The question about what to do with an estimated $1.6 trillion in student loan debt is a growing headache for Democrats at a time when families are struggling with higher costs but centrist Democrats led by Sen. Joe Manchin (D-W.Va.) don’t want to further fuel inflation.
President Biden is stuck in the middle.
Progressives on his left, such as Senate Majority Leader Charles Schumer (D-N.Y.) and Sen. Elizabeth Warren (D-Mass.), are calling for him to cancel up to $50,000 in student debt, while more moderate Democrats argue that student debt cancellation is regressive and likely to add to inflation.
But while there is strong reluctance in the Senate Democratic caucus to forgive up to $50,000 in student debt, moderate Democrats are leery about bashing the idea publicly because they don’t want to run afoul of the party’s base.
“What people forget about the payment pause is that it’s costing taxpayers huge amounts of money so at some point it’s going to have to end. At some point, people are going to have to start paying their loans back again but the folks who want universal debt cancellation have made that a political third rail,” said Lanae Erickson, senior vice president for social policy and education at Third Way, a centrist Democratic think tank.
“There’s no consensus that any administration would have the legal authority to just cancel debt widely. The ones who do is Congress so this handful of Democrats in Congress who are trying to pressure the White House should really turn to their own backyard and convince their colleagues to do it legislatively because that’s the way it’s actually going to hold up in court,” she said.
Proponents of student debt cancellation argue that it’s a social justice issue because many Black and minority families possess less wealth compared to White families and are being weighed down with student debt.
“What we know to be true is that student debt cancellation [can help] reduce the racial wealth gap. It’s an opportunity to really give Black families … the opportunity to buy homes and … to add discretionary wealth,” said Wisdom Cole, the NAACP’s national director of youth and college.
Cole dismissed questions about whether Biden has the legal authority to waive up to $50,000 in debt per borrower by pointing out the president has already cancelled $17 billion in student loans.
Included in that is the $6.2 billion in student debt his administration wiped out last year by reforming the Public Service Loan Forgiveness program. Biden also canceled about $2 billion in debt held by students who say they were defrauded by for-profit schools such as Corinthian Colleges Inc., ITT Technical Institute and DeVry University.
Even so, across-the-board student debt forgiveness remains a controversial topic among Democrats in Congress.
Moderate Senate Democrats balked at the idea of cancelling all student debt when Sen. Bernie Sanders (I-Vt.) pushed it during the 2020 Democratic primary.
“Higher ed is out of control cost-wise, we’ve got to do some things about it, but you can’t just say it’s going to happen. You have to have a plan to make it happen,” Sen. Jon Tester (D-Mont.) told The Hill at the time. “I agree with what he’s trying to do here, but I don’t think just saying it makes it happen.”
“It is a lot of money,” he added.
Sen. Mark Warner (D-Va.) at the time said he worried that cancelling student debt obligations would add to the federal debt and shift the burden to the next generation — and that’s when the debt stood at $23 trillion. The national debt crossed $30 trillion in February.
“If we simply move more of that debt at the national level onto young people’s backs, that’s going to be a burden you’re still going to have to absorb as well,” Warner told The Hill before the 2020 election.
Erickson, of Third Way, said wealthier families with advance degrees would benefit disproportionately from debt forgiveness.
“Folks that are pushing for blanket cancellation are really pushing for an incredibly regressive solution to the problem of some people not being able to make progress to pay down their student loans,” she said.
A report by the Brookings Institution, a center-left think tank, found that of all households with student debt, 26 percent are headed by individuals with graduate degrees and that they account for 50 percent of the total outstanding debt.
The Urban Institute, another left-leaning think tank, found that the top 25 percent of households with the highest earnings held 34 percent of all outstanding educational debt and the top 10 percent highest-earning households held 11 percent of the debt.
Manchin on Tuesday raised fresh concerns about federal deficits after the Labor Department reported that consumer prices rose 8.5 percent in March compared to a year before, the biggest annual gain in 40 years.
“Here is the truth, we cannot spend our way to a balanced, healthy economy and continue adding to our $30 trillion national debt,” he said.
Diana Furchtgott-Roth, an adjunct professor of economics at George Washington University, and the former chief economist at the U.S. Department of Labor under President George W. Bush said that while cancelling student debt would add to the federal debt, it wouldn’t necessarily spur inflation.
“It’s going increase the deficit, the federal deficit but I don’t see that it’s going to be inflationary and drive up prices the way higher oil prices are being driven by lack of energy production,” she said, adding that inflation is “a problem of the Federal Reserve keeping the federal funds rate for too long.”
The issue appears to poll well with voters, with about six in 10 Americans supporting some student debt relief. But a lot depends on the details of debt forgiveness and how the issue is framed.
Biden has tried to defer the issue to Congress by saying he’s willing to sign into law a bill cancelling up to $10,000 in student debt per borrower.
Biden last week punted on the issue by extending the pause on student loan repayments, interest and collections through August, which didn’t go as far as Warren and other progressives wanted.
It was the sixth extension of the student debt payment pause since former President Trump initiated it at the start of the pandemic in March of 2020.
Schumer on Tuesday said the president needs to do more and predicted that Biden is getting closer than ever before to cancelling student debt through his executive authority.
“Don’t get me wrong, the pause is a good thing but it ain’t enough. It ain’t close to enough,” he told activists Wednesday at a virtual event hosted by the State of Student Debt Summit.
Schumer has lobbied the president intensely on the issue.
“I have talked personally to the president on this issue a whole bunch of times. I have told him that this is more important than just about anything else that he can do on his own,” he said, predicting that Biden will eventually embrace his position.
“We’re making progress folks. We are making progress. The White House seems more open to it than ever before,” he said.
Schumer and Warren signed a March 31 letter to Biden urging him to extend the pause of student loan payments at least until the end of the year and also provide “meaningful” student debt cancellation.
“Canceling student debt is one of the most powerful ways to address racial and economic equity issues. The student loan system mirrors many of the inequalities that plague American society and widens the racial wealth gap,” they wrote.
The letter was signed by nearly 100 Democratic lawmakers, including Sen. Raphael Warnock (D-Ga.), who’s facing a tough re-election in a state that Biden won by only 12,000 votes in 2020.
Other vulnerable Democrats, such as Sens. Mark Kelly (D-Ariz.), Maggie Hassan (D-N.H.) and Catherine Cortez Masto (D-Nev.) didn’t sign the letter.
Furchtgott-Roth, the economics professor at George Washington, pointed out there are many programs already in existence to help student borrowers lower their debt loads. She said the federal government needs to do more to promote those programs before contemplating across-the-board debt forgiveness.
“There’s a pay-as-you-earn program, there’s income-contingent repayment and all of those people pay a certain share of their income for 20 to 25 years and then the rest is forgiven. There are also different programs for forgiving loans,” she noted. “You make your payments for 10 years, then the rest of it can be forgiven if you have a job with federal, state, local government or a non-profit.
“Students should be educated about that,” she said.