8/25/2022: Biden Forgives Student Loans Up to $20K for Millions
plus 4 more months of forbearance
President Biden issues an executive order to forgive up to $20,000 in federal student loan debt for tens of millions of Americans. The president said that he will cancel $10,000 in federal student loan debt for borrowers making under $125,000 a year or couples making less than $250,000 a year. In addition, those who receive federal Pell Grants and make less than $125,000 a year would be eligible for total forgiveness of $20,000.
As mentioned in my previous post, the majority of American people actually supported forgiving ~$10K student loans but are against reliefs that are higher. I believe the Biden Administration strikes a good balance here. The college cost is so out of control and we shouldn’t put all the burdens on the students. But this creates a bit of perverse incentive and is unfair to students who paid off their loans on-time or opted not to go to college due to cost. When asked about fairness, President Biden’s response is:
"Is it fair to people who, in fact, do not own multibillion-dollar businesses if they see one of these guys getting all the tax breaks? Is that fair?" Biden said. "What do you think?"
Well, it’s a bit of circular logic here. Maybe we should fix the multibillion-dollar businesses tax loophole instead of trying to make it even by introducing other unfair policies?
Personally, I am OK with the small $10K relief but I can understand why this sparks such a political outrage. I am a bit disappointed that they are still not doing much to hold the colleges accountable. Here is the section about college accountability in the press release:
Additionally, the Department of Education has already taken significant steps to strengthen accountability, so that students are not left with mountains of debt with little payoff. The agency has re-established the enforcement unit in the Office of Federal Student Aid and it is holding accreditors’ feet to the fire. In fact, the Department just withdrew authorization for the accreditor that oversaw schools responsible for some of the worst for-profit scandals. 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accountable for leaving their graduates with mountains of debt they cannot repay, a rule the previous Administration repealed.
Building off of these efforts, the Department of Education is announcing new actions to hold accountable colleges that have contributed to the student debt crisis. These include publishing 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. They also include 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.
Basically, they are cracking down on for-profit colleges and create a shame-list for schools that have high tuition and low income prospects. I don’t think this is nearly enough. If the colleges have any shame, the student loan crisis would have never snowballed to such insane levels today. Instead, they should really align the incentives of the students and the colleges by asking colleges to hold the student loans on their balance sheet. The government can supply them with low-interest rate loans so that colleges can underwrite the loans themselves. The government can then grant the colleges a good amount of loss reserve annually to absorb loan defaults at a reasonable level. This way colleges have strong incentives to keep their tuition low and only give out loans students can afford to repay. There are already government programs with similar mechanisms like the CDFI fund. I don’t believe colleges will change their behavior much with the current Biden plan. More needs to be done.
Also, they extend the loan forbearance for another 4 months until the end of the year because the federal government is not ready to resume student loan payment processing yet(!!!???). I suppose consumer spending will remain strong in the next few months.
Without broad Dem support for social agenda, seems like WH is left with what Biden can EO?
I agree a big overhall is needed to a number of systems. It seems like a pretty deeply rooted problem. As an example not all degrees in US seem to be created equal in eyes of HR and hiring mangers.
It seems like differal of debt would simply maintain current consumer spending levels (whats currently happening)? Instead of seeing it fall further.
Timing of this announcement is very interesting. It's not entirely clear if the forgiveness is legal. They commited to provide full details by end of year. This is after the mid terms. Looks very much like a carrot for the voters. If republicans come out strongly opposed to it they risk alienating their center voting base at a key time.
I've enjoyed a few papers on how elections and policy are written to move a small % of center voters. Abortion, Trump, student tuitions... What's the next center voting issue they will go after?