Within moments of President Biden’s announcement that he was weighing forgiving some amount of student debt, his critics launched into it. Senate Minority Leader Mitch McConnell (R-KY) labeled the move “cynical and outrageous,” saying that “Democrats are literally using working Americans’ money to try to buy themselves some enthusiasm from their political base.” Sen. Mit Romney (R-UT) echoed this attack, calling the program a way for Biden to “bribe the voters.” Sen. John Cornyn (R-TX) of Texas dubbing it an “election-year stunt” that “would incentivize universities to raise tuition and unfairly punish those who sacrificed to pay off their own student loans” even as inflation remains a big problem. “Biden owes Americans an explanation on why a truck driver who didn’t go to college is now responsible for the student loans of a rich lawyer,” Sen. Tom Cotton (R-AR) tweeted. And the House Judiciary GOP scolded, “If you take out a loan, you pay it back. Period.” (My favorite response to this was one commentator simply noting that Donald Trump has declared bankruptcy six times.)
Meanwhile, many progressives warned that a $10,000 forgiveness would not go far enough, in particular toward closing the racial wealth gap. Derrick Johnson, the President of the NAACP, warned that the move “cannot become the latest example of a policy that has left Black people, especially Black women, behind. This is not how you treat Black voters who turned out in record numbers and provided 90% of their vote to once again save democracy in 2020.” And across social media, many borrowers scoffed at the measure, saying it would barely put a dent in their debt and that the interest on the loans alone meant they’d never pay them off.
When the actual plan emerged along with details about who it would apply to, however, critics on the left tempered their criticism and conservatives were left arguing based on faulty assumption. Here’s a run down of the major critiques and how Biden’s student debt forgiveness plan addresses them.
“This is a transfer from the working class to the wealthy.”
The right styles itself unironically as the defenders of the average (white) working class family, and it was quick to claim that the debt forgiveness would mean average families would be paying for the debts of lawyers and doctors who went to college and grad school. The Biden plan, however, has an income cap of $125,000 per year ($250,000 for married couples), meaning those making above that amount don’t qualify for any debt forgiveness. As White House National Economic Director Bharat Ramamurti put it, this means that 87 percent of benefits are “going to people making under $75,000 a year” while “zero dollars, zero percent, are going to anybody making over $125,000 in individual income.”
The critique about wealth transfers from the working class to the rich, coming from Republicans, is a bit hard to swallow given the $1.9 trillion tax break that the GOP gave corporations and the wealthy in 2017. That was essentially the reverse of this, said Ramamurti, where “15 percent of the benefits went to people making under $75,000 a year, and 85 percent went to people making over $75,000 a year. And if you zoom in even more on that, people making over $250,000 a year got nearly half of the benefits of the GOP tax bill and are getting 0 dollars under our [plan].”
“The program is unfair to people who paid off their loans.”
A common critique, and one that resonates with many Americans, is that forgiving debt at this point provides an unfair windfall to some, while giving nothing to those who dutifully worked and scrounged to repay their student loans. Yet the idea that because people in the past suffered under brutal payment terms so we should not act today is nonsensical. The ongoing threat to the long term health of our economy, not to mention a growing racial wealth gap that is compounded by who currently suffers the most under crushing student loan debt, have made some kind of relief essential. The question, at least for Democrats, has always been how much, for whom, and under what terms.
For those who went to school one or two generations ago, it is also an unfair comparison. As noted by ABC News, school tuition has risen 300 percent over the last 40 years while Pell grants and other ways the federal government used to support the cost of higher education have not kept pace. The effect has been most pronounced on low income families, which have seen the cost of tuition skyrocket while wages have not increased at even close to the same rate. The debt relief will help some 43 million Americans with their student debt payments, with some 20 million—comprising disproportionate numbers of minorities and women—seeing their debt wholly erased.
President Biden reminded his critics, in a candid remark to the press, that economic burdens aren’t always fair or equitable, in this unscripted exchange after he had completed his prepared remarks:
REPORTER: Is this unfair to people who paid their student loans or chose not to take out loans?
BIDEN: Is it fair to people who, in fact, do not own multi-billion-dollar businesses if they see one of these guys getting all the tax breaks? Is that fair? What do you think?
“Loan forgiveness is going to cause even more inflation.”
Inflation is a favorite go-to for the Republicans, and pointing to what they consider another government hand-out of money is an easy call. But will the debt forgiveness truly have much inflationary impact? In theory, the $300 billion or so that would have gone to the lenders is now free to circulate in the economy, so that could put upward pressure on prices. It also could wind up having the unwanted effect of raising school tuitions, according to some economists.
But it’s important to remember that federally backed student loans repayments have been in forbearance since the pandemic. That means that money that would have been used to pay back debt was instead spent on rent, food, clothing, gas, healthcare and discretionary spending. That, say some experts, is one of the true drivers of current inflation. In other words, the effect of the debt relief is more or less already baked in. As loan repayments are set to begin on student loans in January of 2023, that could even have a deflationary effect as money that once went to expenses is now heading back to the lenders, according to White House officials.
Time will have to tell whether the net effect of the debt relief adds to inflation or is balanced out by the restarting of student loan repayments with the lifting of the moratorium. It’s important to note, however, that the risk of inflation was not even mentioned at the time the government forgave $714 billion given out as PPP loans or handed back nearly $2 trillion in tax money to wealthy Americans. That suggests that inflation only matters when some lawmakers don’t like the programs they claim are causing it.
“The program won’t meaningfully close the racial wealth gap.”
The White House answered critics on the left with a surprise move that it had reserved until the public announcement: The debt relief was $10K but would go as high as $20K for recipients of Pell grants. Such grants are for the benefit of low-income families. So by tacking that on, millions more borrowers would see twice the benefit of the normal student debt relief.
In addition, the White House announced that there would be a cap upon payments for low income qualifiers. It drops the amount that borrowers would have to pay from 10 down to 5 percent of discretionary income, raises the amount that is considered non-discretionary income and thus protected from repayment, forgives loan balances after 10 instead of 20 years of payments on loan balances of $12,000 or less (allowing all community college borrowers to be debt-free within 10 years), and covers the cost of the borrowers’ unpaid monthly interest so that no borrower’s loan balance would grow so long as they make their monthly payments.
The structuring of the debt relief program in this manner won the praise of progressives, including Sen. Elizabeth Warren (D-MA), who put out a statement with Senate Majority Leader Chuck Schumer (D-NY) saying it will help “particularly in minority communities, and is the single most effective action that the President can take on his own to help working families and the economy.” The NAACP moderated its response after seeing the details, saying “we've got a ways to go, but the NAACP is proud that we were able to push President Biden to exceed $10,000, bringing us closer to $50,000 and beyond.” And Rep. Julian Castro (D-TX) welcomed the news and what it would mean for millions of Latino families. “HALF of all Latino student loan borrowers will have their entire debt forgiven,” he tweeted. “The impact this will have on millions of first and second generation families is enormous.”
The fact that Latino families will benefit greatly from the move is not lost on Democrats who have been seeking to win back the loyalty of this core part of their base. It is also in part why GOP leaders are so critical of the move, because they see it as an outright bribe to lower income Americans. This criticism misses the mark, however. Democrats, including Joe Biden, campaigned on the idea of student debt relief, just as Republicans promised their donor class big tax breaks. Making good on these promises of debt relief is not a bribe; rather, it is the natural consequences of a democratic election where voters want to achieve a more equitable and less burdensome system.
What does feel like politics is the timing of the announcement, occurring just months before the midterms with the start of loan repayments commencing just two months after them. To this I’d simply say, “Nicely played, Mr. President.”
Thank you for the clear explanation.
I've been seeing right-wing apologists whining about student loan repayment for months (they've been coached well by Fox Noise and hate radio).
Funny how they were completely silent on the 1.9 Trillion tax giveaway that most of them didn't participate in, or the PPP loan forgiveness (which I read averaged $72,500). So much hypocrisy.
I paid off all of my student loans (which ended up in the 6 figure range) about 15 years ago, but I was lucky being able to land a high-paying position with a large law firm shortly after graduation and couldn't stand having such high debt keeping me down. The majority of my fellow law students either were not so lucky or preferred to practice law in the public-service (low paying) sector. Not every lawyer earns a big salary. I am totally in favor of the student loan forgiveness program and applaud the current administration for getting this much done. YES, indeed, "nicely done, President Biden".