Debt Forgiveness Is a Political Minefield

Last month the Biden administration announced plans to forgive the first $10,000 of most outstanding federal student loans, and up to $20,000 for students who received Pell Grants.

As a means of providing immediate relief to people caught in the pincers of credentialism, structural racism, and the Great Recession-era jobs crisis, it was brilliant. But it did nothing to stop more debt from accumulating in the long term. The postsecondary cost crisis cannot be solved by letting colleges charge whatever they like, lending students large sums of money to pay those bills, and then immediately (or eventually) forgiving the loans.

The debt-relief movement grew out of the pure, uncut class consciousness of the Occupy protests and the larger generational grievance of millennials who left college with unprecedented loan burdens during the worst unemployment crisis in decades. Civil-rights advocates organized around new evidence of an acute student-borrowing crisis in the Black community. Progressive champions like Bernie Sanders and Elizabeth Warren took up the cause, and total loan forgiveness became a standard plank in the left agenda. Biden’s decision was an enormous victory for advocates and a case study in how seemingly radical policy ideas can become mainstream.

During months of intense lobbying earlier in 2022, advocates critiqued partial loan forgiveness as a weak half-measure — U.S. Rep. Alexandria Ocasio-Cortez called it “just enough to anger the people against it *and* the people who need forgiveness the most.” The Biden plan to make loan forgiveness contingent on income will require many people to apply for the benefit, and therefore exclude eligible borrowers whose difficulty in navigating the often-labyrinthine loan system is the reason they need help in the first place.

Biden’s decision to cap and means-test loan forgiveness reflects the ideological complexities of debt relief and the political challenges that result. Many people with student-loan debt are in a precarious financial position, particularly those who did not complete a degree and disproportionately people of color. At the same time, people who go to college are, on average, much wealthier and healthier than those who do not. Forgiveness helps many people in need, but it doesn’t benefit many of the people who need the most help.

Still, the announcement itself was greeted with close to universal praise among advocates for students. Even compared to the expansive ambitions of the invigorated left, $500 billion in debt relief is no small thing.

What will be the political and economic effects of this decision?

At the broadest level, pushing forward with debt relief may accelerate the carving up of the electorate along educational lines. Historically, there has been little correlation between college education and partisan identification. When President Barack Obama was re-elected in 2012, he won college-educated voters by only a small margin. But the Trump years shoved the education gap well into the double-digits, with Democrats who didn’t go to college moving to the Republican side and college-educated Republicans moving in the opposite direction. To the degree that the Biden administration’s plan creates or consolidates enthusiasm for the Democrats among college-educated voters, it could exacerbate that trend.

Senate Minority Leader Mitch McConnell called the loan-forgiveness plan a “wildly unfair redistribution of wealth toward higher-earning people,” a critique that is usually directed at Republicans, not by them. Stable, bipartisan support for higher education could be endangered if college funding and debt relief are seen as akin to corporate tax cuts — a grab-the-money-while-you-can giveaway to the small but socially privileged ruling class of one political party.

One-time administrative debt relief also raises questions of fairness. Some people say forgiveness is unfair to those who have already repaid their loans. I find these arguments unpersuasive. In general, people don’t resent progress. There is no large political constituency of people who are angry about the Affordable Care Act because it didn’t reach back in time and make their health care retroactively less expensive.

The bigger danger is anger among people who feel unfairly treated in the future. The central and entirely correct argument of the debt-forgiveness movement is that present-day students were robbed of the affordable higher education that previous generations enjoyed. It’s one thing to lament progress that hasn’t happened yet. But the sense of losing something already gained cuts especially deep.

That’s how future debtors are going to feel. While the student-loan-repayment system is still on hold until next January, the student-loan-granting system is running at full steam. The essence of fairness is treating similar people similarly, and people expect equal treatment from their government far more than from private institutions. A year after the Department of Education wipes away $10,000 to $20,000 from most loans, there will be hundreds of thousands of new borrowers wondering why, exactly, they don’t deserve the same.

In response, the Biden administration is currently finalizing a new, more generous version of existing income-driven repayment (IDR) and loan-forgiveness plans, which will result in lower monthly payments and faster forgiveness for a significant number of borrowers. This will help, but at a cost, probably close to $200 billion over the next 10 years.

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Congress has made little or no progress on reducing the underlying cost and price of college itself. Moreover, every free-college proposal proffered by high-profile public leaders like Senators Sanders and Warren has been limited to free in-state undergraduate tuition at public colleges and universities. The majority of all student-loan dollars are used to pay for either a private undergraduate education or, especially, some form of graduate or professional school. Biden’s new IDR plan will mostly benefit undergraduates.

Graduate schools will never, ever agree to subject themselves to any kind of national government subsidy and price-control program. So debt forgiveness will be a one-time bonus for graduate- and private-school borrowers who met no criterion other than the random chance of when they happened to enroll in school.

The Department of Education could forgive more debt in the future — assuming its debt-forgiveness authority isn’t revoked by the federal courts, a distinct possibility given the Supreme Court’s increasingly assertive use of the “major questions doctrine,” which limits administrative agencies’ authority to intervene in high-stakes issues. As evidenced by the recent West Virginia v. EPA decision, the court is now highly skeptical of novel statutory interpretations with “vast economic and political significance,” a standard to which spending hundreds of billions of dollars to forgive debt for tens of millions of people may apply.

Debt forgiveness will help millions of people who need and deserve relief. But it is not cleanly extricable from the larger complex of tricky political issues that surround the way we support colleges and the students who attend them.