Student loans

Biden nears decision to forgive $10,000 in student loans as allies squabble

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Close White House allies are arguing over whether the administration should forgive up to $10,000 in student debt for millions of American borrowers, as President Biden nears a decision expected to come on Wednesday.

With the passage of the Cut Inflation Act, White House officials have reignited talks of student debt cancellation in recent days. They face a deadline of August 31, when loan repayments must resume after a pause due to the pandemic. Internal White House discussions have centered on temporarily extending that pause and simultaneously waiving $10,000 per borrower for people below an income threshold, but the president has yet to release a statement. decision, according to two people familiar with the matter, speaking on condition of anonymity. reflect private conversations. Another person familiar with the talks said $10,000 was among the options being considered.

The White House is expected to release its plan on Wednesday, according to a fourth person familiar with the matter, who also spoke on condition of anonymity to reflect private conversations.

President Biden has the power to cancel student loan debt. What would that mean for the average Jo? (Video: Monica Akhtar, Sarah Hashemi/The Washington Post)

The issue has divided Democratic lawmakers and political pundits influential with the administration, putting Biden in a position where he is sure to antagonize some supporters. Supporters say the president should keep a campaign promise to ease the heavy debt burden of millions of young Americans, and critics say it could exacerbate inflation while mainly benefiting high-income college graduates who don’t don’t need help. Administration officials must choose between writing off substantial debt — potentially giving Republicans a new talking point ahead of the midterm elections — and infuriating young voters and racial justice organizations whose support they also need. ballot boxes.

Officials have studied for months whether canceling student loans could alienate voters who have already paid theirs, and poll results have been mixed, said a third person familiar with the matter, who also spoke on the guise of anonymity to reflect private conversations. White House officials have previously discussed limiting debt forgiveness to Americans who earned less than $125,000 or $150,000 in the previous year, or less than $250,000 to $300,000 for Americans. married couples filing jointly. A person familiar with the matter said these thresholds have not changed, although implementing these caps in practice can prove complicated.

White House aides rushed to prepare a student debt cancellation policy in May. Those plans were put on hold amid negotiations over the Democrats’ economic agenda with Sen. Joe Manchin III (DW.Va.), and the repeated postponements have infuriated cancellation supporters. The measure is only expected to apply to undergraduate debt, and Democratic officials have discussed further restricting eligibility to public school students.

On Sunday, Education Secretary Miguel Cardona told NBC News that a decision on the suspension of reimbursement will come “within the next week.”

Latest White House plan would cancel $10,000 in student debt per borrower

“It’s a deep political issue,” said Bill Galston, who served as one of Clinton’s top White House political aides. “The fact that they have been hesitant for so long to put their chips on the table suggests that they are fully aware of the potential economic and political implications of a major step in this direction.”

As the president moves closer to a decision, supporters and critics of debt cancellation have made increasingly strident calls for it. On Friday, Senate Majority Leader Charles E. Schumer (DN.Y.) and Sen. Elizabeth Warren (D-Mass.) — two strong supporters of canceling student debt — spoke again with the White House chief of staff Ron Klain, according to two other people familiar with the private conversation. Schumer and Warren reiterated demands they have made over the past two years for significant amounts of debt to be forgiven, the people said. The NAACP has also pushed for the administration to forgive up to $50,000 in student loans per borrower, citing the higher loan burden of black Americans.

“$10,000 alone is a small thing to say the least – it won’t solve the magnitude of the problem,” NAACP president Derrick Johnson said in an interview.

But the centrist Democrats began to push back strongly. Lawrence H. Summers and Jason Furman — two prominent Democratic economists who served in previous administrations — have stepped up their case against a broad loan forgiveness, arguing it would exacerbate inflation by increasing overall spending. Summers and Furman, critics of the president’s $1.9 trillion US bailout package last year, were outspoken supporters of the Cut Inflation Act negotiated with Manchin. But in a Monday Twitter FeedSummers argued that the administration should not contribute to inflation by offering “unreasonably generous student loan relief” or encouraging colleges and universities to raise tuition fees.

Furman added in an interview: “It’s redistribution, and there’s nothing wrong with redistribution – if it was from the middle down. A lot of that is a redistribution from middle to upper middle.

According to the latest data from the Department of Education, canceling $10,000 of debt for everyone with federal student loans would settle the balances of about a third of borrowers and reduce total debt by at least half. for an additional 20%. Borrowers are expected to resume payments on September 1, more than two years after the moratorium was introduced in response to the economic upheaval caused by the pandemic. Extending the pause would mean around 41 million people would continue to go the next few months without interest on their debt and with more time to save money. As of April 30, the moratorium had costs the federal government about $102 billion in interest payments that borrowers didn’t have to make, according to the Government Accountability Office.

In 2021, 37.9% of adults ages 25 and older had a bachelor’s degree, up from 30.4% in 2011, according to the Census Bureau. One in five Americans have student loans, according to a Federal Reserve study.

Who Has Student Loan Debt in America?

The Committee for a Responsible Federal Budget, a DC-based think tank that opposes loan forgiveness, found that erasing $10,000 of debt per borrower could cost around $230 billion. It also found that extending the moratorium would raise underlying inflation by 0.2 percentage points and eliminate most of the deficit reduction achieved in the first decade of the Debt Reduction Act. inflation, according to Marc Goldwein, the organization’s senior vice president and chief policy officer.

These claims have been strongly disputed. The Roosevelt Institute, a left-wing 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 payment moratorium would more than offset that effect. Requiring borrowers to resume payments would reduce inflation by slowing consumer spending.

The decision’s political impact is also hotly debated, even among Democrats. Galston, Clinton’s former aide, predicted that families who have paid off their loans could turn against Biden as Democrats appear to rebound in the polls. “If they’re wrong, they’re going to have a big backlash on their hands,” Galston said.

Bryce McKibben, former senior policy adviser to Sen. Patty Murray (D-Wash.) on the committee that oversees education, said the more complicated the cancellation plan, the less likely it is to help people — or Biden’s agenda.

“Every time you ask the borrower to step in, you increase the chances of people falling through the cracks because the department doesn’t have a lot of people’s contact details in the wallet,” said McKibben, now senior policy director. and advocacy at the Hope Center for College, Community, and Justice at Temple University.

And Celinda Lake, a Democratic pollster who worked for Biden, said the president could improve his poll numbers among young voters, who she says are primarily driven by three issues — climate, abortion rights and student debt — but only see the first two as a reason for Democrats to run.

“We have two of the legs – we need the third one,” Lake said. “It is important to do something for young voters who are not as mobilized to go to vote but who are by far our best voting group.”