What Makes Student Loan Forgiveness a Timeless American Problem
Education Secretary Miguel Cardona is uneasy.
I’m starting an interview with him at the elementary school library in Glendora, New Jersey, and we’re sitting on giant plush hand-shaped children’s chairs when Cardona — a former fourth-grade teacher himself — calls an audible signal. “Wait,” he said. “Let’s stop the interview and change these seats.”
It makes sense, Mr. Secretary. The chairs did not work. And with what he’s going through these days, the man needs every comfort possible.
At the end of August, President Biden signed a decree which will cancel up to $10,000 in student debt for borrowers earning less than $125,000 per year. Borrowers with federal Pell grants, which go to those in exceptional financial need, will receive up to $20,000 in forgiveness, if they earn less than $125,000.
The plan has become a political hot potato drawing fire primarily from the political right, but also from some constitutional scholars as well as education and personal finance experts who view it as problematic, incomplete or both. On the other hand, the approximately 40 million Americans who would see their student loan debt reduced or even eliminated — that’s more than 15% of America’s adult population — might be delighted with the president’s determination to push ahead with the plan despite his criticism.
I asked Cardona why the plane had become a lightning rod.
“If we really want America to be the best, to lead the world and produce the best thinkers, we have to invest in education,” he said. “It’s almost hypocritical that people are complaining about this while applauding what we’ve done to keep businesses open during a pandemic, thanks to our PPP [Paycheck Protection Program].”
The left wing of the Democratic Party, some of whom like Bernie Sanders have pushed to cancel all student debt— seem mostly on board with Biden’s plan. New York Rep. Alexandria Ocasio-Cortez applauded the plan, even though she urged his followers to fight for even more forgiveness.
“President Biden has responded to the stories we have amplified, and his action is historic and will change lives for the better,” his colleague said. Crew Massachusetts Rep. Ayanna Pressley told us. “There were those who saw this issue as marginal and marginal. We worked with a coalition for two years to prove that was not the case and that canceling student debt would be transformative. »
Pressley stressed that the Biden administration should continue to support historically black colleges and universities; push for a tuition-free college; and invest in Pell Grants. “But it’s a bold, strong and necessary step in the right direction. It’s a win for everyone,” she said.
“Illegal and inflationary”
Now for the objections: Opponents say debt cancellation will fuel inflation, while others say the Biden administration lacks the constitutional power to write off so much debt. Some critics argue it’s not fair to people who have never had student debt, or that Biden went too far when he offered up to $20,000 forgiveness to Pell Grant recipients. .
“Student debt is crippling,” Texas Rep. Kevin Brady told Yahoo Finance. “And when you take too much, it can change your life. But this proposal from the president is illegal and inflationary. It’s financially irresponsible. But most importantly, it’s just unfair. It’s a kick in the teeth for all the blue collar workers and all the Americans who don’t have student loans.”
Brady spoke about a pending bipartisan bill called SECURE 2.0 as an alternative to the forgiveness plan, which he said would allow companies to contribute to employee retirement accounts when workers make student loan repayments. Example: If you invest $100 in your student loan, your company could contribute up to $100 to a retirement plan like a 401(k).
“So, in effect, while that worker is paying off their student loan debt, they’re sure to be putting matching funds into their retirement,” Brady said. “It brings a private sector approach to helping students pay off their debt while helping them save for the future and for retirement.
The president’s plan also faces a number of legal challenges. Perhaps most important, six states – Iowa, Missouri, Nebraska, Arkansas, Kansas and South Carolina – sued the Biden administration, saying the plan will hurt state education programs and reduce tax revenue.
Sheila Bair, former FDIC chairwoman and former president of Washington College, recently wrote for Yahoo Finance that while she supports some student loan forgiveness, the plan does not fix flaws in the broader student loan ecosystem. These include complexity, opacity, high tuition fees and poor results.
As for Biden’s plan, she says, “It’s too generous. I think $10,000 in Pell-eligible student aid would have been much more defensible,” Bair said. “If we slide into recession, I think federal spending should be prioritized for those who have lost their jobs, not student borrowers. That might be a good policy question for Democrats in November, but it will prolong the ‘uncertainty and difficulties of borrowers.’
With a month to go until the midterm elections, Biden and Democrats hope to present voters with the student loan forgiveness as a victory.
This is by no means a certainty. Legal challenges aside, the administration is looking to thread a needle because it wants to get as many people enrolled by November so it can recalculate millions of dollars in loan repayments in January. This is the same month that the pandemic-related pause on student loan payments ends.
Should these students be required to repay this debt? The debate between those who favor a free market and those who push for government intervention reflects a timeless American question.
The free market camp argues that these young people have made the choice to go into debt, so that is their problem. Since this is an unattractive contract, free marketers would argue that the “invisible hand” of the market will make student loan activity unsustainable as borrowers are reluctant to take out unattractive loans.
The problem with this perspective is that millions of people are hurt along the way, which is no way to run a society. We can’t let people sell Halloween candies that contain frosted glass and wait for the market to fix them. The government must protect people and, in some cases, restore them if they have already been injured.
The question is: is the government obliged to come to the aid of those who have already taken on too much debt? It’s a debate that will likely keep Secretary Cardona in the hot seat.
This article was featured in a Saturday edition of the Morning Brief on Saturday, October 7. Get the Morning Brief delivered straight to your inbox Monday through Friday by 6:30 a.m. ET. Subscribe
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