The student loan forgiveness debate is based on two numbers: $ 10,000 versus. $ 50,000
Two people are arguing over details. // Franziska Barczyk for NPR
For months Democrats in Washington debated what to do about student debt. About 43 million borrowers have to $ 1.6 trillion in federal student loans. While some lawmakers have pushed President Biden to forgive up to $ 50,000 per borrower Via an executive order, Biden has so far expressed support for only a more limited pardon, of $ 10,000, through pandemic relief legislation.
This week, the president and the White House clarified his position. In a CNN town hall on Tuesday night, Biden was asked if he forgives up to $ 50,000 in debt. The president’s response: “I can’t do it.” He went on to say, “I understand the impact of debt, and it can be debilitating. I am prepared to write off the debt of $ 10,000 but not of $ 50. [thousand], because I don’t think I have the power to do it. “
White House press secretary Jen Psaki on Wednesday developed on Biden’s comments, claiming that the president “does not promote $ 50,000 in unlimited student loan relief.”
The sticking points between the $ 10,000 and $ 50,000 proposals revolve around which borrowers would benefit the most and the legality of canceling student debt through legislation versus taking action by the. executive.
Some of the economists who advocate for a $ 10,000 rebate warn that any higher amount may reward borrowers who do not need the help.
“The borrowers with the lowest student debt are the ones who struggle the most,” says Adam Looney, an economist at the University of Utah.
More than a third of borrowers owe less than $ 10,000 in federal student debt, according to federal data.
Often, borrowers with low debt balances went to college for a semester or a year or two, and never graduated. Without a degree, these borrowers often earn less money, making it more difficult for them to repay their student loans and more likely to default. About 8 million federal student loan borrowers are currently in default, and the typical defaulter takes less than $ 10,000.
Being in default means the government can take part of your tax refund or paycheck. When you get older you can even lose part of your social security checks.
These garnishments make it even more difficult for borrowers to build wealth.
University of Pennsylvania researcher Jalil Mustaffa Bishop studies the experiences of student borrowers. He says, “What we know from research is that those who have borrowed student loans [did it] because they come from households or personal financial situations where they do not have the assets or the income to afford higher education. “
Student debt is not a burden for everyone. Economist Looney points out that many borrowers who have taken out loans for a bachelor’s degree are able to repay this debt. And Studies show that more than a third of student debt is owed by the richest 20% in the United States
But income is different from wealth, Bishop says. Wealth is the value of all your assets minus your debt, and households with student debt tend to have the least wealth, according to federal data.
Black families tend to have much less wealth than white families, according to the Federal Reserve, and black households are more likely to have student debt – and more – than white or Latino families. They are also more likely to default on their loans, even if they won a Licence, thanks to discrimination in the labor market.
Supporters of the $ 50,000 proposal to say a more generous policy would target these disparities in wealth, particularly among black families. About 80% of borrowers have student debt of less than $ 50,000, according to federal data. Supporters of this proposal also argue that this level of forgiveness is about racial justice – the dollar amount comes of research who found $ 50,000 would help increase the wealth of as many black households as possible. (This research was updated later to reflect growing debt balances.)
“The student debt crisis is having a disproportionate impact on borrowers of color and communities of color, black borrowers in particular,” says Ashley Harrington, senior policy advisor at the Center for Responsible Lending. “When we talk about cancellation, we have to start there.”
Many black and Latino families have missed out on ways to build wealth in the past – like homeownership and job training programs – due to racist policies. Researchers who study and discuss with student borrowers say student debt is the biggest factor holding them back today.
“They go through the mental stress of not being able to plan or watch a life go by with student loan debt,” Bishop said. “So the $ 10,000 doesn’t quite fit that kind of reality and burden.”
Senators Elizabeth Warren, D-Mass., And Chuck Schumer, DN.Y., are among those calling for a $ 50,000 debt forgiveness. “Canceling student loan debt is the most effective executive measure President Biden can take to get the economy going,” Warren said at a recent press conference.
Warren and Schumer argued that the president has the power to write off this level of debt through executive action, citing a september notice of lawyers at the Harvard Project for Predatory Lending. Earlier this month, the White House reported it examined the legality of such executive action. In January, before Biden was sworn in, lawyers from the U.S. Department of Education posted a note to conclude that forgiveness of federal student loan debt through executive action would be illegal.
Even though the legal issues are resolved, Biden has repeatedly said he prefers to take action through Congress. He also supported other efforts to tame the federal student loan beast, including income-driven repayment plans and to make college more affordable.