Why Biden is resisting the pressure to cancel $50,000 in student loan debt per borrower

“Borrowers don’t just need their debts paused; they need them erased,” Schumer said from the Senate floor.

“With the flick of a pen, President Biden could provide millions upon millions of student loan borrowers a new lease on life,” the New York Democrat added.

More than 100 Democratic members of Congress signed a letter sent to Biden last month that urged him to “cancel a meaningful amount of student debt.” A handful of progressive lawmakers, including Sen. Bernie Sanders of Vermont and Rep. Pramila Jayapal of Washington state, appeared with student debt cancellation organizers outside the White House on Wednesday to show their support.

“I am considering dealing with some debt reduction. I am not considering $50,000 debt reduction,” Biden said at the White House after unveiling new funding for Ukraine.

“But I’m in the process of taking a hard look at whether or not there are going — there will be additional debt forgiveness, and I’ll have an answer on that in the next couple of weeks.”

Later Thursday, White House press secretary Jen Psaki confirmed that “there’s been no conclusion of any process internally yet.”

There are several reasons why Biden may be resisting the pull from the left wing of his party.

Legal authority is unclear

Biden made it clear during his presidential campaign, after the Covid-19 pandemic began, that he supported partial cancellation of federal student debt.

His campaign proposal called for immediately canceling a minimum of $10,000 in student debt per person as a response to the pandemic, as well as forgiving all undergraduate tuition-related federal student debt from two- and four-year public colleges and universities for those borrowers earning up to $125,000 a year.

But he has also urged Congress to take action to cancel debt, rather than said he could use executive power to do so.

It’s not totally clear that the President’s executive authority allows him to broadly wipe away student debt. Last year, Biden directed lawyers at the Departments of Education and Justice to evaluate whether he does, in fact, have the power to broadly cancel federal student loan debt. The administration has not disclosed those findings.

But a September 2020 memo from lawyers at Harvard University’s Legal Services Center and its Project on Predatory Student Lending argues that Congress has given the power to broadly cancel federal student debt to the Department of Education through a law known as the Higher Education Act. It gives the education secretary the authority “to create and to cancel or modify debt owed under federal student loan programs,” the memo says.

Inflation is a key issue for voters

It may sound counterintuitive to borrowers who would benefit from debt cancellation, but some experts say forgiving student loans would add to inflation. This is a problem for Biden and other Democrats, who are getting blamed for rising gas and grocery prices.

Millions of people would be able to spend money — roughly $4 billion a month, per one estimate — on things other than their monthly student loan payments. And people may be more likely to make big purchases, like cars or houses, if they no longer have student debt hanging over their heads.

A report from the Committee for a Responsible Federal Budget estimated that canceling all $1.6 trillion in federal student loan debt would increase the inflation rate by 0.1 to 0.5 percentage point over 12 months. Canceling $50,000 per borrower would result in a smaller increase, but the group did not estimate that effect.

“It’s not gigantic,” said Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget.

“In a normal inflation environment, it wouldn’t be a big deal. But we’re in a very precarious situation right now and at risk of inflation spiraling out of control,” he added.

Canceling debt could benefit a lot of wealthy people

Biden has repeatedly said he is committed to making sure wealthy Americans pay their fair share and has proposed raising taxes on the richest Americans. Canceling student debt could run afoul of that policy goal.

Canceling student debt for everyone would disproportionately benefit higher-wealth households, like those with doctors and lawyers, because those borrowers tend to have more student debt after attending graduate school. As of 2019, households with graduate degrees owed 56% of the outstanding education debt.

A more targeted approach, like canceling debt for borrowers who earn less than a certain income threshold or canceling loans borrowed only for undergraduate degrees, could help make sure more of the benefit is reaching the Americans most in need.

“If you did even basic targeting, then way more of the money would go to low-income borrowers,” said Adam Looney, a nonresident senior fellow at the Brookings Institution who has studied student debt relief policies.

Still, canceling student loan debt wouldn’t solve the fundamental problem with college affordability. Biden also campaigned on making community colleges free, a move that would require an act of Congress, but that proposal was cut from his Build Back Better agenda.

“If you don’t fix the system, these problems are going to reoccur and we’ll be back in the same crisis we are now,” Looney said.

Biden has signaled he would be open to excluding high-income borrowers from student loan debt cancellation, arguing last year that the government shouldn’t forgive debt for people who went to “Harvard and Yale and Penn.”

Psaki said Thursday that the President continues to consider some type of means testing when it comes to loan cancellation.

“He has talked in the past about how he doesn’t believe that millionaires or billionaires should benefit — or even people from the highest income — so that is certainly something he would be looking at,” she said.

To date, Biden’s actions have delivered more than $17 billion in targeted student debt relief to 725,000 borrowers. About $3.2 billion of that was canceled for borrowers who had been defrauded by their for-profit colleges.