or community service, up to five years and a total of $ 50,000.
When CNBC Make It spoke with economists from Proposal in October, many said the policy was promising. “I think his loan forgiveness proposal, and the prioritization of student debt, is really a no-brainer,” said Judith Scott-Clayton, associate professor of economics and education at Columbia University.
Since, lodge and Senate Democrats urged President Biden to “broadly” write off up to $ 50,000 in federal debt by decree, an approach Senate Majority Leader Chuck Schumer reiterated that Biden should take during his first 100 days in office.
Biden is now expected to call Congress to forgive $ 10,000 in student debt for all borrowers – a simplification of what he praised during the electoral campaign and a withdrawal from what the leaders of his own party demanded.
Here’s what the experts have to say about the potential impact of $ 10,000 in universal student debt cancellation, as well as its likelihood.
“A good thing”
Experts CNBC Make It spoke to agreed that the student debt crisis needs to be addressed and that canceling student loans has the potential to be a powerful tool in remedying the mistakes of the past.
“I think [student debt forgiveness] would relieve people financial anxietySays Rebecca Safier, student loan expert at the student loan management site Student Loan Hero, citing a recent survey of 2,000 Americans in which 64% said that cutting their loans by $ 10,000 would dramatically improve their lives. life. a huge burden for years, and now people have to face unemployment, loss of income, general the anxiety and stress of the pandemic. So, any form of student loan forgiveness that could ease the burden would be helpful for student borrowers. “
But Safier adds that the same survey found that only one in four borrowers believe they will actually have their student loans canceled by the Biden administration.
“I really think that some measure of student debt cancellation is a good thing. I see it as a reward for a series of bad policy failures, ”says Josh Bivens, economist and research director at the Economic Policy Institute. “Policy makers reduce funding for higher education, and these cuts were offset by huge increases in tuition fees, forcing people to take on more debt. Policymakers have failed to control the degree mills and predatory profit sector. And finally, policymakers made decisions that prolonged the recovery from the Great Recession well, much longer than it needed to be, making it extremely difficult for many creditors. earn enough reliably for pay off debts. “
He continues, “I think a measure of forgiveness could help repair a lot of this damage – personally I would go over $ 10,000, but it’s a start.”
“There should be a large discount on student loans,” says Kevin Walker, student loans expert and editor of CollegeFinance.com. “This is something that would be good for the borrowers, and for the country, and also for the Treasury, because default rate on student loans are very high and therefore a lot of costs are already going to be incurred by the US government, the taxpayer. Finding a way to relieve individual borrowers, knowing that a large portion of these expenses would already be incurred over time due to defaults, makes a lot of sense. The hard part is figuring out how much to forgive is the right amount. “
Who would benefit from the cancellation of student debt?
The exact amount of student debt to be canceled and who should benefit from it seems to be at the heart of the debate over Biden’s current preferred policy.
For example, higher education expert Mark Kantrowitz suggests that canceling student debt for those who owe less than $ 10,000 (as opposed to eliminating $ 10,000 in student debt for all borrowers) ) could be more profitable.
“Cancellation of $ 10,000 in federal student loan debt per borrower would cost $ 377 billion and eliminate all federal student loan debt for about one-third of borrowers. If loan forgiveness was limited to only borrowers who owe $ 10,000 or less, the cost would be $ 75 billion, “Kantrowitz estimates.
But Walker says the universal figure of $ 10,000 strikes a good balance in providing meaningful relief to all borrowers while helping those in greatest difficulty.
“$ 10,000 would benefit everyone, which in itself is a form of stimulus that would help in the current economic climate,” he says. “And the pain of student loan repayments is felt disproportionately by those who borrow a relatively small amount. Borrowers who owe $ 10,000 or less tend to be those who are closest to the point of default, who have the most difficulty making payments. “
He argues that while it may seem “counterintuitive,” the borrowers with the highest student debt burdens are not always the ones who need help the most.
“When it comes to people who owe $ 50,000 or more, there are definitely some people out there who are struggling,” says Walker. “But they often tend to be graduates and in particular, graduates of vocational schools, which often have relatively good financial prospects.”
Coping with college costs
For a student loan relief policy to be sustainable, experts point out that college costs must also be reduced.
During the presidential campaign, Biden supported free public college tuition for all families with incomes below $ 125,000 – a policy estimated by Georgetown economists would be self-financing within 10 years.
“We need a bigger plan on what to do for university access and affordability in the future,” says Bivens. “To forgive the debt but do nothing with the system that produced it would be weird.”
“Any debt cancellation program puts a band-aid on a massive gaping wound. How do you fix the wound first? Many believe the real problem is the real overall cost of a college education, ”says Stacey MacPhetres, Senior Director of Workplace Education Funding Education benefits Bright Horizons. “All the proposals that take us in this direction make a lot of sense.”
And even though the tuition fees have has steadily increased over the past decades, MacPhetres predicts that the tuition-free university might be closer than some might realize given the current low cost of many community college programs.
Safier says his research suggests that 42% of Americans support a tuition-free community college, of which 31% are Republicans, making him one of the Biden. most popular education campaign proposals.
Political probability
The question of whether lawmakers will pass student debt cancellation remains a serious one.
“In general, Democrats support canceling loans while Republicans don’t,” Kantrowitz says. “President Biden will likely wait until late summer or early fall to propose student loan cancellation legislation, so that it does not interfere with legislative proposals for which there is common ground. modest cost. “
“I would like to see Biden’s administrator do this administratively – they have a busy legislative agenda and that’s one of the things they can do with the executive branch,” Bivens says. “So whatever they can do on their own and declutter the legislative bottleneck is something I think they should be doing.”
“These student loan forgiveness and tuition-free college ideas seemed out of reach years ago, but they are definitely increasingly becoming a part of the national conversation,” Safier says. “I can definitely see it happening.
“But that remains to be seen.”
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