The question of what to do with student loan debt estimated at $1.6 trillion is a growing headache for Democrats at a time when families grapple with higher costs, but centrist Democrats led by Sen. Joe Manchin (W.Va.) doesn’t want to fuel inflation further.
President Biden is stuck in the middle.
Progressives to his left, like Senate Majority Leader Charles Schumer (DN.Y.) and Sen. Elizabeth Warren (D-Mass.), are calling on him to forgive up to $50,000 in student debt, while that more moderate Democrats argue that student debt cancellation is regressive and likely to fuel inflation.
But while the Senate Democratic caucus is very reluctant to cancel up to $50,000 in student debt, moderate Democrats are reluctant to publicly denigrate the idea because they don’t want to go against the party base. .
“What people forget about the payment pause is that it is costing taxpayers a huge amount of money, so at some point it will have to end. At some point people are going to have to start repaying their loans again, but those who want universal debt cancellation have made it a political third rail,” said Lanae Erickson, senior vice president for social policy and education at Third Way, a centrist Democratic think tank.
“There is no consensus that an administration would have the legal power to simply write off large-scale debt. The ones doing it is Congress, so that handful of Democrats in Congress who are trying to pressure the White House should really turn to their own backyards and convince their colleagues to do it legislatively, because it’s is how it will actually hold up in court. ,” she says.
Proponents of student debt forgiveness argue that it is a matter of social justice, as many black and minority families have less wealth than white families and are burdened with student debt.
“What we know to be true is that canceling student debt [can help] reduce the racial wealth gap. This is an opportunity to really give black families … the ability to buy homes and … add discretionary wealth,” said Wisdom Cole, NAACP national director for youth and college.
Cole dismissed questions about whether Biden had the legal authority to waive up to $50,000 in debt per borrower by pointing out that the president had already forgiven $17 billion in student loans.
That includes the $6.2 billion in student debt his administration erased last year by reforming the civil service loan forgiveness program. Biden also canceled about $2 billion in debt held by students who say they were defrauded by for-profit schools such as Corinthian Colleges Inc., ITT Technical Institute and DeVry University.
Even so, blanket student debt cancellation remains a controversial topic among Democrats in Congress.
Moderate Senate Democrats balked at the idea of canceling all student debt when Sen. Bernie Sanders (I-Vt.) pushed it during the 2020 Democratic presidential primary.
“Higher education is out of control cost-wise, we have to do some things about it, but you can’t just say it’s going to happen. You have to have a plan to get there,” the senator said. Jon Tester (D-Mont.) at The Hill at the time: “I agree with what he’s trying to do here, but I don’t think just saying that’s happening.”
“That’s a lot of money,” he added.
Sen. Mark Warner (D-Va.) at the time said he was concerned that canceling student debt would increase federal debt and shift the burden to the next generation — and that’s to that time the debt was $23 trillion. The national debt crossed $30 trillion in February.
“If we just shift more of this debt nationally onto the backs of young people, that will be a burden that you will have to absorb as well,” Warner told The Hill ahead of the 2020 election.
Third Way’s Erickson said wealthier families with higher degrees would benefit disproportionately from debt forgiveness.
“The people who are pushing for a blanket cancellation are really pushing for an incredibly regressive solution to the problem of some people not being able to make progress paying off their student loans,” she said.
A report by the Brookings Institution, a center-left think tank, found that of all indebted households, 26% are headed by people with advanced degrees and they make up 50% of the total outstanding debt.
The Urban Institute, another left-wing think tank, found that the top 25% of households held 34% of total outstanding education debt and the top 10% of households held 11 % debt.
Manchin raised fresh concerns about federal deficits on Tuesday after the Labor Department reported consumer prices rose 8.5% in March from a year earlier, the biggest annual gain in 40 years. .
“Here’s the truth: we can’t go our way to a balanced and healthy economy and continue to add $30 trillion to our national debt,” he said.
Diana Furchtgott-Roth, assistant professor of economics at George Washington University and former chief economist for the Department of Labor under President George W. Bush, said that while canceling student debt would increase federal debt, it would not necessarily stimulate inflation. .
“It’s going to increase the deficit, the federal deficit, but I don’t see it going to be inflationary and drive up prices like rising oil prices are driven by the lack of energy production,” she said. said, adding that inflation is “a problem of the Federal Reserve holding the fed funds rate too long.”
The question seems to be polling voters well, with about 6 in 10 Americans supporting student debt relief. But a lot depends on the details of the debt cancellation and how the question is framed.
Biden tried to send the issue back to Congress, saying he was ready to sign a bill canceling up to $10,000 in student debt per borrower.
Last week, Biden addressed the issue by extending the pause on student loan repayments, interest and collections until August, which didn’t go as far as Warren and other progressives wanted.
It was the sixth extension of the student debt payment pause since former President Trump initiated it at the start of the pandemic in March 2020.
Schumer said Tuesday the president needed to do more and predicted that Biden is getting closer than ever to canceling student debt through his executive authority.
“Don’t get me wrong, the break is a good thing, but it’s not enough. It’s not enough,” he told activists Wednesday at a virtual event hosted by the State of Student Debt Summit.
Schumer lobbied the president intensely on the issue.
“I’ve spoken to the president personally about this issue a bunch of times. I’ve told him it’s more important than anything else he can do on his own,” he said. said, predicting that Biden will eventually adopt his position.
“We’re making progress, folks. We are progressing. The White House seems more open to this than ever before,” he said.
Schumer and Warren signed a March 31 letter to Biden urging him to extend the pause on student loan repayments until at least the end of the year and also provide “meaningful” student debt cancellation.
“Cancelling student debt is one of the most powerful ways to address issues of racial and economic equity. The student loan system reflects many of the inequalities that plague American society and widen the wealth gap racial,” they wrote.
The letter was signed by nearly 100 Democratic lawmakers, including Sen. Raphael Warnock (Ga.), who faces a tough re-election in a state Biden won by just 12,000 votes in 2020.
Other vulnerable Democrats, such as Sens. Mark Kelly (Arizona), Maggie Hassan (NH) and Catherine Cortez Masto (Nev.), did not sign the letter.
Furchtgott-Roth, an economics professor at George Washington, pointed out that there are already many programs to help student borrowers reduce their debt. She said the federal government needs to do more to promote these programs before considering general debt forgiveness.
“There’s a pay-as-you-go program, there’s income-contingent reimbursement and all these people pay a certain amount of their income for 20 to 25 years and then the rest is forgiven. There are also different loan forgiveness programs,” she noted. “You make your payments for 10 years, then the rest can be forgiven if you have a job with the federal, state, local government, or a nonprofit organization.”
“Students should be educated about this,” she said.