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NPR Ed
Debate Over Student Loan Forgiveness Hinges On 2 Numbers: $10,000 Vs. $50,000
Elissa Nadorny
February 18, 2021
For months, Democrats in Washington have been debating what to do about
student loan debt. About 43 million borrowers owe $1.6 trillion in
federal student loans. While some lawmakers have pushed for President
Biden to forgive up to $50,000 per borrower via executive order, Biden
has so far only expressed support for more limited forgiveness, of
$10,000, through pandemic relief legislation.
This week, the president and the White House clarified his stance. At a
CNN town hall on Tuesday night, Biden was asked if he would forgive up
to $50,000 in debt. The president's reply: "I will not make that
happen." He went on to say, "I understand the impact of debt, and it
can be debilitating. I am prepared to write off the $10,000 debt but
not $50 [thousand], because I don't think I have the authority to do
it."
On Wednesday, White House press secretary Jen Psaki expanded on Biden's
comments, saying the president "does not favor $50,000 in student loan
relief without limitation."
The sticking points between the $10,000 and $50,000 proposals revolve
around which borrowers would benefit most, and the legality of
forgiving student debt through legislation versus through executive
action.
Some of the economists arguing for $10,000 forgiveness warn that
anything higher runs the risk of rewarding borrowers who don't need the
help.
"Borrowers who have the lowest student debts are the ones who struggle
the most," explains Adam Looney, an economist at the University of Utah.
More than a third of borrowers owe less than $10,000 in federal student debt, according to federal data.
Often borrowers with low debt balances went to college for a semester
or a year or two, and never completed a degree. Without a degree, those
borrowers often earn less money, making it harder for them to pay their
student loans, and making them more likely to default. Roughly 8
million federal student loan borrowers are currently in default, and
the typical defaulter takes out less than $10,000.
Being in default means the government can take part of your tax refund
or paycheck. When you get older, you can even lose part of your Social
Security checks.
Those garnishments make it even harder for borrowers to build wealth.
University of Pennsylvania researcher Jalil Mustaffa Bishop studies the
experiences of student borrowers. He says, "What we know from research
is that those who borrowed student loan debt [did it] because they come
from households or personal financial situations where they don't have
the assets or the income to afford higher education."
Student debt is not a burden for everyone. Economist Looney points out
that many borrowers who took out loans to get a bachelor's degree are
able to pay down that debt. And research shows that more than a third
of student debt is owed by the top 20% of income holders in the U.S.
But income is different from wealth, Bishop says. Wealth is the value
of all your assets, minus your debts, and households with student debt
tend to have the least amount of wealth, federal data shows.
Black families tend to have significantly less wealth than white
families, according to the Federal Reserve, and Black households are
more likely to have student debt — and more of it — than white or
Latino families. They're also more likely to default on their loans,
even if they've earned a bachelor's degree, thanks to discrimination in
the labor market.
Proponents of the $50,000 proposal say a more generous policy would
target those wealth gaps, especially among Black families. About 80% of
borrowers have student debt under $50,000, according to federal data.
Advocates of this proposal also argue this level of forgiveness is
about racial justice — the dollar amount comes from research that found
$50,000 would help grow the wealth of the highest number of Black
households. (That research was later updated to reflect growing debt
balances.)
"The student debt crisis is disproportionately impacting borrowers of
color and communities of color, Black borrowers in particular,"
explains Ashley Harrington, senior policy counsel at the Center for
Responsible Lending. "When we talk about cancellation, we have to start
there."
Many Black and Latino families have missed out on ways to build wealth
in the past — such as homeownership and job training programs — due to
racist policies. Researchers who study and talk to student loan
borrowers say student loan debt is a primary factor in holding them
back now.
"They're experiencing the mental stress of not being able to plan or
see a life passed having a student loan debt," Bishop says. "So the
$10,000 doesn't really get at that kind of reality and burden."
Sens. Elizabeth Warren, D-Mass., and Chuck Schumer, D-N.Y., are among
those calling for $50,000 of debt forgiveness. "Canceling student loan
debt is the single most effective executive action that President Biden
can take to kickstart the economy," Warren said at a recent press
conference.
Warren and Schumer have argued the president has the power to forgive
this level of debt via executive action, citing a September opinion
from attorneys at Harvard's Project for Predatory Lending. Earlier this
month, the White House signaled it was looking into the legality of
such an executive action. In January, before Biden was sworn in,
lawyers at the U.S. Department of Education issued a memo concluding
that forgiving federal student loan debt via executive action would be
illegal.
Even if the legal issues are cleared away, Biden has repeatedly said he
prefers to take action through Congress. He has also thrown his support
behind other efforts to tame the federal student loan beast, including
income-driven repayment plans and making college more affordable.
Read this and other stories at NPR Ed
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