How you feel about President Joe Biden’s plan to cancel up to $10,000 of student debt probably depends on your situation. If you are a current student or recent graduate (or the parent of one), you may be grateful for any relief from your debt load. If you never went to college or have paid off any loans you took out at the time, you might be more concerned about the impact of forgiving trillions of dollars of debt on the nation's economy. In this article, we’ll take a look at some of the possible positive and negative impacts of canceling student debt.
- The Biden administration has suggested it will ask Congress to forgive $10,000 in debt on federal student loans.
- Some in Congress believe that $10,000 is too little, others too much.
- Canceling debt would be of particular benefit to households of color, according to recent research.
What Is Biden’s Plan to Cancel Student Debt?
There are limits to what Joe Biden can do on his own to address student loan debt. Some policies could be set by his Department of Education, while others will require approval from Congress. Given that Democrats have (slim) majorities in both houses of Congress, it's likely that some type of change will be coming.
Before the election, Biden shared some of his ideas for higher education reform on his campaign website. “Joe’s Agenda for Students” described multiple initiatives related to the cost of college, including increasing Pell Grants, halving payments on undergraduate federal student loans, and expanding loan forgiveness programs.
On his first day in office, Biden signed an executive action to continue the moratorium on most federal student loan payments, as enacted under the Trump administration, until at least Sept. 20, 2021. The interest rate on those loans will also remain at 0%. In April 2022, BIden again extended the student loan pause to Aug. 31, 2022.
As of April 2022, borrowers are still waiting for an announcement regarding significant student loan forgiveness. President Biden promised this while campaigning, but it's unclear whether the payment pause will be extended beyond August 2022. In addition, the U.S. Department of Education and the Justice Department are currently reviewing whether the President has the legal authority to cancel up to $50,000 in federal student loan debt through executive action. There is no timetable on when these reports will be issued. It may be quite a while until they are produced, however, because Congress has not yet confirmed key policy advisors in both departments.
The American Rescue Plan passed by Congress and signed by President Biden in March 2021 includes a provision that student loan forgiveness issued between Jan. 1, 2021, and Dec. 31, 2025, will be tax-free.
Positive Impacts of Canceling Student Debt
Though many borrowers owe more than $10,000, any sort of student loan forgiveness would benefit them financially. Some economists believe that loan forgiveness would also serve as a stimulus to the greater economy, because borrowers could then use that money for other purposes, such as buying a home.
Canceling student debt could be of particular benefit to lower-income borrowers, especially women and people of color. An academic paper in 2020 maintained that the "median wealth for Black households overall, not just borrowers, would instantly increase by 42% with $75,000 in student debt forgiveness and around 34% with $50,000 in forgiveness." Those are higher amounts than Biden has suggested but would be in keeping with his administration's initiatives to address racial equity.
Negative Impacts of Canceling Student Debt
Critics argue against canceling any amount of student loan debt, in part because it would unduly benefit a relatively privileged class of people—college graduates. Though more than 40 million Americans have at least some student loan debt, they represent only about one-eighth of the U.S. population. Some people who did not attend college, or who already struggled to pay off their student loan debt, may also object. What's more, forgiveness or cancellation of student loan debt does nothing to address the overall high cost of a college education today.
The Bottom Line
Though there is a general consensus that higher education reform, particularly in regard to costs, is desirable, experts are divided as to whether canceling some or all student loan debt is the best way to go about it.