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Close White House allies are debating whether the administration should write off up to $10,000 in student debt for millions of American borrowers as President Biden nears a decision after months of delays
With the Inflation Reduction Act now signed into law, White House officials have rekindled discussions about canceling student debt in recent days. They face an August 31 deadline, which is when loan payments will resume after a pandemic-induced pause. Internal White House discussions have focused on temporarily extending that pause and simultaneously writing off $10,000 per borrower for those below an income threshold, but the president has yet to announce a decision, according to two people familiar with the matter, speaking on condition of anonymity to reflect private conversations. Another person familiar with the talks said $10,000 is among the options being considered.
The issue has divided Democratic lawmakers and influential political pundits with the administration, putting Biden in a position guaranteed to antagonize some supporters. Advocates say the president should fulfill a campaign promise to ease the heavy debt burden of millions of young Americans, and critics say that could exacerbate inflation and especially benefit high-income college graduates that don’t need help. Administration officials must choose between canceling substantial debt, which may give Republicans a new talking point ahead of the midterm elections, and angering young voters and racial justice organizations backed by which they also need at the polls.
Officials have studied for months whether canceling student loans could alienate voters who had already paid off theirs, and polling results have been mixed, said a third person familiar with the matter, who also spoke with condition of anonymity to reflect private conversations. White House officials previously discussed limiting debt forgiveness to Americans who earned less than $150,000 in the previous year, or $300,000 for married couples filing jointly. A person familiar with the matter said those thresholds had not changed, although implementing those limits in practice could prove complicated.
White House aides scrambled to craft a student debt forgiveness policy in May. Those plans were suspended amid negotiations over the Democrats’ economic agenda with Sen. Joe Manchin III (DW.Va.), and repeated postponements have exasperated supporters of the repeal. The measure is expected to apply only to college student debt, and Democratic officials have discussed further restricting eligibility to those attending public schools.
Education Secretary Miguel Cardona told NBC News on Sunday that a decision on the reimbursement pause will come “in a week or so.”
The latest White House plan would forgive $10,000 in student debt per borrower
“It’s a deep political problem,” said Bill Galston, who served as Clinton’s top White House political aide. “The fact that they have hesitated for so long to put their chips on the table suggests that they are fully aware of the potential economic and political implications of taking a major step in this direction.”
As the president nears a decision, both supporters and critics of debt cancellation have made increasingly strident appeals on his side. On Friday, Senate Majority Leader Charles E. Schumer (DN.Y.) and Sen. Elizabeth Warren (D-Mass.), two staunch advocates of student debt cancellation, spoke again with the White House chief of staff Ron Klain, according to two other people aware of the private conversation. Schumer and Warren reiterated requests they have made over the past two years for significant amounts of debt to be forgiven, the people said. The NAACP has also been adamant that the administration write off up to $50,000 in student loans per borrower, citing the higher loan burden of black Americans.
“Just $10,000 is short, to say the least, it’s not going to address the magnitude of the problem,” Derrick Johnson, president of the NAACP, said in an interview.
But centrist Democrats have begun to push back hard. Lawrence H. Summers and Jason Furman, two prominent Democratic economists who served in previous administrations, have stepped up their case against broad loan forgiveness, arguing that it would exacerbate inflation by increasing overall spending. Summers and Furman, critics of the president’s $1.9 trillion bailout plan last year, were outspoken supporters of the Lower Inflation Act negotiated with Manchin. But in a Twitter thread Monday, Summers argued that the administration should not contribute to inflation by offering “unreasonable student loan relief” or encouraging colleges and universities to raise tuition.
Furman added in an interview: “This is redistribution, and there’s nothing wrong with redistribution, if it were from the middle to the bottom. A lot of this is a redistribution from the middle to the upper middle.”
Canceling $10,000 of debt for everyone with federal student loans would wipe out the balances of about a third of borrowers and cut total debt by at least half for another 20 percent, according to the latest data from the Department of Education. Borrowers are expected to resume payments on September 1, more than two years after the moratorium was first instituted in response to economic turmoil caused by the pandemic. Extending the break would mean roughly 41 million people would continue to spend the next few months without accruing interest on their debt and with more time to save money. As of April 30, the moratorium had cost the federal government about $102 billion in interest payments that borrowers did not have to make, according to the Government Accountability Office.
According to the Census Bureau, as of 2021, 37.9 percent of adults 25 and older have a bachelor’s degree, up from 30.4 percent in 2011. One in five Americans has student loans, according to a Federal Reserve study.
Who Has Student Loan Debt in America?
The Committee for a Responsible Federal Budget, a D.C.-based think tank that opposes loan forgiveness, has found that eliminating $10,000 of debt per borrower could cost roughly $230 billion. It also found that extending the moratorium would raise core inflation by 0.2 percentage points and erase most of the deficit reduction achieved in the first decade of the Inflation Reduction Act, according to Marc Goldwein, senior vice president and senior director of policy for the organization.
These claims have been strongly contested. The Roosevelt Institute, a left-leaning think tank, argued that canceling student debt would “increase wealth, not inflation.” The Roosevelt Institute paper found that the inflation resulting from debt cancellation would be negligible and that ending the moratorium would far outweigh that effect. Requiring borrowers to resume payments would reduce inflation by curbing consumer spending.
The political impact of the decision is also hotly debated, even among Democrats. Galston, the former Clinton aide, predicted that families who paid off their loans could turn hard against Biden as Democrats appear to be rallying in the polls. “If they get it wrong, they’re going to have a big backlash on their hands,” Galston said.
Bryce McKibben, a former senior policy adviser to Sen. Patty Murray (D-Wash.) on the committee that oversees education, said the more complicated the cancellation plan becomes, the less likely it is to help the people or Biden’s agenda.
“Every time you ask the borrower to step up, you increase the chances of people falling through the cracks because the department doesn’t have contact information for a large number of people in the portfolio,” said McKibben, now a senior director of policies and advocacy at Temple University’s Hope Center for College, Community, and Justice.
And Celinda Lake, a Democratic pollster who has worked for Biden, said the president could improve his poll numbers among young voters, who she says are mobilized primarily on three issues: climate, abortion rights and student debt, but only see the first two as a reason to get out for Democrats.
“We have two of the legs, we need the third,” Lake said. “It’s important to do something for the young voters who are not as mobilized to come to the polls, but who are by far our best voting group.”