Will Biden cancel $1.7 trillion in US student loan debt?

Angel Orth, 33, pays $500 a month towards her student loans for the undergraduate and graduate degrees she received from a public university in the United States nearly eight years ago. But the Florida realtor has barely seen her $70,000 balance go down due to ever-accruing interest.

“I’ve paid about $48,000 back, but the balance just seems stuck,” Orth, who holds a Master’s degree in visual rehabilitation therapy, told Al Jazeera. “I’d love to have my $48,000 credited toward my principal. Eliminating interest would be huge.”

For now, Orth’s student loans payments are on hold. The passage of the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act in April temporarily froze federal student loan payments and interest accrual, a measure that has since been extended by the Trump administration through January 31, 2021.

But private student loan payments and interest were not suspended, and borrowers’ federal student loan bills will eventually come due when the forbearance ends.

For many student loan holders, this temporary pause on collection activity is simply not enough – which is why the movement to cancel student loan debt is growing larger, driven by the impending inauguration of Democratic President-elect Joe Biden and the prospect that he could take executive action on the issue.

An open letter (PDF) signed by 238 advocacy organisations asked Biden to cancel federal student debt, and US Senate Minority leader Chuck Schumer has publicly called on the president-elect to use his executive powers to cancel up to $50,000 in federal student debt for individual borrowers.

This is critical relief for some. People are being crushed by student loan debt.

by Cody Hounanian, Student Debt Crisis

Biden has not signalled what he will do to tackle the crisis when he takes office on January 20, but student debt reform was a central part of his presidential campaign.

As part of his plan for coronavirus relief aid, Biden proposed immediately cancelling a minimum of $10,000 in federal student loan debt for borrowers. Longer term, he proposed forgiving undergraduate tuition-related federal student debt from public colleges for people who earn up to $125,000 per year.

Advocates have said such action would go a long way in helping struggling Americans during and after the COVID-19 crisis. It could also inject much-needed cash into the struggling, consumer-driven US economy.

Advocates have argued that since consumer spending accounts for roughly two-thirds of US economic growth, money that does not have to go towards paying off a student loan could instead be spent on things like buying a home or boosting the retail sector.

“Now is the time for a big, bold solution to student debt,” said Cody Hounanian, programme director for Student Debt Crisis, a nonprofit pushing for loan reform. “We believe student debt cancellation can provide an economic stimulus, create a more racially equitable playing field and can clean the slate for future reform,” he told Al Jazeera.

$1.7 trillion problem

It is a large slate to clean. Collectively, Americans owe $1.7 trillion in student loan debt, according to Federal Reserve data. And that is not surprising given the high cost of US higher education.

The average yearly tuition for Bachelor’s degree students at private universities is $29,500 – more than three times what public university tuition costs – and 89 percent of American students use public loans, grants or both to help pay for their undergraduate degrees, according to a 2019 OECD report (PDF).

But many students who sign on the dotted line later find themselves struggling to pay off their loans for decades, which is why Orth believes student loan companies prey on vulnerable, naive students.

“As a 17-year-old, I remember getting student loan counselling where loans sounded manageable. The example they gave was that I would be paying about $50 a month. They didn’t explain interest at all,” Orth said.

The problem is worse for students of colour. Hounanian points to research by the Brookings Institution that found that Black graduates of undergraduate programmes default on their student loans at five times the rate of white students.

Default rates are also highest among those who borrow relatively small amounts, Brookings found, which is why advocates have said any amount of debt forgiveness could go a long way.

“This is critical relief for some. People are being crushed by student loan debt,” Hounanian explained.

Why should I pay taxes to forgive daily coffee runs for college students and spring break when we worked hard to pay for our own children’s education? Am I going to have my mortgage or car forgiven?

by Amy Hertel, business manager

And while the concept of student loan forgiveness has been championed by progressives, the idea is gaining ground with Americans across the political spectrum.

A 2019 poll by Quinnipiac University found that 57 percent of voters supported the federal government forgiving $50,000 in student loan debt for people with a household income less than $250,000.

Personal responsibility

But the idea of student debt forgiveness has its critics, too. Some borrowers who have paid back their student loans feel like forgiving everyone else’s flies in the face of personal responsibility.

Amy Hertel is a mother of four living outside of Madison, Wisconsin. Now in her 50s, the business manager helped her sons pay for their undergraduate degrees so they could graduate debt-free.

“Why should I pay taxes to forgive daily coffee runs for college students and spring break when we worked hard to pay for our own children’s education?” Hertel told Al Jazeera. “Am I going to have my mortgage or car forgiven?”

Research also shows that debt forgiveness would benefit people who took out larger loans, such as for advanced degrees, more than those who took out smaller ones, potentially increasing inequality.

I’ve paid about $48,000 back, but the balance just seems stuck. I’d love to have my $48,000 credited toward my principal. Eliminating interest would be huge.

by Angel Orth, realtor

For example, a study (PDF) by researchers at the University of Chicago published this month found that “forgiveness would benefit the top decile as much as the bottom three deciles combined.”

Their study also found that Black and Latino students would benefit less from across-the-board forgiveness programmes and that borrowers who took out loans for graduate degrees may now be in higher-earning professions with enough income to comfortably cover repayments, even if their initial loans were larger.

That is why some experts believe student loan policies should focus on reforming the repayment system rather than forgiving debt.

“The current system is a disaster and embarrassment,” Douglas Holtz-Eakin, a former director of the Congressional Budget Office and the president of the American Action Forum, a centre-right think-tank, told Al Jazeera. But he believed that debt cancellation would not fix its structural issues.

Instead, Holtz-Eakins hoped that the Biden administration would reform income-driven repayment programmes and create more opportunities for grants, which do not need to be paid back, rather than loans.

“Right now, there’s few checks and balances for loan applicants,” he said. “More grants could create incentive-based programmes where money is dependent on academic performance. With loans, there is no incentivisation, so people end up having loans they can’t repay for a degree they may not have been able to finish.”