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President Biden has indicated he will soon announce a decision on whether he will cancel $10,000 in student debt for college graduates. It’s a decision being widely anticipated but also much debated over its scope and merits. Katherine Welbeck of the Student Borrower Protection Center and Marc Goldwein of the Committee for a Responsible Federal Budget join Amna Nawaz to discuss.
President Biden has indicated that he will soon announce a decision whether he will cancel $10,000 of student debt for college graduates.
It's a decision being widely anticipated, but also a much-debated one over its scope and merits.
Amna Nawaz looks at that debate.
It's part of our series Rethinking College.
Judy, the total outstanding amount of student loan debt has doubled since the Great Recession of 2008. It's now more than $1.7 trillion, and most of it is owed to the federal government.
More than 43 million Americans owe student debt, averaging just over $37,000 per person. And it is disproportionately burdensome to graduates of color, particularly Black graduates who owe $25,000 more on average than their white peers.
President Biden is now considering forgiving up to $10,000 of student debt, far less than many had advocated for, and reportedly with income caps, limiting it to borrowers earning less than $125,000 per year. But some experts argue even that goes too far and won't solve fundamental problems with college costs.
We look at this with two engaged in this debate.
Katherine Welbeck is with the Student Borrower Protection Center. That's a not-for-profit advocacy group. And Marc Goldwein is with the Committee for a Responsible Federal Budget.
Welcome to you both. Thanks for being here.
Katherine Welbeck, Student Borrower Protection Center:
Thank you so much.
Marc Goldwein, Committee for a Responsible Federal Budget: Thank you.
Delighted to be here.
So I want to hear from both of you about what you think about that proposal so far.
Kat, we will start with you.
Certainly. And thank you so much for having me.
I guess, first, as you can guess by our name, we're broadly in support of debt cancellation. And I think a lot of what you just outlined in your introduction about the importance of, one, the president upholding the promises of trying to achieve greater racial equity through this plan, but then, two, thinking broadly about the fact that we have so many broken programs throughout our student loan system, whether it's public service, loan forgiveness, income-driven repayment, borrower defense to repayment for student loan borrowers who are defrauded by for-profit colleges.
So we have seen over decades the way that these piecemeal fixes to these programs haven't worked. And so we need a clean slate to really build a foundation to build a better student loan system, in addition to fixing those broken programs.
Marc, what do you say?
So, look, the problem isn't the student loan system. It's college affordability.
And this, I think, would be $250 billion pretty poorly used. We already have very high deficits. We have the highest inflation in 40 years, which this would make worse. And most of these benefits would go to graduate students mainly in the top half, top quarter of the income spectrum.
Even with the income caps as proposed?
Even with — the income caps we're talking about are $250,000 or $300,000 for a couple. We did the math on this. That cuts off the very wealthiest, but it doesn't cut off a lot of people that are still extremely high-earning.
And it doesn't cut off a lot of people that may be a doctor only making $200,000 this year, but, in a few years' time, you were going to be making $300,000, $400,000. And, by the way, $200,000 is also a lot.
Kat, what do you say to that?
I think, first, the fact that student debt itself is means-tested, right?
And so when we think about the fact that wealthy people don't take on debt to attend college, right? So we're thinking about the fact that debt cancellation not only affects many low to middle-income borrowers, a lot of people who went to school and didn't get the degree, and so they still have debt.
And so I think, one, we talk about that argument, we ignore the experience of so many borrowers, but then, two, particularly when we're talking about race and equity, I think we're also missing the effect of how much student debt affects Black borrowers, when we look at the fact that, 10 years out of repayment, nearly two-thirds of Black borrowers still owe more than they took out, even in repayment.
And so I think, when we talk about, is student debt regressive, we're really ignoring a large part of many borrowers' experiences.
Marc, I want to ask you about that, because it is the point a lot of people come to, which is, it doesn't help everyone, right, but it can help folks who really, really need it.
When you look at some of the statistics Kat just pointed out, the Congressional Black Caucus actually put out the statement today too, calling this issue one of racial and economic justice that disproportionately impacts Black communities across the nation.
So if there's a chance to help people who need it, why not take it?
Again, I think the way that — we have a huge racial equity problem, and the way to deal with that is with college affordability.
The 25 percent wealthiest people in the — excuse me.
White Americans in the top 20 percent of the income spectrum have more debt than all Black Americans.
The reality is, 87 percent of Americans have no college debt, many of them because they didn't go to college in the first place. And this is going to do absolutely nothing for them.
Kat, I want to ask you about that limit, that $10,000 number that seems to be hovering around there now.
Because that is a lot less than a lot of people were asking for…
… and pushing for.
What kind of an actual difference, though, given — I think right now average in state tuition for college is over $10,000, one year.
So you're not even talking about covering one year.
How much of a difference is $10,000 going to make?
And I think you're hitting the point.
So there are, for many millions of borrowers who might be currently in default, or borrowers who do have lower balances, are struggling with student debt, again, it's life-changing, right, losing that balance.
But for so many more borrowers, they won't really reap the benefits of that cancellation. And, again, if we're talking about, how do you create a new foundation to rebuild a better student loan system, if you don't reach the higher amount set, again, talking about 50K is when you really start to seeing an effect on the racial wealth gap. When you think about 30K, you're erasing debt for more than 30 million people.
So I think you have to think about the fact of, how broad do we want this to reach? And if we're really going to rebuild a better system, we have to think about having a broad effect.
So, if it's only $10,000, what kind of impact does that — what difference does that make?
Again, for the people…
For people with debt, it makes some, but not as significant of an impact.
If we're going to really say and acknowledge that we have a broken student loan system, then I think we have to be willing to commit to really making a better system, and so not significant enough for us to really make those systemic changes that we would hope for.
Part of this conversation also has been that there are income-driven repayment systems we have tried. They're in been part of the system. Why aren't those working?
Well, look, if we're going to fix the student loan system, we should fix the student loan system.
Doing something by executive order that just wipes out the debt isn't going to do much of anything. We have estimated debt will be right back where it was in just three years' time. The income-driven repayment system right now isn't perfect. There's too many different programs.
People don't understand how they work. There's tough calculation. But it's also we haven't gone to completion with most of them because they're pretty new. So we should be working with Congress and the president together to try to unify these systems.
President Trump and President Obama both had very similar thematically similar proposals to do just that.
I want to ask you too, you have laid out a few knock-on impacts that you're worried about. This could have inflationary impact, and so on.
And there are those, like Mark Cuban among them, who argue, actually, if you reduce people's debt burdens now, that helps them to participate in the economy. It could actually help the economy. They have savings to put into other things, maybe even buy a home. Isn't there something to that argument?
Well, that argument is exactly why this is inflationary.
Right now, we have an extremely overheated economy, where consumption is already well in excess than what we can produce. So anything we do that gets people to spend more now, as opposed to putting it to pay down their debt or save, is actually going to make that inflation worse.
We have estimated full debt cancellation would add probably half-a-point to the inflation rate.
So, if you're talking about fixing the student loan system, and you don't think this is, what needs to happen?
Well, as I said, before, both Presidents Obama and President Trump had plans to sort of unify and consolidate the income-driven repayment system.
I think we should be looking to those types of ideas.
More fundamentally, we need to look at college affordability in the first place. If everyone thinks the president is going to cancel $10,000 of debt every four years or so, there's going to be incentive to write — to increase tuitions, and we're going to be actually in a worse situation on the front end than we are now.
Well, a couple of things.
First, let's start with the inflation point. I think it's really important to note, one, we think about larger drivers of inflation, the road the war in Ukraine, supply chain issues with COVID, but I also think it's really important to note the way that student debt cancellation works as a stimulus.
This is not $10,000, $50,000 in people's bank accounts tomorrow. It's — people will see monthly more money in their balance sheets because they will not have as much student loan debt. So it's not an immediate injection of that money into the economy that would, like, immediately overheat it. It's more so people having more money actually to help them as we're — as they're struggling with rising costs right now.
And I think also the important part about talking about fixing current plans, I think we have seen — we have tried to fix it. We have seen piecemeal plans. The reason why IDR doesn't work, when we're looking at over four million people having been in repayment for over 20 years.
And when we think about income-driven repayment, you're supposed to get forgiveness after 20 or 25 years, depending on the payment plan. But only — we have seen since 2021 only less than like — a little over 100 people have received cancellation through that program.
So it's not working, right? And we have to acknowledge that these programs don't fix it. We could talk about fixing them, but we have to talk about doing some larger systemic change to fix these broken programs.
I feel like we're going to have you back for another conversation some time very, very soon.
Katherine Welbeck and Marc Goldwein, thank you so much.
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