Student Loan Cancellation Not Only Has Dubious Policy Merits But Will Also Fail To Achieve Its Political Goals
Joe Biden has repeatedly flip-flopped on student loan cancellation. In 2019, he proposed canceling $10,000 in student loan debt for each year of national service completed, up to five years. Then, in 2020, in an effort to consolidate support amongst young people and progressives after becoming the presumptive nominee, Biden announced that if elected he would “immediately cancel a minimum of $10,000 of student debt per person” and cancel all “student debt from two- and four-year public colleges and universities for debt-holders earning up to $125,000.” It was unclear if he would do these unilaterally or if only authorized by Congress, but the “immediately” seems to indicate that he might have done the former by executive action.
After winning the election, Biden backed away from unilaterally canceling any student debt, casting doubt that he had the legal authority to do so. He maintained that he would cancel $10,000 in student loan debt if given a bill to sign by Congress. As recently as December 2021, the White House was still saying this. But now that progress on Build Back Better is stagnant, economic woes are increasing due to inflation, the student loan payment pause has been extended again (this time until August 2022) and the midterm outlook is looking gloomy for Democrats, Biden is revisiting the prospect that he can unilaterally cancel student debt by executive action to reverse his fortunes, with indications that he will cancel at least $10,000 in debt but no more than $50,000.
Student Loan Debt Forgiveness Has Dubious Policy Merits
You have probably heard this before, but it bears repeating: student loan debt forgiveness is incredibly regressive. According to the Center for a Responsible Federal Budget, just 16.5% of the benefit of $10,000 in untargeted student loan debt cancellation will go to the bottom 40% of earners. The distributional effects become worse as you forgive more debt: over 60% of the benefit of canceling all student loan debt would go to the top 40% of earners. There’s a simple reason why student loan debt forgiveness is regressive: college graduates earn way more than non-college graduates. College graduates earn on average $42,457 more a year than high school graduates. Even taking into account the $5,520 a year the average federal student loan borrower pays back to the government, college graduates still far outearn high school graduates.
I hold that the federal government should prioritize transfers and assistance to those who need it most, not those who are already wealthy, and student loan debt cancellation very much goes against that principle. However, I am also skeptical of one-time student loan debt cancellation because it is a poorly-designed policy. The President could try wiping the existing slate of student debt clean today (if the courts allow him to), but by the limitations of executive action, Biden is unlikely able to unilaterally make systemic changes to the federal student loan borrowing program that could prevent another loan crisis down the road. Congressional action is needed to make these reforms. In the 2020-21 academic year, students borrowed $83 billion, and there is no indication that the rate of borrowing is slowing down anytime soon. Starting in Fall 2022, the nation would again begin the slow crawl to another educational debt behemoth. So, even if Biden cancels student debt this year, in a decade or so the U.S. will find itself with another student loan debt balance north of a trillion dollars.
The only way to reliably prevent a repetitive crisis would be for Congress to pass comprehensive student loan debt reform.
Other than that, borrowers would have to rely on the President of the United States continually canceling student debt in perpetuity. It goes without saying that this expectation is unrealistic. Eventually, there will be a Republican President - or a Democratic President against student debt cancellation - who won’t avert another crisis by executive action. One-time cancellation without broad reform will foster confusion and uncertainty for future students.
Student Loan Debt Has Dubious Political Benefits
Biden is battling some pretty bad polling numbers. His approval is 11 points underwater according to FiveThirtyEight, making him just about as unpopular as Donald Trump was at this point in the office. Democrats are also 3 points behind Republicans in the generic ballot, compared to 7 points ahead this same time in the 2020 and 2018 cycles. Biden’s decision to revisit student loan debt cancellation is clearly being driven by these political factors. But Biden is not on the ballot in November, Congressional Democrats are. I am skeptical that they are going to get a polling bump if Biden unilaterally cancels student loan debt. If student loan debt is forgiven by executive order, will Congressional Democrats, who by the very nature of executive action will not be involved in the decision, get credit for it?
The demographics of student loan cancellation also do no favors for Democrats. Only 13% of Americans carry federal student loan debt. Voters with student loan debt — younger, richer, more educated, and living in urban areas — are already more likely to be Democrats. The cohort of people potentially persuadable by this action just isn’t large. Looking at the polling for the cohort that stands to benefit the most from student loan debt cancellation, only just above one-third of voters between 18-to-29-years-old are for canceling all student loan debt. Alternative policies, such as forgiveness only for those most in need, creating new repayment options, or canceling no debt at all, are in sum more popular than total forgiveness. Not even a majority of young Democrats believe in canceling all student loan debt.
I also question whether the political delta between a moratorium extension and canceling debt is significant. If Biden ultimately opts to not cancel the debt, there is no chance that he doesn’t at least extend the moratorium beyond the midterms. How much more beneficial is cancellation as opposed to just continuing the payment pause in perpetuity? Since Biden became President, federal student loan borrowers have not had to make a single payment, yet, Biden’s approval rating is just 21% for young people aged 18 - 34 years old. Trump similarly never got a boost of youth support despite being the one to initiate the student loan payment moratorium at the start of the pandemic. Despite the calls from a local activist class, student loan debt cancelation might just be just not a very salient issue.
Finally, there is a risk of a backlash that Democrats are failing to sufficiently grapple with. It's easy to imagine that the 87% of Americans who do not carry student loan debt will resent the Biden administration to some degree for giving a five-figure sum windfall to a cohort that is already economically better off than the rest of the country. There have been several viral tweets trying to address this concern that don’t actually do a good job of addressing it, like this one that was retweeted by Rep. Ocasio-Cortez:
These are not-great comparisons. Medicare works because I know that if I pay into it now, I’ll become eligible for those benefits when I turn 65. Student loan debt forgiveness does not work like this, because it is an action that is being taken at the discretion of the President. As for comparing student loan debt forgiveness to the first-time homeowner benefit and public transit riders subsidizing car infrastructure…those are also regressive policies! If the best comparison to defend student loan forgiveness is to compare it to other bad policies, then maybe that should give advocates a pause.
Then What?
President Biden could direct the Department of Education to provide targeted debt relief only to those most in need. But even that is tricky. Forgiveness based on income is difficult because it does not consider the lifecycle of earnings, so a disproportionate amount of relief will go to very recent college graduates who might not make a ton of money now but will in a couple of years. Forgiveness based on educational attainment – such as providing relief to people who only completed a year or two of college, so they have debt but don’t get the same income boost that bachelor holders get – is better targeted, but may also direct relief to individuals who have only left college temporarily or left because they received a high-paying job.
A better option would be to continue expanding the number of borrowers eligible for income-based repayment, as Biden already did earlier this month. Income-based repayment is lifecycle and educational attainment agnostic, so it would actually deliver relief to student debt holders who need it the most. Borrowers would pay less when they make less, and pay more when they make more. If they have a balance after a set number of years, the remainder is forgiven.
Congress might even have an appetite for some version of systemic reform. Several Senators have already signaled that they would be willing to consider changes: Susan Collins, for example, has championed expanding the Pell Grant program – which provides scholarships to the neediest students – since George W. Bush was President. Joe Manchin too has signed onto expanding and strengthening Pell Grants. Doubling the size of the Pell Grant program to make more students eligible would only cost about $34 billion a year – about the same the U.S. government spends on the student loan repayment moratorium.
Sen. Susan Collins (R-Maine) tells me she “a lot of concerns” with Biden potentially forgiving a chunk of student loans. Says she’d rather see more $$ for Pell Grants and criticizes the move as one that’s unfair to people who paid back their student debt
There is also an argument that if Congress were to pass reforms that prevented another student loan debt crisis from occurring in the future (and hold colleges and universities accountable for their role in the crisis), it would strengthen the justification for broader, student loan debt relief. “Hey, we screwed up in the past, so here are some reforms that will get this under control and we will forgive some debt for past borrowers to make up for our mistake” seems like a reasonable position to take. Republicans have long called for measures that would tax colleges for raising tuition faster than inflation or punish colleges when their graduates default on their loans. Moderate Democrats have called for three-year degree requirements, which would mandate universities that receive federal aid to offer three years degrees — reducing the cost of a college education by 25%. All of these reforms could be tied to some degree of debt forgiveness in a neat bipartisan package.
Passing any bipartisan bill in Congress these days is no small feat, which is why Biden has reached this point. Using executive authority, Biden has the ability to fulfill one promise without having to deal with the filibuster and a razor-thin Senate majority. I can sympathize with him for his desire to do something, but I am skeptical that this move will yield the results he wants.
Note: The author of this piece has ~$20k in student loan debt.