Six reasons Biden should not cancel student debt
Next week, President Biden’s executive order imposing a freeze on student loan repayments and interest accrual is set to expire. It’s almost guaranteed that the president will extend the freeze for a fifth time because no effort has been made to notify borrowers that payments are resuming, and to do so now would be providing too little time to prepare.
But in addition to extending the current freeze, Biden is under tremendous pressure from a years-long campaign by leftwing activists to cancel at least $10,000 of debt per borrower under a certain income threshold. This is a regressive and fiscally irresponsible demand likely to further estrange Democrats from working-class voters. Here are six reasons why he should develop a plan to resume payments in a timely manner that doesn’t include mass debt cancelation by executive order:
1. Mass debt cancelation would undermine the Inflation Reduction Act
Earlier this month, Biden and Democrats in Congress accomplished a historic victory with the Inflation Reduction Act — a transformative bill that would expand domestic energy production, fight the climate crisis, lower health care costs and reduce budget deficits over the next decade by over a quarter trillion dollars. That last part is especially important because reducing the deficit is one of the most effective tools Congress has at its disposal to help the Federal Reserve tamp down on inflation.
Canceling up to $10,000 of debt per borrower who earned less than $125,000 last year, as the White House is reportedly considering, would squander most of the IRA’s near-term savings and thus its inflation-fighting potential. Such a move would be especially problematic since Congress already passed legislation increasing deficits by several hundred billion dollars last month. With inflation finally starting to moderate, now is not the time to reverse hard-won progress.
2. Canceling debt for most borrowers is a giveaway to affluent households — paid for by workers
Although the administration may think that limiting debt cancelation to borrowers who earned less than $125,000 last year helps limit giveaways to the wealthiest, it’s still a regressive transfer of wealth. Many people who fell under the income limit last year will still have lifetime incomes far above average, such as a recent law or medical school graduate who is just beginning their career. And whether it’s through inflation today, or higher taxes and spending cuts tomorrow, workers who don’t reap the income benefits of a college education will bear the costs of canceling debt for those who do.
3. Student debt cancelation distracts from the real problem of college affordability
The debate around student debt cancelation has sucked all the oxygen away from solutions that would address the underlying problem of college affordability for the entirety of Biden’s term. If the president cancels debt for previous borrowers without offering an actionable plan to prevent future students from ending up in the same position, he is merely kicking the can down the road. Doing so may even worsen the problem, as future borrowers become less concerned about taking on debts they believe will ultimately be forgiven and universities take advantage of the dynamic to raise tuition prices even higher.
4. Mass debt cancelation by executive order sets a dangerous precedent
When Congress created the student loan program in 1965, it gave the executive branch discretion to offer targeted debt forgiveness to borrowers facing specific distress, such as those who have been defrauded. Never did those lawmakers imagine that a president would abuse this authority by indiscriminately giving a $10,000 handout to all borrowers regardless of need or personal circumstance. If President Biden attempts to spend over $200 billion of taxpayers’ money without explicit approval from their representatives in Congress, and the courts uphold the move, they open the door for future presidents to usurp the power of the purse and unilaterally spend trillions more down the line.
5. Student debt cancelation is bad politics
If canceling student debt were good policy and good politics, Congressional Democrats could have at least attempted to include it in the budget reconciliation bill they just passed through a party-line vote. They didn’t, because it isn’t: only 13 percent of Americans currently carry any student loan debt, and they have better income and job opportunities than the workers without a degree who will bear the costs. The move is likely to backfire with the overwhelming majority of workers who lack college degrees and suburban voters concerned about inflation and government overspending.
It will also do little to relieve pressure from activists on Biden’s left, who have made clear that they will continue to push for canceling at least $50,000 of student debt for all borrowers at all income levels. Moreover, if the conservative-majority Supreme Court rules that Biden does not have the authority to do blanket debt cancelation by executive order, he will be in the unenviable position of having to restore debt payments that he already told borrowers were canceled.
6. There are better tools available to help struggling borrowers
President Biden has already wiped out more student debt than any other president in history, both through the moratorium on interest accrual (which has effectively canceled roughly $6,000 per borrower to date) and additional forgiveness his administration has given to certain borrowers. Biden can continue providing carefully targeted relief and work to expand and reform income-driven repayment programs that directly tie debt cancelation to a borrower’s ability to pay. But the more debt that is rightfully canceled through these mechanisms, the clearer it becomes that there is little justification for canceling the remaining balance.
Biden likely has to extend the freeze on repayments until December. But with unemployment at its lowest level in modern history, there is no good reason to continue a freeze originally intended to support the economy during the darkest days of the pandemic beyond that time — or to pair it with additional debt cancelation for the vast majority of affluent borrowers who don’t need it.
Ben Ritz is director of the Progressive Policy Institute’s Center for Funding America’s Future.