Sep 10, 2022 5 min read

President Joe Biden’s decision to cancel federal student loan debt for those that meet certain income requirements is now the newest political hot potato. Progressives insist the move does not go far enough in alleviating the burden of student debt. Republicans are angry that only a minority of Americans benefit from the decision and argue that only Congress can forgive debt.

Student loans have become expensive as tuition rates have soared. Many factors have contributed to the problem including lax borrowing regulations and learning institutions chasing federal loan dollars with little concern for educating students. Because of large payments, young people have found it more difficult to gain a financial foothold to purchase homes and to raise families.

Long ago, the rest of the developed world solved the tuition problem. Much of Europe and Canada offer free or minimal tuition to qualified students. Only in America do we insist on making our students pay for such a fundamental and important right as higher education in a complex world.

Federal student loan debt has skyrocketed to $1.6 trillion for 45 million borrowers. Since 1980, the total cost of tuition for both four-year public and private colleges has almost tripled even accounting for inflation. Nearly one-third of borrowers have debt but no degree because the expense forced them to drop out.

Biden promised during the 2020 campaign to provide student debt relief. A pause on repayment of federal student loans was mandated during the pandemic, which Biden has now extended until the end of this year. The new tuition plan takes three additional actions. First, lower income students who qualified for Pell grants (need-based federal financial aid) will receive up to $20,000 and non-Pell grant recipients up to $10,000 in debt cancellation. High-income individuals who now earn over $125,000 will be excluded from this program.

Second, the student loan system will be made more manageable for current and future borrowers by cutting payments in half for undergraduate loans. Most borrowers now pay 10% of discretionary income in loan repayments. This will be reduced to 5%.

Third, the ineffective and outdated Public Service Loan Forgiveness (PSLF) program will be improved. This will insure that borrowers who have worked at nonprofits, in the military, or for government entities receive appropriate credit toward federal loan forgiveness.

Biden has also promised to work with higher education to reduce the cost of attending colleges and universities. The Department of Education will announce new rule-making efforts to insure that students receive value for their college costs. Biden will continue to champion another campaign promise to make two years of community college free for all Americans.

Republican objections to the above plan came fast and furious. Attacking student loan forgiveness was viewed as a way to gain back political turf lost to Democrats following legislative wins in Congress and the former president’s deepening legal problems. The remainder of this commentary will examine each of the objections.

Loan forgiveness will increase inflation: This objection does not stand up to economic analysis. The pandemic pause in loan payments will cease at the end of the year when the first forgiveness adjustments show up on loan statements. By that time, the resumption of student loan payments will suck more cash out of the economy than the debt relief will add. Goldman Sacks calculated that the forgiveness program is expected to cancel roughly $400 billion in loan debt. However, the income-boost effect will only lift gross domestic product by 0.1% in 2023 and a smaller amount in the following years. This has a minimal effect on inflation.

Loan forgiveness benefits few Americans: There are currently about 45 million student loan borrowers in the United States. When my generation attended college, it was possible to work over the summer and during the school year to pay for our education. In the past decades, states have reduced funding for public colleges, placing tuition out of reach without loans. This counters the strong public interest in helping students graduate with minimal debt. They can then perform the tasks our advanced economy requires, become taxpayers, buy homes and raise the next generation of educated Americans.

Before becoming angry with students receiving a financial windfall, remember that during the pandemic thousands of businesses received large government loans that were forgiven. Moreover, the former president was able to expand his real estate empire by filing for bankruptcy on six occasions and not repaying his bank loans.

Only Congress can forgive debt: Republicans believe that without authorization by Congress of a specific loan forgiveness program, the president does not have the authority to forgive student loan debt. While there are legal arguments for and against, Republicans appear to have the upper hand given the composition of the Supreme Court.

When all is said and done, my sense is that those voters who receive the debt relief are well pleased and will remember when placing their votes this November and beyond. Conversely, those Americans who are upset by the decision will have much shorter memories and be influenced by other issues like abortion and voting rights.

If Republicans are able to gain procedural standing to mount a legal challenge to the Biden executive order, conservative courts are likely to rule that only Congress can cancel student loan debt. Biden will still gain credit for his effort from millions of grateful students.

Gary Stout is a Washington attorney.