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How Biden’s Student Loan Forgiveness Plan Is Dividing Democrats
President Biden’s executive order Wednesday to cancel thousands of dollars in college debt for millions of Americans has divided Democratic candidates like few other policies of his administration, with some Democrats using the plan to distance themselves from a president who could prove to be a heavy burden in their states and districts.The responses were starkly divided along racial and generational lines, with Black candidates and younger voters more likely to approve and Democrats running as centrists more likely to be critical. But among Democratic candidates in tough campaigns, there was little consistency to be found.Senator Raphael Warnock of Georgia and Lt. Gov. Mandela Barnes of Wisconsin, both Black and both hoping to be in the Senate next year, were supportive. Senator Catherine Cortez Masto of Nevada, a Democrat in a tight race for re-election and running as a moderate conciliator, was highly critical.Yet Senator Mark Kelly of Arizona, another Democrat seeking re-election in a swing state as a bipartisan moderate, backed the plan.Lt. Gov. John Fetterman of Pennsylvania, a Senate candidate hoping to appeal to working-class voters, praised the move as relief to struggling Pennsylvanians too often forgotten by policymakers. Representative Tim Ryan of Ohio, also running for the Senate as a voice of the working class, decried it as a gift to those already on a path to success at the expense of Ohioans shut out of higher education.“While there’s no doubt that a college education should be about opening opportunities, waiving debt for those already on a trajectory to financial security sends the wrong message to the millions of Ohioans without a degree working just as hard to make ends meet,” Mr. Ryan said in a statement.The sharp divisions over the debt relief order were somewhat surprising considering how long the plans were under consideration and the lengthy journey the issue has taken from a rallying cry at Occupy Wall Street protests more than a decade ago to a Biden campaign promise in 2020.The provenance of the plan was no doubt from the left wing of the party — including Senators Bernie Sanders, independent of Vermont, and Elizabeth Warren, Democrat of Massachusetts — that campaigned on promises of far more generous debt forgiveness. The fact that Mr. Biden issued a moderate version a little more than two months before the November midterm elections might have been expected to unite the party, not divide it.But the move was coming from an unpopular president at a time when Republicans — and some Democratic economists — have been portraying any expensive social welfare proposal as jet fuel for skyrocketing inflation.“There’s still a real debate in the party on how interventionist the government should be,” said Waleed Shahid, a liberal strategist and spokesman for Justice Democrats, a progressive group that has strongly pushed for student debt relief. He added, “Some of these Democrats feel like they have to punch back at the president in purple states, and this is what they have chosen to punch back on.”Senator Catherine Cortez Masto, Democrat of Nevada, said the debt relief was not targeted enough at low-income Americans.John Locher/Associated PressBeneath the raw politics of the moment are substantive criticisms. Mr. Biden’s action would cancel $10,000 in debt for Americans earning less than $125,000 per year and cancel $20,000 for low-income students who received Pell grants.Ms. Cortez Masto and Mr. Ryan both said the debt relief was not targeted enough at low-income Americans or college students entering fields with low pay and desperate need, like rural health care or emergency medicine. More
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Biden’s Debt Relief
The president’s plan focuses on less affluent student borrowers.Fewer than 40 percent of Americans graduate from a four-year college, and these college graduates fare far better than nongraduates on a wide range of measures. College graduates earn much more on average; are less likely to endure unemployment; are more likely to marry; are healthier; live longer; and express greater satisfaction with their lives. These gaps have generally grown in recent decades.As a result, many economists have expressed skepticism about the idea of universal student-loan forgiveness. It resembles a tax cut that flows mostly to the affluent: Americans who attend and graduate college tend to come from the top half of the income distribution and tend to remain there later in life. College graduates are also disproportionately white and Asian.“Education debt,” as Sandy Baum and Victoria Lee have written for the Urban Institute, “is disproportionately concentrated among the well-off.”But the idea of loan forgiveness has nonetheless taken off on the political left. As Democrats have increasingly become the party of college graduates living in expensive metropolitan areas — and as the cost of college has continued rising, while income growth for many millennials has been disappointing — loan forgiveness has obvious appeal.These crosscurrents put President Biden and his aides in an awkward position. Biden fashions himself as a working-class Democrat. (He is the party’s first presidential nominee without an Ivy League degree since Walter Mondale.) He did not initially campaign on a sweeping plan of college debt relief, adding it to his agenda only after he defeated more liberal candidates in the primaries, as a way to reach out to their supporters.Yesterday, after months of behind-the-scenes work and internal debate, Biden finally announced his plan for loan forgiveness. And it is an attempt to find a middle ground.A graduation in New Jersey.Seth Wenig/Associated Press‘The worst of both’By definition, the plan will not help the many Americans who do not go to college. But its benefits are targeted at lower-income college graduates and dropouts, especially those who grew up in lower-income families. Compared with other potential debt-forgiveness plans, Biden’s version is much more focused on middle-class and lower-income households.It is restricted to individuals making less than $125,000 (or households making less than $250,000), which will exclude very high earners at law firms, in Silicon Valley and elsewhere. For anybody under this income threshold, the plan will forgive up to $10,000 in debt. For somebody who received Pell Grants in college — a federal program focused on lower-income families — the plan may forgive an additional $10,000.More broadly, Biden also said he wanted to enact a new rule to restrict future payments on college loans to no more than 5 percent of a borrower’s discretionary income, down from between 10 percent and 15 percent now.(My colleagues Ron Lieber and Tara Siegel Bernard have written a Q. and A. that is full of useful information about the plan.)The emphasis of Biden’s plan partly reflects academic research that has found that the people who struggle the most to repay their loans don’t fit a common perception. They are less likely to be baristas with six figures in debt and a graduate degree than blue-collar workers who have a smaller amount of unpaid loans but never graduated college. That worker, Biden said yesterday, has the “worst of both worlds — debt and no degree.”A study by Judith Scott-Clayton of Columbia University found that the loan-default rate for borrowers without any degree was 40 percent. For those with a bachelor’s degree, it was less than 8 percent.The details of Biden’s plan mean that it targets the people most likely to default, rather than the caricature of them. “$10k will forgive ALL the debt of many millions of borrowers,” Susan Dynarski, a Harvard University economist — and herself a first-generation college graduate — tweeted yesterday. As an example, she cited “those who went to community college for a semester or two.”There is still some uncertainty about whether the plan will be implemented. Biden is enacting it through executive action because it seems to lack the support to pass in Congress, and opponents may challenge it in court.“Let the lawsuits begin over presidential authority,” Robert Kelchen of the University of Tennessee predicted. “I wouldn’t count on forgiveness happening for a while, and it may go to the Supreme Court.”More commentary“Thoughtful people disagree on student loan forgiveness,” Arindrajit Dube, an economist at the University of Massachusetts, Amherst, wrote on Twitter. He praised the plan as a form of “disaster relief” that addressed the struggles of younger workers during the decade-plus since the Great Recession began.Matthew Chingos of the Urban Institute has noted that the income cap increases the share of debt forgiveness that flows to Black borrowers.Susan Dynarski told me she was “thumbs up” on the plan but wished people did not need to apply for forgiveness, because some would fail to do so. The government has the data it needs to cancel debt automatically, she said.Progressive groups were mostly supportive of the plan. Indivisible called it a “bold move to improve the lives of working people.”Mitch McConnell, the Republican Senate leader, said: “Biden’s student loan socialism is a slap in the face to every family who sacrificed to save for college, every graduate who paid their debt and every American who chose a certain career path or volunteered to serve in our Armed Forces in order to avoid taking on debt.”Democrats in competitive elections had mixed reactions. Senator Raphael Warnock of Georgia called for even more debt relief. Representative Tim Ryan, running for an Ohio Senate seat, criticized the plan: “Instead of forgiving student loans for six-figure earners, we should be working to level the playing field for all Americans.”THE LATEST NEWSPoliticsSince the Supreme Court overturned Roe v. Wade, Democrats have made steady gains in midterm polls. 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Student Loan Cancellation Sets Up Clash Between Biden and the Left
#masthead-section-label, #masthead-bar-one { display: none }The Presidential TransitionliveLatest UpdatesFormal Transition BeginsBiden’s CabinetDefense SecretaryElection ResultsAdvertisementContinue reading the main storySupported byContinue reading the main storyStudent Loan Cancellation Sets Up Clash Between Biden and the LeftDemocratic leaders are pressing the president-elect to cancel $50,000 in debt per student borrower by fast executive action, but he wants Congress to pass more modest relief.Marquette University in Milwaukee last month. Student debt has tripled since 2006 and eclipsed credit cards and auto loans as the largest source of household debt outside mortgages.Credit…Taylor Glascock for The New York TimesErica L. Green, Luke Broadwater and Dec. 10, 2020Updated 7:09 p.m. ETWASHINGTON — President-elect Joseph R. Biden Jr. is facing pressure from congressional Democrats to cancel student loan debt on a vast scale, quickly and by executive action, a campaign that will be one of the first tests of his relationship with the liberal wing of his party.Mr. Biden has endorsed canceling $10,000 in federal student debt per borrower through legislation, and insisted that chipping away at the $1.7 trillion in loan debt held by more than 43 million borrowers is integral to his economic plan. But Democratic leaders, backed by the party’s left flank, are pressing for up to $50,000 of debt relief per borrower, executed on Day 1 of his presidency.More than 200 organizations — including the American Federation of Teachers, the N.A.A.C.P. and others that were integral to his campaign — have joined the push.The Education Department is effectively the country’s largest consumer bank and the primary lender, since 2010, for higher education. It owns student loans totaling $1.4 trillion, so forgiveness of some of that debt would be a rapid injection of cash into the pockets of many people suffering from the economic effects of the pandemic.“There are a lot of people who came out to vote in this election who frankly did it as their last shot at seeing whether the government can really work for them,” said Representative Pramila Jayapal, Democrat of Washington and the chairwoman of the Congressional Progressive Caucus. “If we don’t deliver quick relief, it’s going to be very difficult to get them back.”Many economists, including liberals, say higher education debt forgiveness is an inefficient way to help struggling Americans who face foreclosure, evictions and hunger. The working poor largely are not college graduates — more than 70 percent of currently unemployed workers do not have a bachelor’s degree, and 43 percent did not attend college at all, according to a report by the Committee for a Responsible Federal Budget.While many Black students would benefit greatly from even modest loan forgiveness, debt relief overall would disproportionately benefit middle- to upper-class college graduates of all colors and ethnicities, especially those who attended elite and expensive institutions, and people with lucrative professional credentials like law and medical degrees.An October analysis by the Brookings Institution found that almost 60 percent of America’s educational debt is owed by households in the nation’s top 40 percent of earners, with an annual income of $74,000 or more.People who go to college “are often from more advantaged backgrounds, and they end up doing very well in the labor market,” said Adam Looney, a former Treasury official who helped write the analysis.Without a parallel effort to curb tuition growth, one-time debt relief could actually lead to more higher-education debt in the future as students take on larger loans, hoping the government would at some point wipe them clean, a “moral hazard” that often accompanies one-time interventions. And it would be expensive: Canceling even $10,000 per person in debt would eliminate more than $400 billion in government assets, although calculating the true cost to the Treasury is tricky because of student loans’ long repayment time and high default rate.Mr. Looney said that canceling $50,000, at a projected cost of $1 trillion, would be “among the largest transfer programs in American history,” on par with decades of targeted spending on programs that exclusively benefit low-income families, such as the $992 billion spent on federal Pell grants since 1972 and the $1.4 trillion spent on welfare since 1975.If debt relief overall would disproportionately flow to better-off Americans, even modest debt forgiveness would help many financially vulnerable people, especially people of color. Student debt load has tripled since 2006 and eclipsed both credit cards and auto loans as the largest source of household debt outside mortgages, and much of it falls on Black graduates, who owe an average of $7,400 more than their white peers at the time they leave school. Black borrowers also default at higher rates.College dropouts, especially those who attended for-profit schools, often end up trapped by debt they cannot afford to repay.“In this moment of national reckoning on racial injustice, the president-elect must cancel all federal student debt on Day 1 of his administration,” Representative Ayanna Pressley, Democrat of Massachusetts, said in a statement. “The president-elect must meet the moment. If he fails to, we will hold him accountable.”An economic working paper published by the Roosevelt Institute casts debt forgiveness explicitly in racial-justice terms. The total percentage of Black households that would benefit would be greater than white households, and the relative gains for those households’ net worth are far larger, the researchers found. The greatest marginal gains come from canceling the smallest debts; wiping out $20,000 would end student debt for half of all households with loans.Senators Chuck Schumer of New York, the Democratic leader, and Elizabeth Warren, Democrat of Massachusetts, said in a joint op-ed last week that $50,000 debt cancellations would give “Black and brown families across the country a far better shot at building financial security” and would be the “single most effective executive action available to provide massive stimulus to our economy.”To truly break the debt cycle, though, forgiveness would need to be paired with policy changes addressing the underlying cause of America’s skyrocketing student debt: affordability, an issue Democrats have tried to address.“The real problem is the cost of higher education,” said Betsy Mayotte, the president and founder of the Institute of Student Loan Advisors. “Unless you’re going to solve the problem, forgiveness is just throwing away money.”Mr. Biden’s campaign platform proposed making public universities tuition-free for families making less than $125,000 a year.“The virus epidemic has accelerated some of the trends that are strangling public higher education,” said Louise Seamster of the University of Iowa and a co-author of the Roosevelt Institute paper. She said a momentous move like debt forgiveness could spur “new ways of thinking.”“A lot of the debate has gotten stale because we’ve been limited in thinking about the fixes,” she said.Senators Elizabeth Warren and Chuck Schumer have pushed for up to $50,000 in debt cancellation.Credit…Anna Moneymaker for The New York TimesBut student debt forgiveness could have serious political implications. In 2009, relief extended by President Barack Obama to homeowners with houses suddenly worth less than their mortgages was the original spark for the Tea Party movement, driven by people who fastidiously paid their home loans and felt left out. The dynamic would almost certainly repeat itself as earlier and later borrowers wondered why they had to pay off their loans.“I don’t believe any president has the authority to give away hundreds of billions of dollars through the stroke of a pen,” said Senator Ted Cruz, Republican of Texas. “And I think doing so is profoundly unfair to the millions of Americans who worked hard to pay down their student debt.”The legal argument for debt cancellation by executive action hinges on a passage in the Higher Education Act of 1965 that gives the education secretary the power to “compromise, waive or release” federal student loan debts. Mr. Schumer and Ms. Warren maintain that Mr. Biden can broadly use that power, and several lawyers have written analyses backing that view.The Presidential TransitionLatest UpdatesUpdated Dec. 10, 2020, 8:48 p.m. ETThe federal investigation into his son is likely to hang over Biden as he takes office.The Trump administration may sharply draw back military support for the C.I.A. in its final weeks.State Department watchdog announces early departure as Pompeo criticizes his office.But former government lawyers have warned that across-the-board forgiveness would face legal challenges from Republicans. And Mr. Biden has never publicly endorsed the idea. Some close to him say he recognizes the risks and consequences of bypassing Congress.There is more consensus that the $10,000 proposal would reach the most vulnerable borrowers, the estimated 15 million who have low debt under $10,000, often because they did not complete their degrees.Some experts argue that Mr. Biden has other, more progressive options for taming student debt, such as improving existing repayment plans that link borrowers’ loan payments to their incomes.The government has struggled to get all borrowers who would benefit from income-linked plans enrolled in them, in part because the loan servicers it hired to work with borrowers and collect their payments have not guided people through the complicated process of getting and staying enrolled.A separate program to forgive the debts of those who work in public-service careers has an even grimmer track record, and a longstanding program to forgive the debts of graduates bilked by their universities — usually for-profit colleges — has been crippled by the Trump administration.The “benefit of outright cancellation is simplicity,” said Eileen Connor, the legal director at the Project on Predatory Student Lending at Harvard Law School, which represents thousands of students defrauded by their colleges and mired in legal fights with the Education Department over loan forgiveness.“We are facing an unprecedented public health and economic crisis, and we need to use every tool readily available to keep families and the economy afloat,” Ms. Connor said.Mr. Biden has continued to push for the passage of legislation that called for some loan forgiveness, named the Heroes Act, that the House passed in the spring.Student debt holders are “having to make choices between paying their student loan and paying the rent, those kinds of decisions,” Mr. Biden said at a news conference last month.Representative James E. Clyburn of South Carolina, the No. 3 Democrat in the House whose endorsement was key to Mr. Biden winning the presidency, said the president-elect should first try legislation. If that fails, Mr. Clyburn argued, Mr. Biden should use an executive order.“I sit here in this Congress because of an executive order, the Emancipation Proclamation. Harry Truman used an executive order to integrate the armed services,” Mr. Clyburn said.“Let them sue,” he added. “They’re not the only ones that can employ lawyers.”Mr. Clyburn, who speaks with Mr. Biden frequently, said in an interview that he did not think that what Mr. Biden proposed during the campaign “goes quite far enough.”Representative James E. Clyburn of South Carolina said President-elect Joseph R. Biden Jr. should use an executive order to provide student debt relief if legislation fails.Credit…Anna Moneymaker for The New York Times“I’ve got people with $130,000 in student debt. What’s $10,000 going to do for that person?” asked Mr. Clyburn, whose legislation to eliminate up to $50,000 would completely cancel student debt for 75 percent of borrowers.Senator John Thune, Republican of South Dakota, said he hoped the two parties could find common ground on the issue. He introduced a bipartisan bill that would allow employers to contribute up to $5,250 tax-free to their employees’ student loans, which was included as a temporary provision in the coronavirus relief law this spring.“There’s no question that student debt is a problem in this country, but simply forgiving student loans is not the answer,” Mr. Thune said.AdvertisementContinue reading the main story More
