On student loan debt forgiveness

Joe Biden recently announced his Administration's long anticipated executive order to forgive student loan debt for certain borrowers. Individual tax filers who earned less than $125,000 in 2020 or 2021 will be eligible for up to $10,000 in debt cancelation. The income limit is $250,000 for those who are married and filed jointly. Borrowers who received a Pell Grant to attend college will be eligible for an additional $10,000, bringing the total amount of student loan debt forgiven to $20,000. 

As the graphic illustrates, there are a few other notable details. Borrowers enrolled in an income driven repayment plan (IDR) could have their monthly payments capped at 5% of their discretionary income under the newly proposed rule, instead of the present 10% rate. Furthermore, federal loans would be forgiven after 10 years of consistent payments, instead of 20 years under current IDR repayment plans, so long as the initial loan was to pursue an undergraduate degree that amounted to a balance of $12,000 or less. Also, unpaid monthly interest would be fully covered, thereby protecting borrowers from compounding interest that simply enlarges their loan balances year after year despite continuous payments. 

Finally, the existing moratorium on student loan payments, which was first implemented back at the onset of the COVID-19 pandemic in the United States in March of 2020, will be extended once more until January of 2023. It's widely expected that there will be no additional extensions at that point in time, and borrowers will once again be required to resume monthly payments. 

The proposed changes to IDR repayment plans should, if they're kept in place by future administrations, help current college students and future college students alike. But the most impactful benefit of Biden's executive order in the short term is the debt cancellation, which applies to federal loans taken out before July 2022. Roughly 46 millions Americans presently have student loan debt, which amounts to a countrywide total of $1.6 trillion. Although the bulk of that $1.6 trillion is debt held in loans greater than $40,000, a majority of borrowers actually owe $20,000 or less, according to the Washington Post:

Which is to say, a substantial number of people will have the entirety of their student loan debt wiped clean. The White House estimates that about 60% of borrowers are Pell Grant recipients, which would make roughly 27 million Americans eligible for up to $20,000 in debt cancellation. 

Who benefits from this is just as relevant as how many people benefit. That's answered by this piece from the New York Times: 

"The big winners from President Biden's plan to forgive hundreds of thousands of dollars in student loans are not rich graduates of Harvard and Yale, as many critics claim.

In fact, the benefits of Mr. Biden's proposals will largely go to the middle class. According to independent analysis, the people eligible for debt relief are disproportionately young and Black. And they are concentrated in the middle band of Americans by income, defined as households earning between $51,000 and $82,000 a year. 

The Education Department estimates that nearly 90 percent of affected borrowers earn $75,000 or less. Ivy League graduates make up less than 1 percent of federal student borrowers nationwide." 

Households in the middle fifth income quintile should receive the most relief, while households in the bottom fifth will receive a greater percentage of relief than households in the top fifth. Some of this might seem counterintuitive. After all, college graduates are empirically more likely to earn more than those who didn't obtain a college degree. But it's important to remember that not everyone who takes out student loans earns a 4-year degree. In fact, data compiled for those who took out loans and started college in 2011 reveal that roughly half did not, according to this Axios article - "34% hadn't attained a degree; 11% graduated from a two-year program; and 10% received a professional certificate, like from a trade school."

None of this has prevented Republicans and conservative commentators from chastising Biden's executive order and mischaracterizing those who are most likely to benefit. Rep. Lauren Boebert (R - CO) accused Biden of "robbing hard working Americans to pay for Karen's daughter's degree in lesbian dance theory" on a recent Fox News appearance. "If you are that slacker barista who wasted seven years in college studying completely useless things, now has loans and can't get a job, Joe Biden just gave you 20 grand," remarked Sen. Ted Cruz (R - TX) on his podcast. Former Fox News personality and current girlfriend of Donald Trump Jr., Kimberly Guilfoyle, ranted about paying off loans for people "that wanna have some bizarre basket-weaving degree," and that "they want all of us, people watching across this country, hard working men and women, to subsidize their laziness and their inability to even try to contribute to society." 

This type of criticism is dog shit. Just on a basic factual level, these people are wrong about the types of degrees people are getting. "There were 7,767 degrees awarded in area, ethnic, cultural, gender & group studies in 2019-2020 out of 2,038,041," which amounts to 0.4% of total degrees awarded, per Dartmouth professor Brendan Nyhan. I do not personally think that any degree is worthless, but it's clear that right-wingers are trying exaggerate the number of students majoring in what they deem to be "woke" fields. In reality, STEM (science, technology, engineering, and math) and other medical majors are growing at a faster clip than the humanities:

The other argument being put forth here is that student loan debt cancellation will create some sort of additional tax hardship for working class Americans who didn't go to college or have already paid off their loans. This isn't true either. As I've already highlighted, working and middle class Americans have student loan debt as well, and this executive order will help them. But someone who doesn't have student loans isn't going to suddenly have to pay more in taxes to make up the difference. Raising taxes would require an act of Congress, and there's utterly no indication that Congress intends to pass a tax increase to compensate for student loan forgiveness. What's going to happen instead is what's happened virtually every other time the federal government increases spending or reduces revenue - the yearly deficit will be added to the total national debt, which presently sits at just over $30 trillion.

Federal deficits are nothing new. The last time the federal government ran a surplus was in 2001. Since then, it's run a deficit every year:

Taxes didn't magically go up each year since 2001 to help offset these deficits. There's no reason to think they'll go up after Biden's executive order is implemented either. Now, better faith criticism suggests that Biden's executive order could exacerbate inflation, which is already quite high. Jason Furman, the former Chairman of the Council of Economic Advisors under Barack Obama, believes this is tantamount to "pouring roughly half a trillion dollars of gasoline on the inflationary fire," since people might naturally spend the money they were previously putting towards their loans on other goods and services instead. 

But there are better reasons to believe it won't make inflation worse, primarily because there's been a pause on payments for two and half years already. Compared to the status quo, resuming payments would actually be deflationary. The New York Times article I linked to earlier makes this same point:

"The announcements Mr. Biden made, including both debt forgiveness and a restart next year of loan payments for all borrowers after a nearly three-year pause, will most likely be a wash for consumer prices, a wide range of economists say. 

"Debt forgiveness that lowers monthly payments is slightly inflationary in isolation," analysts from Goldman Sachs wrote in a research note on Thursday, "but the resumption of payments is likely to more than offset this.""

But really, I don't think the majority of people who are upset over this are torn up over loss of revenue to the federal government, or inflation, or for any other relatively bland reason. Rather, it's primarily driven by resentment. It's not that Americans are ideologically opposed to getting assistance from the government - most will happily gobble up as much taxpayer money they can get their hands on without any hint of guilt. What makes Americans angry is when those people get assistance from the government. Particularly if those people are perceived as political opponents.

It's not difficult to detect this in Boebert's or Cruz's comments. We're becoming increasingly polarized based on educational attainment, in that college graduates are more likely to adopt left wing beliefs and vote for the Democrats. As such, Biden's executive order is deemed a gift to his supporters, and a bribe to continue voting for the Dems in this years midterm elections. The problem with this, however, is that virtually anything elected officials do for their constituents could be considered a bribe. 

Consider all the assistance that was doled out by the federal government throughout the pandemic, for example. People receiving unemployment benefits were granted an additional $600 a week for a number of months in 2020, thanks to the CARES Act signed into law by Trump, which later dropped to $300 a week due to additional bills signed by Trump and then by Biden. And most Americans received 3 separate rounds of stimulus payments in 2020 and 2021 - 2 under Trump (CARES Act and the Consolidated Appropriations Act), and 1 under Biden (American Rescue Plan):

Did a single Trump supporter refuse to take the additional unemployment benefits or stimulus payments out of principled opposition to Socialism or because they didn't feel they deserved such taxpayer provided assistance? If so, I have yet to meet that person. People who get their student loans forgiven similiary have nothing to be apologetic for. Trump supporters would do well to remember the money they received from the government before getting upset over loan forgiveness simply because they themselves may not personally benefit. Additionally, the pause on student loan payments was first put in to place by the Department of Education under Trump in March of 2020, which he then extended multiple times via executive order until the end of his presidency. Did Trump supporters consider this a cynical attempt to bribe those with loans to vote for him? 

There's an even more specific example of direct assistance handed out by the Trump Administration to a contingent of Americans much smaller than the 46 million with student loan debt - farmers. Federal assistance given to farmers increased dramatically in 2018 to protect them from the consequences of Trump's bone-headed trade policies with China, as this Politico article highlights:

"The massive payments have been a political boon to Trump in farm country - he tweeted in January that he hoped the money would be "the thing they will most remember" - but risk creating a culture of dependency, as farmers and ranchers work the bonus subsidies into their financial plans when making large, up-front investments in seed, feed and farm machinery.

***

The spending surge began in mid-2018 when USDA started writing checks to farmers and ranchers to pay for the damage from Trump's trade war, which brought about higher tariffs that crushed agricultural exports and commodity prices. Farm sales to China plummeted from $19.5 billion in 2017 to just $9 billion the next year; as producers continued to hemorrhage profits in 2019, farm bankruptcies jumped nearly 20 percent last year. 

The trade bailout has now spanned three years and surpassed $23 billion, even though it was never appropriated by Congress. Instead, the money was funneled through USDA's Commodity Credit Corporation, a Depression-era agency that can borrow from the U.S. Treasury to stabilize the farm economy." 

I don't begrudge farmers for receiving this assistance, even though I'm not a farmer. I don't have children, but my taxes help pay for public schools for those that do. I don't live in an area prone to hurricanes, but my taxes occasionally help those who have had their homes destroyed by said hurricanes along the Gulf Coast. And I'm perfectly fine with this. I'm happy for my friends, family members, neighbors, and coworkers who do benefit from government assistance, even if it's a type of government assistance that I do not receive. It's far less strenuous to feel this way than it is to feel resentful. Helping one group of people isn't unfair or harmful to other groups of people, no matter how prevalent this belief may be. And opposing policies that help some people because they do not help all people isn't something a mature adult does.

I understand that many Americans are struggling with mortgages and vehicle loans as well. Alas, those types of loans aren't owned by the federal government, and therefore can't be discharged via executive order like public student loans. At the end of the day, all Biden could do was decide if student loan debt should be forgiven for current debtors. And if so, how much? I perhaps would have forgiven even more if I were in his shoes, but I think he mostly made the right call, as this post by Matt Bruenig of the People's Policy Project explains:

"A forgiveness like this necessarily provides no benefit to those who have no student debt, including those who never attended college or those who already paid it off. And a forgiveness like this also does nothing to fix college finance system going forward, meaning that debts will just reaccumulate when the next wave of people go through college. 

These latter points are the most tempting to make in the debate, but due to the strange procedural posture that the president is in - he can unilaterally forgive student debt but can't unilaterally expand the welfare state or make college financing reform - they are also the least relevant to the actual question at hand.

***

Given these considerations, it seems that, as August 31 rolls around, the prudent course of action is probably to enact the $10,000 forgiveness alongside announcing a date for the resumption of student debt repayments. The forgiveness would carry out his campaign promise while also blunting both the practical and political impact of unwinding the repayment freeze."

In an ideal world, Congress would pass legislation that specifically limits what colleges are allowed to charge, or simply make college tuition free. But we do not live in that ideal world, as there's virtually no chance that such legislation could pass a 60 vote threshold to avoid a filibuster. Given this, Biden's executive decision is still the correct course of action. It won't solve the underlying problem of college affordability, but it will still help a great deal of people. That's what matters.