After more than a year of hesitation and procrastination, the Biden administration faces an August 31 deadline to decide how much student loan debt to forgive. The moratorium on student loan payments that began in March 2020 as a pandemic relief measure is set to expire at the end of the month, and Biden is weighing the political costs and benefits of possibly extending the moratorium while forgiving a large slice of student debt — perhaps up to $50,000 or more.
Many economists believe forgiving up to $10,000 in student loan debt would add significantly to inflation. But with midterms approaching, Biden knows that forgiving at least some of the debt would be very popular with voters in the 18-34 demographic.
According to the Washington Post, the moratorium has already cost the federal government more than $100 billion in interest payments. And the plan most discussed publicly — forgiving $10,000 in debt for those making less than $125,000 — would cost taxpayers $230 billion.
But the radical wing of the Democratic Party believes it’s nowhere near enough. Sens. Chuck Schumer (D-N.Y.) and Elizabeth Warren (D-Mass.) believe that Biden can wipe the slate clean for student borrowers, forgiving $1.3 trillion in debt with a stroke of Biden’s pen. Biden has not entirely dismissed this idea, as he met with Schumer and Warren on Friday.
As the president moves closer to a decision, both supporters and critics of canceling debt have made increasingly strident appeals for their side.On Friday, Senate Majority Leader Charles E. Schumer (D-N.Y.) and Sen. Elizabeth Warren (D-Mass.) — two strong proponents of canceling student debt — spoke again with White House Chief of Staff Ron Klain, according to two other people aware of the private conversation. Schumer and Warren reiterated requests they’ve made over the past two years that significant amounts of debt be forgiven, the people said. The NAACP has also been adamant that the administration cancel as much as $50,000 in student loans per borrower, citing the higher loan burdens of Black Americans.
“$10,000 alone is meager, to say the least — it won’t address the magnitude of the problem,” said Derrick Johnson, president of the NAACP, in an interview.
Biden must weigh the political benefits of forgiving a large slice of student debt with the political downside coming from those who have already paid off their debt or graduates who never took on any debt in the first place. And then there’s the inflation question that many economists — including former Treasury Secretary Larry Summers — believe needs to be addressed in any plan.
But centrist Democrats have begun pushing back strongly. Lawrence H. Summers and Jason Furman — two prominent Democratic economists who served in prior administrations — have stepped up their case against broad loan forgiveness, arguing it would exacerbate inflation by increasing overall spending. Summers and Furman, critics of the president’s $1.9 trillion American Rescue Plan last year, were outspoken supporters of the Inflation Reduction Act negotiated with Manchin. But in a Twitter thread Monday, Summers argued that the administration should not contribute to inflation by offering “unreasonably generous student loan relief” or encourage colleges and universities to increase tuition.
Republicans will almost certainly highlight the fairness issue during the midterms if Biden becomes too generous with his loan forgiveness program. Essentially, most of the loan forgiveness would go to taxpayers — doctors, lawyers, and other professionals — who don’t need it.
Officials have studied for months whether canceling student loans could alienate voters who had already paid theirs off, and polling results have been mixed, said a third person familiar with the matter, who also spoke on the condition of anonymity to reflect private conversations. White House officials previously discussed limiting debt forgiveness to Americans who earned less than $150,000 in the previous year, or $300,000 for married couples filing jointly. One person familiar with the matter said those thresholds had not changed, although implementing those caps in practice could prove complicated.
Which way will Biden jump? Rising approval numbers may embolden him to go big. The fact that, at this late date, he’s still talking to Schumer and Warren about massive debt relief is significant.
But Biden is more likely to try and split the difference between the radicals and the centrists. This wouldn’t satisfy either side but would serve the purpose of getting the argument out of the news and allowing him to move on.