In 2019, billionaire Robert Smith set the bar for graduation speeches when he made a $34 million promise to pay off the loans of Morehouse College’s graduating class. A generous gift…but just a drop in the $1.7 trillion bucket of outstanding student debt.
This year, President Biden is expected to tackle the mounting student loan crisis with a powerful weapon: forgiveness. Specifically, a proposal to clear up to $10,000 per borrower due to the Covid-19 crisis.
But not everyone, even within his own party, agrees on how much he should forgive—or whether he should at all.
The state of student debt
There’s a lot of it. About 45 million Americans have outstanding student loans. And as of 2019, 45% of people under the age of 30 who attended college took on some form of education debt, with a typical outstanding balance between $20k and $25k.
- 17% of borrowers were behind on payments in 2019.
- And a growing proportion of borrowers are signed up for income-driven repayment plans, which allow lower-income earners to decrease payments or forgo them altogether.
Payments on federal loans have been suspended during Covid, and before they resume in October, Democrats are hoping Biden will wipe out that $10,000. Some progressives are pushing him to go even higher, up to $50,000/person. But many Republicans, already balking at the proposed $1.9 trillion stimulus, don’t support the also-expensive task of broad-based loan forgiveness.
Do nothing. Critics of student loan forgiveness argue that it benefits an already privileged class (college grads) and doesn’t address the root problem of expensive tuition. The nonpartisan Committee for a Responsible Federal Budget estimates that cancelation would only slightly boost the economy and may not be as effective as other forms of direct aid to lower-income households.
Forgive $10,000, which would clear balances for a third of borrowers and put a nice dent into outstanding balances for the largest group of borrowers, who hold between $20k–$40k.
- It may seem counterintuitive, but in general, those struggling the most have <$10,000 in outstanding debt. Many may never have completed their degrees.
Forgive $50,000, which would wipe out debt for about 80% of borrowers. However, since larger debt loads are typically held by students who attended master’s or PhD programs (and typically end up in a higher income bracket as a result), critics who argue that forgiveness benefits wealthier households especially oppose this option.
There are other routes for more targeted relief (which Republicans may be more willing to support) based on borrowers’ household income, post-college earnings, the type of institution attended, and level of degree earned. The government could also expand loan forgiveness programs or enroll more borrowers in income-based repayment plans.
+ For more: If you’re interested in learning more about student loans, our podcast Business Casual released two episodes last fall that tackled the subject. One guest argued it’s not really a crisis at all.