Student Loan Forgiveness — A Win for Millions of Americans
On August 24, President Biden announced his decision to forgive up to $10,000 of student loan debt per borrower, a decision expected to improve the economic well-being of many Americans.
The program applies only to those with individual incomes below $125,000 a year, or $250,000 for couples. According to the Education Department, 90% of those who will benefit from the program earn less than $75,000 annually. For recipients of Pell Grants — federal aid for lower-income students — the program will cancel up to $20,000 of their debt.
The burden of student loans has been a topic of discussion for many years. Combined with a rise in the cost of college education that far outstrips inflation, student loans have left many college graduates scrambling to repay the lenders, even many years after graduation.
Unlike many other loans — such as those taken out by businessmen or homeowners — student loans cannot be wiped out by declaring bankruptcy. If a borrower hits a rough patch and misses a few payments, the interest keeps accumulating — usually compounding daily, rather than monthly as with mortgages or other familiar loans. And there’s no way to pay down the principal, which explains why borrowers may end up paying more than triple the amount of their original loan.
Karen Emerson, a former Kent County resident now living in Vermont, wrote on FaceBook on Aug. 24: “We had $85,000 in student loan debt in 2004. To date, we've paid back $119,000. We still owe $60,000. We have never been late with a payment. My house will be paid for before student loans [are] paid off.”
Now multiply that story by several tens of millions and you get a good estimate of the frightening scope of student debt. Consider that these are people who followed what they were told was the best track to success in life. Factor in the large number of high school graduates who attended for-profit institutions such as such as Corinthian Colleges, Education Corporation of America, or ITT Technical Institute, that have been hit with government sanctions on grounds of defrauding their students, and you have a disturbing picture of useful education taking second place to profiteering. And of course, there’s Trump University, which agreed to pay $25 million to settle three lawsuits filed in federal court for fraud charges.
Details of the forgiveness program differ according to the type of loan, with defaulted loans and those with the highest interest rates receiving priority for reimbursement. The overall effect is to reduce the balance owed, thereby reducing the borrower’s monthly payments. But it’s clear that the forgiveness program has the potential to free a large fraction of the working population from crippling debt, and is surely one of the most consequential government initiatives in a generation.
Won’t reducing the money owed by these former students drive up inflation, currently the biggest worry on many Americans’ minds? In the New York Times on Aug. 29, economist Paul Krugman noted that the Biden plan ends the moratorium on student loan payments brought about by the pandemic. Ending the moratorium “will suck considerably more cash out of the economy than debt relief will put back in,” Krugman writes. He adds, “There’s solid evidence that freeing former students from overhanging debt makes it easier for them to move to better jobs and increases their income,” putting them in higher tax brackets – over time, more than compensating for the $10,000 in loan forgiveness.
Critics have complained that loan forgiveness is unfair to those who didn’t take out student loans, or who have already paid theirs off. The program is passing the burden of the debts to taxpayers who didn’t take out the loans, they say. But while the cost of the student loan forgiveness has been estimated at “several hundred billion dollars,” according to Krugman, that’s a drop in the bucket next to the nearly $2 trillion in tax cuts the Republican-dominated congress passed in 2017, two-thirds of which is expected to benefit the top 20% of earners.
Is there a downside to this? Some have complained that the loan forgiveness doesn’t go far enough — and that may be a fair criticism. But those who now have a chance to get their finances back in order undoubtedly see the program as a big step in the right direction. And for Biden, it serves to fulfill a campaign promise, a plus for any elected official. Overall, it looks like a win for the Democrats — and for tens of millions of Americans.
Peter Heck is a Chestertown-based writer and editor, who spent 10 years at the Kent County News and three more with the Chestertown Spy. He is the author of 10 novels and co-author of four plays, a book reviewer for Asimov’s and Kirkus Reviews, and an incorrigible guitarist.
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