After Biden Is Sworn In, Does Student-Debt Relief Come Next?

Joseph R. Biden Jr. will assume the presidency in two months amid dual catastrophes: a raging, once-in-a-century pandemic and a devastated economy. It’s a moment that calls for bold and immediate action. And student-debt relief might be one of the big issues the new president moves on quickly.

Could it really happen? Yes, it could.

In just a few short years, student-debt forgiveness has shifted from a long-shot rallying cry by activists to a mainstream idea within the progressive wing of the Democratic Party.

“Student loan debt is holding back a whole generation from buying homes, starting small businesses, and saving for retirement — all things we rely on to grow our economy,” said a tweet this week by Sen. Elizabeth Warren, the Massachusetts Democrat who — along with Sen. Bernie Sanders of Vermont — elevated the issue to prominence during the Democratic presidential primaries. “Executive action to #CancelStudentDebt would be a huge economic stimulus during and after this crisis.”

The exact details of how loan forgiveness might work are yet to be determined: Would Biden forgive loans through executive order, or by working with Congress? Would it apply only to federal loans, or only to federal undergraduate loans? Is there an income cap? How much relief is potentially on the table? Just $10,000 per borrower? As much as $50,000 per borrower?

Those thorny issues need to be resolved, and much could still hinge on the outcome of two runoff elections in Georgia on January 5, 2021. Kelly Loeffler and David Perdue will face their respective Democratic challengers, the Rev. Raphael Warnock and Jon Ossoff. A win by either Loeffler or Perdue would give the Republicans control of the U.S. Senate. Wins by both Warnock and Ossoff would result in a 50-50 split of the body, making Vice President-elect Kamala Harris the tiebreaker on any decisions that break along party lines.

If Republicans keep control, student-loan forgiveness becomes less likely, although not impossible. GOP senators have opposed loan forgiveness during coronavirus stimulus negotiations.

Meanwhile, there is a lot of talk about debt forgiveness happening right now, in both political and higher-education circles. And that chatter will intensify once Biden assumes office on January 20.

Daryn Slover, AP

The tattered economy has lifted the political prospects of loan forgiveness, although some economists question the effectiveness of loan relief as a stimulus tool. For example, a borrower who makes $200 monthly payments might rejoice at loan forgiveness, but the immediate cash infusion to the household is only $200 a month — not the thousands of dollars in total loan principal that was erased.

In a Washington Post op-ed this week, Adam Looney, a former high-ranking official in the U.S. Treasury Department during the Obama administration, argued against overly generous loan forgiveness. Looney instead suggested that relief should be limited to certain borrowers.

He acknowledged that debt can be a heavy burden for minority, low-income, or first-generation students. But he added, “those experiences aren’t universal” and many borrowers are “advantaged, well-educated high earners.”

“Many student-borrowers need relief,” Looney wrote. “But well-off borrowers who are thriving — thanks, no doubt, to their college degrees — do not.”

Nevertheless, the widespread reduction or elimination of loan balances could help consumers qualify for big-ticket purchases they have been postponing, like cars or homes. Loan forgiveness could also prevent some financially troubled borrowers from defaulting on their college debt.

Racial Implications

President-elect Biden’s focus on addressing racial inequality could play a role in how vigorously he pursues debt relief. Black Americans are more likely to borrow to pay for college and more likely to struggle to repay their loans. A study by the American Council on Education showed that 12 years after college, Black college graduates still owe more on their loans, on average, than they initially borrowed. Students from all other racial groups, on average, had surpassed that tipping point on loan principal a dozen years in.

“The racial dimensions of this issue have definitely helped change the conversation,” said Judith Scott-Clayton, an associate professor of economics and education at Columbia University’s Teachers College.

Black students are also disproportionately enrolled at for-profit colleges, some of which offer expensive degree programs of sometimes-questionable quality. And the federal government has been faulted for not policing the for-profit college industry aggressively — a failure of oversight that may have contributed to more students attending predatory institutions.

“We have to think regularly about what our responsibility is to fix that,” said Dominique Baker, an assistant professor of education policy at Southern Methodist University.

Students who borrowed to finance their education, Baker said, “didn’t do anything wrong. In fact, they did what we told them to do, to be able to have economic security and jobs with health-care benefits and potential for retirement. And we’re in the middle of a pandemic, right? Jobs with health-care benefits matter.”

Senator Warren has joined with Charles E. Schumer, leader of the Senate’s Democratic minority, in calling for Biden to forgive $50,000 in student debt for all federal borrowers. While the president-elect has not endorsed that proposal, he has signaled a willingness to consider targeted loan forgiveness. Biden reiterated his support this week for reducing loan balances by $10,000 as a form of economic stimulus — an idea approved by the Democratic-controlled House of Representatives, but never considered by the Republican-controlled Senate.

Many borrowers, particularly those who didn’t finish their degree, have small loan balances. A loan-forgiveness bill capped at $10,000 would eliminate student debt for a large proportion of borrowers. And it would also drastically reduce loan defaults, as small loans go into default quite often.

In expressing his support for the $10,000 debt-relief provision, Biden told reporters it “should be done immediately.” Borrowers are “in real trouble,” he said, and “they’re having to make choices between paying their student loan and paying their rent.”

But Biden stopped short of saying he would use his executive authority to forgive loans if Congress fails to act.

Opportunities and Obstacles

Progressive groups see an opportunity to prod Biden to do more. On Wednesday, more than 230 groups — including the NAACP, the American Federation of Teachers, and Greenpeace — signed a letter to the president-elect asking him to issue an executive order on debt relief on “Day One” of his administration.

“Administrative debt cancellation will deliver real progress on your racial equity, economic recovery, and COVID-19 relief campaign priorities,” the letter states.

For Biden, choosing the executive-order route presents both opportunities and obstacles.

Eliminating or reducing student loans with the stroke of a pen could help revive the economy, and it also provides the new president with an early policy win. Thomas Gokey, an organizer with the Debt Collective activist group, said polling shows that nearly one in five people who voted for Donald J. Trump would support Democrats if they erased their student loans.

“They would abandon Trump in a second if the Democrats showed that they actually cared about them,” Gokey said, “if they actually took the burden off of their backs.”

But acting without Congress presents logistical hurdles. The new president’s legal team will need to make sure such an executive order is on solid footing, as legal challenges are inevitable.

During his campaign, Biden proposed limiting student-debt relief to those earning less than $125,000 and holding loans from the cost of an undergraduate degree at public universities, minority-serving institutions, or historically Black colleges.

Nonetheless conservative critics have pounced. Nikki Haley, Trump’s former United Nations ambassador, dismissed debt relief in a tweet Wednesday as “a taxpayer-funded handout” to graduates of elite institutions.

Other observers see political peril for the Democrats.

Another problem: Debt write-offs are usually taxable, so borrowers who won relief could wind up with hefty tax bills, unless Biden or Congress structured it in a way that prevented a tax penalty. The issue could be resolved, but it would take time.

America’s student-loan debt totals $1.5 trillion. To people who amassed enormous education bills while reaching for a rewarding career and a fulfilling life, the start of a discussion about debt relief feels long overdue.

Renee Nicole Allen, an assistant professor of legal writing at St. John’s University, worked multiple jobs to support herself through law school, but she still had to borrow money. She shared her loan information this week on Twitter.

In an interview with The Chronicle, Allen said she doesn’t expect that her loans will be fully erased by the new president. Allen said she knows it’s possible that whatever form of debt forgiveness is approved could contain a final eligibility criteria that excludes her. And she said she won’t be upset if that happens.

But the government needs to do something, Allen said. America’s college debt burden prevents graduates from pursuing certain rewarding and important careers. It is harder to be a rural doctor or legal-aid lawyer, she said, if you are dealing with a mountain of debt.

“There are some people in some places who will never make six figures practicing law but who will do very great work that we need,” Allen said. “And those people shouldn’t be overly burdened by doing that work.”