Biden, left to clash on loan cancellation
Relationship with liberal party wing to be tested early
President-elect Joe Biden is facing pressure from congressional Democrats to cancel student loan debt on a vast scale, quickly and by executive action, a campaign that will be one of the first tests of his relationship with the liberal wing of his party.
Biden has endorsed canceling $10,000 in federal student debt per borrower through legislation, and insisted that chipping away at the $1.7 trillion in loan debt held by more than 43 million borrowers is integral to his economic plan.
But Democratic leaders, backed by the party ’s left flank, are pressing for up to $50,000 of debt relief per borrower, executed on Day 1 of his presidency.
The Education Department is effectively the country ’s largest consumer bank and the primary lender, since 2010, for higher education. It owns student loans totaling $1.4 trillion, so forgiveness of some of that debt would be a rapid injection of cash into the pockets of many people suffering from the economic effects of the pandemic.
Many economists say higher education debt forgiveness is an inefficient way to help struggling Americans who face foreclosure, evictions and hunger.
The working poor largely are not college graduates.
While many Black students would benefit greatly from even modest loan forgiveness, debt relief overall would disproportionately benefit middle- to upper-class college graduates of all colors and ethnicities, and people with lucrative professional credentials like law and medical degrees.
Without a parallel effort to curb tuition growth, one-time debt relief could actually lead to more highereducation debt in the future as students take on larger loans, hoping the government would at some point wipe them clean, a “moral hazard” that often accompanies one-time interventions.
And it would be expensive: Canceling even $10,000 per person in debt would eliminate more than $400 billion in government assets.
Student debt load has tripled since 2006 and eclipsed both credit cards and auto loans as the largest source of household debt outside mortgages, and much of it falls on Black graduates, who owe an average of $7,400 more than their white peers at the time they leave school.
Black borrowers also default at higher rates.
Sens. Charles Schumer of New York, the Senate Democratic leader, and Elizabeth Warren, D - Mass., said in a joint oped last week that $50,000 debt cancellations would give “Black and brown families across the country a far better shot at building financial security ” and would be the “single most effective executive action available to provide massive stimulus to our economy.”
To truly break the debt cycle, though, forgiveness would need to be paired with policy changes addressing the underlying cause of America’s skyrocketing student debt: affordability.
“The real problem is the cost of higher education,” said Betsy Mayotte, president and founder of the Institute of Student Loan Advisors. “Unless you’re going to solve the problem, forgiveness is just throwing away money.”
Biden’s campaign platform proposed making public universities tuition-free for families making less than $125,000 a year.
The legal argument for debt cancellation by executive action hinges on a passage in the Higher Education Act of 1965 that gives the education secretary the power to “compromise, waive or release” federal student loan debts. Schumer and Warren maintain that Biden can broadly use that power, and several lawyers have written analyses backing that view.
But former government lawyers have warned that across-theboard forgiveness would face legal challenges from Republicans. And Biden has never publicly endorsed the idea. Some close to him say he recognizes the risks and consequences of bypassing Congress.
There is more consensus that the $10,000 proposal would reach the most vulnerable borrowers, the estimated 15 million who have low debt under $10,000, often because they did not complete their degrees.