by Lauren Hill ‘22
Since President Joe Biden took office on January 21, federal student loan borrowers have been eagerly waiting to see if he will fulfill his campaign promise to cancel $10,000 of loans per person. However, it is unclear if and when borrowers will receive cancellation for their loans.
Recently, Biden has been facing pressure from fellow Democrats to increase the amount of money forgiven per borrower amid the coronavirus pandemic. On February 4 Senate majority leader Chuck Schumer called on Biden to forgive $50,000 for all federal student loan borrowers via executive order. “We must do everything in our power to deliver real relief to the American people, lift up our struggling economy and close the racial wealth gap,” Schumer said in a statement. However, Biden has reiterated his support for Congress to pass legislation for loan forgiveness, rather than taking executive action. Schumer along with other democrats, like Elizabeth Warren have been pushing for months for Biden to use executive action to forgive loans, however Biden has argued that he would rather Congress pass a relief bill.
While Biden has already extended former President Trump’s pause on federal student loan payments and interest, cancellation of any amount — $10,000 or $50,000 — would bring relief to millions of Americans. The current federal student loan debt total in the country is about $1.5 trillion. Any type of loan forgiveness could have a lot of different impacts for the country.
To start, loan cancellation could boost the economy. Economists believe that relieving borrowers of partial or full loan debt would lead to an increase in spending in other ways, such as buying homes. “Canceling student loan debt is the single most effective executive action that President Biden can take to kick start this economy,” Democratic Senator Elizabeth Warren has argued.
Loan cancellation could also help to narrow the racial wealth gap. Due to disparities in wealth and income, black Americans are more likely to take out federal student loans. Black adults also have around 85-percent more debt than white Americans. Cancelling student debt would bring the median net worth between black and white Americans much closer, and allow black Americans to focus on paying off credit card debt and buying homes.
Critics of student loan cancellation argue that cancelling student loans would be unfair to those who worked hard to pay off their student loans, and not every borrower would be eligible for forgiveness. If legislation is passed it likely that it will include exclusions on private student loans, and anyone that earns more than $125,000 annually.
Also, cancellation is not a long term solution to address the high costs of higher education. Many people argue that the money used to pay off student loans would be more impactful if it went to bringing down the cost of college. If the underlying problem is not fixed, then the debt total will quickly begin to rise again. “There’s this huge practical problem with loan forgiveness, which is that if you maintain the federal student-loan program and you forgive debt you’re going to be making loans at the same time that you’re going to be forgiving them,”
Currently, it is unclear how the government will provide forgiveness. However, Biden has reiterated his support for cancelling $10,000 per person rather than $50,000. The bottom line is that experts have mixed opinions on whether or not federal student loan forgiveness would be beneficial to Americans. However, it is likely that loan forgiveness would bring financial relief to borrowers during this time of crisis as long as Biden and Congress can agree on a solution.