Biden announces student loan debt giveaway for up to 20M as GOP, experts warn of economic disaster
President Biden caused an uproar Wednesday by announcing that his administration will forgive billions of dollars in federal student loan debt, potentially wiping the financial slate clean for 20 million Americans — despite Republicans and experts warning the bailout would worsen America’s tenuous economic situation.
In unveiling the plan to write off up to $20,000 in student loan debt incurred by borrowers who have received federal Pell Grants for their education and make below a certain income, along with up to $10,000 in debt for non-Pell Grant recipients, the president insisted that “an entire generation is now saddled with unsustainable debt.”
“The burden is so heavy that even if you graduate, you may not have access to the middle class life that the college degree once provided,” Biden said. “Many people, many people can’t qualify for a mortgage to buy a home because of the debt they continue to carry.”
The president added that those who take advantage of the plan “can start getting on with their lives” and “start to finally crawl out from under that mountain of debt, get on top of their rent, utilities, to finally think about buying a home or starting a family or starting a business.
“By the way,” Biden went on, “when this happens, the whole economy is better off.”
In response to Republicans who say the bailout only helps “white-collar” or “higher-class” graduates, Biden insisted that the plan is for “families who need it the most — working and middle-class people hit hard during the pandemic.”
“I will never apologize ever for helping Americans, working–working Americans, middle-class,” the president added, “especially not to the same folks who voted for a $2 trillion tax cut that mainly benefited the wealthiest Americans and the biggest corporations.”
The plan is likely to face legal challenges, with opponents contending that only Congress can forgive federal student loan debt.
The White House is citing as its legal authority a 2003 law which gives the executive branch broad powers to “alleviate the hardship that federal student loan recipients may suffer as a result of national emergencies” like the COVID-19 pandemic, according to a Justice Department opinion made public Wednesday.
While the student loan cancellation is music to many Democrats’ ears ahead of November, Republican lawmakers insist it amounts to a giveaway to Biden’s wealthiest supporters.
“The President can spin it however he wants with Pell window dressing, but at the end of the day his debt forgiveness scheme forces blue-collar workers to subsidize white-collar graduate students,” said Sen. Ben Sasse (R-Neb.), a former college president, said.
“Instead of demanding accountability from an underperforming higher education sector that pushes so many young Americans into massive debt, the Administration’s unilateral plan baptizes a broken system. This deeply regressive action — which fails even to acknowledge that most debt is held by folks with graduate degrees — will do nothing to jumpstart the reform higher education desperately needs.”
Rep. Virginia Foxx (R-NC), the Republican Leader of the Education and Labor Committee, also blasted the plan, calling it “wrong, unfair, and irresponsible.”
“Confusion reigns in the Biden administration—borrowers have no clear guidance and taxpayers are forced to pay for a bill they shouldn’t owe. This is wrong, unfair, and irresponsible,” Foxx said.
“Years of Democrat policies that created and expanded the federal student loan program have cost taxpayers over $200 billion in the last two decades alone, and President Biden has decided that the solution to this failure is a $300 billion transfer of wealth from working class Americans to privileged college graduates.”
“Who will be forced to pay for Biden’s debt transfer scam? Hard-working Americans who already paid off their debts or never took on student loan debt in the first place,” House Minority Leader Kevin McCarthy (R-Calif.) claimed.
“There is no such thing as a free lunch so let’s be clear that no one’s debts were paid—all Biden did was increase inflation, the price of higher education, and transfer hundreds of billions in unpaid for spending to the next generation,” Rep. Andy Harris (R-Md.) tweeted.
“As a blue-collar kid who worked his way through college, I know firsthand the sacrifices people make to receive an education,” Rep. Vern Buchanan (R-Fla.) chimed in. “Biden’s reckless, unilateral student loan giveaway is unfair to the 87 percent of Americans without student loan debt and those who played by the rules.”
“I’m not sure who needs to hear this — but families making $250,000 a year don’t need their student debt cancelled,” Rep. Pat Fallon (R-Texas) said.
Several lawmakers accused the administration of wronging millions of Americans who have already paid off their student loans or chosen not to attend college.
“There’s no canceling or forgiveness. The debt is transferred to hardworking taxpayers, many of whom paid off their loans already or decided to pursue a different career and forgo college. This is just bad economic policy and I don’t support this forgiveness approach,” said Rep. French Hill (R-Ark.)
“Biden’s proposal to ‘cancel’ student debt is fiscally reckless and will only transfer the responsibility to hardworking American taxpayers,” Rep. Rob Wittman posted. “This is an insult to those who didn’t have the opportunity to attend college and those who worked hard to pay off their own debts.”
“I joined the military, used the GI bill & started at junior college. My wife waited tables. We sweated, sacrificed & saved to pay for our college educations & borrow to start & grow our small business. What lesson is Biden sending wiping clean debts students willingly took on?” Rep. Barry Moore (R-Al.) wrote.
Rep. Dusty Johnson (R-SD) echoed the sentiment, saying, “This is a slap in the face to the millions of Americans who did the right thing & paid off the student debt they willingly took on. Where’s their $10,000 free pass? The admins willingness to spend is baffling–President Biden is making inflation worse with every stroke of his pen.”
“Mass cancellation of student debt feels good to some, but it’s a slap in the face to people who sacrificed to pay loans, worked through college, went to a less expensive school or skipped college altogether,” Rep. Lee Zeldin (R-NY) posted. “Magically canceling loans is bad, far left policy & just flat out wrong.”
Rep. Elise Stefanik (R-NY) also jumped in on the criticism, tweeting, “Joe Biden’s student loan bailout for the rich is paid for by the taxpayers and comes at the expense of hardworking #NY21 families.”
Republicans weren’t the only ones angered by Biden’s announcement. Jason Furman, the former director of the National Economic Council under Barack Obama also came out against the plan Wednesday saying, “Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless. Doing it while going well beyond one campaign promise ($10K of student loan relief) and breaking another (all proposals paid for) is even worse.”
“The White House fact sheet has sympathetic examples about a construction worker making $38K and a married nurse making $77,000 a year. But then why design a policy that would provide up to $40,000 to a married couple making $249,000? Why include law and business school students?”
Furman continued on Twitter. The former NEC director also noted that the move will lead to several “problematic impacts” such as colleges hiking tuition or encouraging more borrowing in the future.
“Finally, it’s not obvious to me that this is reasonable for a President to do unilaterally. A number of lawyers (and political leaders) have argued inconsistent with the law. Even if technically legal I don’t like this amount of unilateral Presidential power,” he later added.
To qualify for the forgiveness, borrowers must make less than $125,000 a year or less than $250,000 “if they’re part of a household.”
“If all borrowers claimed the relief that they’re entitled to, 43 million federal student loan borrowers would benefit and of those, 20 million will have their debt completely canceled,” a senior administration official said prior to Biden’s statement.
Borrowers can use their income in “either the 2020 or 2021 tax year” to determine if they are eligible, the official later added. Current students with loans will also be eligible for the relief if their loans originated before July 1; however, those who are still considered dependents will only be eligible if their parent’s income falls within the threshold.
The administration is also proposing to forgive loan balances after 10 years of payments for those who have balances of $12,000 or less. The current writeoff period is 20 years. Biden is also proposing capping the amount that borrowers must pay monthly on undergraduate loans at 5% of their earnings, down from 10% previously.
“Unlike existing income driven repayment plans, this plan would cover the borrower’s unpaid monthly interest. So the borrower’s loan balance won’t grow as long as they make their monthly payments,” a senior administration official added.
Biden also announced an ongoing moratorium on federal loan repayments would be extended through the end of this year — after the fall midterm elections — before coming to an end, saying “It’s time for the payments to resume.”
The payment pause was originally expected to expire on Aug. 31, after Biden extended it several times through his presidency.
On Tuesday, the Penn Wharton Budget Model estimated that a one-time debt forgiveness program of $10,000 per borrower making under $125,000 annually will cost taxpayers around $300 billion, increasing to $329.7 million if the window is extended over the next 10 years — with up to 73% of the cancellations assisting households in the top 60% of earners in the US. If the administration decides to do away with the income threshold, it would bring the total cost to $344 billion.
Based on the Penn Wharton Budget analysis, the National Taxpayers Union Foundation has estimated that if Biden moves forward with canceling $10,000 per borrower, it could cost the average taxpayer around $2,085.
