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Student loan forgiveness: Biden’s huge political gamble

Student loan forgiveness is a huge political bet for President Joe Biden.

Here’s what you need to know — and what it means for your student loans.

Student loans

Biden is weeks away from announcing a decision on student loan forgiveness that could forgive $10,000 in student loans for millions of student borrowers. The White House and Biden have each confirmed that Biden will decide the fate of the large-scale student loan forgiveness and student loan payment pause by August 31, 2022. Regardless of the outcome, Biden is politically playing with it. the cancellation of student loans, which could have a significant impact on the November midterm elections. Here’s how.

Student loan forgiveness: How Biden could win politically

Suppose Biden cancels $10,000 in student loans for borrowers and extends the student loan payment break. Progressive Democrats are still pushing Biden to forgive $50,000 in student loans, but $10,000 in student debt forgiveness is a reasonable estimate. If Biden pursues this playbook, here’s how Biden could win politically.

Student loan forgiveness helps Biden reinvigorate his electoral base

First, if Biden enacts a large-scale student loan forgiveness, he will reinvigorate his electoral base. Rep. Alexandria Ocasio-Cortez (D-NY) has warned Biden that failure to implement broad student loan forgiveness will alienate Democratic voters in the midterm elections. By canceling student loans ahead of the November election, Biden can appease would-be Democratic voters who demonstrate he understands the financial challenges of repaying student loans.

Student loan cancellation shows Biden committed to student loan relief

Since becoming president, Biden has forgiven more than $25 billion in student loans. For example, Biden recently canceled $6 billion in student loans for 200,000 student borrowers. While Biden has focused on targeted student loan relief, borrowers have questioned his commitment to broad student loan forgiveness. Biden campaigned on $10,000 in student loan forgiveness for borrowers, but said Congress should pass legislation. Since Congress failed to act on the blanket cancellation of student loans, student borrowers directed their frustration at the president. By offering $10,000 in student loan forgiveness, Biden could provide student loan relief that Congress hasn’t and appease student borrowers who feel uncertain about their economic future.

Student loan cancellation: How Biden could lose politically

For Biden, large-scale student loan cancellation carries inherent political risks.

Student loan forgiveness: Biden could alienate independent voters

With the cancellation of student loans, Biden risks alienating various constituencies. For example, moderate and independent voters may oppose increased government spending. In an uncertain economic environment, these groups of voters might prefer that Biden forgo a large student loan forgiveness. Why? Beyond the projected cost of nearly $400 billion, some voters may see large-scale student loan relief as a redistribution of wealth. The Democrats could lose control of the US House of Representatives in the next election. Thus, independent voters could play an important role in helping Democrats retain their majority.

Biden risks alienating voters who don’t have student loans

If Biden proceeds with large-scale student loan cancellation, he risks alienating voters who don’t have student loans. According to the latest student debt statistics, there are approximately 45 million student borrowers. While the US adult population is approximately 250 million, nearly 80% of US adults no longer have student loans or have never taken student loans. This includes Americans who did not attend college or could not afford it. These constituencies also face economic challenges. They may wonder why Biden would only approve substantial economic relief for student borrowers while excluding others who are also struggling financially.

Canceling student loans could increase inflation

Canceling student loans could increase inflation, which is at a 40-year high. Biden will examine the impact of student loan forgiveness and student loan payment pausing on inflation. However, Republicans in Congress have expressed concern that Biden’s cancellation of $400 billion in student loans and another extension of the student loan moratorium could raise inflation. If student borrowers don’t have to pay student loans, the argument is that borrowers have more money to spend in the economy. In an inflationary environment, these additional expenses have a negative impact on the balance between supply and demand, which could increase inflation. Given the prospect of an economic recession, Biden does not want to craft any policy that could be seen as hurting the economy.

Student loans: next steps

Canceling student loans carries multiple benefits and political risks. Ultimately, Biden will decide by August whether to enact a large-scale student loan forgiveness and extend the student loan payment pause. Borrowers are hoping to avoid a nightmare scenario of no student loan cancellations and a restart of student loan payments. Above all, no matter what Biden decides, you should have a student loan repayment game plan. For example, you may not qualify for student loan forgiveness or only part of your student loans may be forgiven. Similarly, an extension of the student loan payment break is likely temporary, meaning student loan repayment would still be required. Learning all of your options for repaying student loans is your best investment. Here are some of the best ways to pay off student loans and save money:

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