Student Loans

Biden Tiptoes Closer to Mass Forgiveness of Federal Student Loan Debt

Biden wants to forgive $10,000 in federal loan debt per borrower, regardless of whether they need it.


President Joe Biden is on the verge of announcing $10,000 in federal student loan forgiveness per borrower for millions of Americans, according to The Washington Post.

"The White House's latest plans called for limiting debt forgiveness to Americans who earned less than $150,000 in the previous year, or less than $300,000 for married couples filing jointly," write Post reporters Tyler Pager, Danielle Douglas-Gabriel, and Jeff Stein. Their sources did not say "whether the administration will simultaneously require interest and payments to resume at the end of August, when the current pause is scheduled to lapse." 

Federal student loans have been frozen since March 2020. Since then, borrowers have not been required to make any payments, nor have their loans accrued interest, thanks to an executive order issued by President Donald Trump at the onset of the COVID-19 pandemic. The moratorium has also allowed participants in the Public Service Loan Forgiveness (PSLF) program—which forgives federal direct loans after borrowers make 120 payments while working for a government agency or a 501(c)(3) nonprofit organization—to count each month of the pandemic as a qualifying payment, even though they actually paid nothing. 

The repayment moratorium was extended twice by Trump, and four times by Biden. Borrowers who first expected to resume payments in September 2020 are now looking to Biden's latest deadline of September 2022—a little more than a month before midterms. 

Like the repayment moratorium, student debt cancellation is also a kicked can: In December 2020, Senate Majority Leader Chuck Schumer (D–N.Y.) challenged Biden to unilaterally forgive $50,000 per borrower. "You don't need Congress," Schumer said. "All you need is the flick of a pen." Sen. Elizabeth Warren (D–Mass.) has repeatedly called for the same. Shortly before his inauguration, however, Biden called on Congress to pass a law forgiving $10,000 worth of federal student loans per borrower. That never happened and will not happen before the midterms, when Democrats may lose their majority in Congress. 

With the prospect of legislative forgiveness but a pipe dream, many progressives within and outside of Congress have insisted that Biden should use executive authority to forgive at least $50,000 per borrower, if not the entire $1.6 trillion student loan portfolio owned by the Department of Education. The $10,000 figure is simply unacceptable to most Democrats who want loan forgiveness. 

The case against student loan forgiveness at this scale is that it primarily benefits educated people who don't need the help. Democrats know this. An analysis touted by Warren notes that $10,000 in forgiveness per person "zeroes out" out the federal loan balances of only 14 percent of borrowers who owe more after 12 years than they initially borrowed. This is why Warren wants $50,000 in debt forgiveness per borrower, except that payment would not only zero out the balances of 67 percent of borrowers who owe more after 12 years, but it would also reduce the number of indebted households in the top 10 percent of wealth from 4 percent to 3 percent.

In other words, any amount of blanket loan forgiveness will either not help truly distressed households enough or also help truly rich households; meanwhile, every figure proposed by Democrats helps some number of people who are financially better off having borrowed for college. 

What about targeted student loan forgiveness programs, aimed at helping low-income borrowers who went to terrible schools or were defrauded? Well, we already have that. Billions of dollars worth, in fact. We also have the aforementioned PSLF program and income-driven repayment plans, which allow borrowers to pay a percentage of their adjusted gross income for 20 or 25 years, after which the balance is forgiven and the forgiven amount is treated as taxable income. The Biden administration has already expanded eligibility for both of these programs, and the Education Department is already actively working toward adjusting borrowers' accounts if they meet the relaxed criteria. 

It makes a certain kind of political sense that once you help the very bottom (forgiveness for borrowers who attended shuttered schools) and the very top (PSLF for government and nonprofit workers, many of whom have advanced degrees), you should throw a bone to the comfortable-but-anxious middle quintiles. 

That leads us to the question, soundness aside, of whether Biden can use executive authority to grant broad student loan forgiveness. Lawyers for the Department of Education under Secretary Betsy DeVos concluded last year that mass loan amnesty exceeded the statutory powers of the Education Department. A former Education Department lawyer under Obama wrote a private memo for a client this time last year arguing that mass loan forgiveness is illegal. Current Education Department lawyers, or their replacements, may have since reached a different conclusion. But as economist Carlo Salerno observed in The Hill this week, the White House refuses to publish the legal memo on loan forgiveness Biden had prepared last year. 

Perhaps if Biden moves ahead with $10,000 in forgiveness per borrower, we'll also get to see the legal justification for putting every taxpayer in the country on the hook for erasing the federal student loan debt of not just the very poor, but also the upwardly mobile and even the upper crust.