President Joe Biden’s sweeping student loan forgiveness plan is certain to spark criticism from both sides: Those who were clamoring for Biden to simply wipe out student debt altogether, and those who insisted that the president had no business forgiving loans at all.
Some of the criticism is legitimate, as this editorial board has pointed out in the past regarding overreaching proposals encouraging Biden to “cancel it all.” Loans don’t just disappear. Someone has to pay. And a majority of Americans are apparently worried about the fiscal consequences: 59% of respondents to an CNBC/Momentive poll from earlier this month said they were concerned that loan forgiveness would make inflation worse.
But the president, who announced his plan Wednesday from the White House, pretty much got it right. Millions of lower-income and middle class young people will now have a crushing burden lifted, or at least eased, from their shoulders.
That’s something we support overall, whatever the caveats about cost and fairness.
Biden made a related point Wednesday when he responded to a reporter’s question about fairness to other borrowers: “Is it fair to people who in fact do not own multi-billion-dollar businesses if they see what, these guys getting all the tax breaks? Is that fair?”
Let’s be clear, though: The potential price tag is indeed worrisome. Loan forgiveness of just $10,000 per eligible borrower — and Biden’s plan calls for up to $20,000 in some cases — could cost up to $311 billion, according to an estimate from the Wharton School of Business at the University of Pennsylvania.
That’s on top of the cost of the federal student loan payment moratorium, which as of April had cost $102 billion, according to the General Accounting Office. Biden has extended the moratorium until Dec. 31.
Biden had promised student loan forgiveness during his presidential campaign, and was feeling heat from progressives to follow through. But Americans are divided on the issue: 30% of those polled by CNBC/Momentive oppose any loan forgiveness; 34% say only those in need should have loans forgiven; and 32% say all loans should be wiped off the books completely.
As a nation we’re divided on the issue, but we ought to agree on this point: Those who want to better themselves with a college degree or additional education should have the chance to do so, without taking on a mountain of debt.
That means reining in the cost of college, which has soared in recent decades, and overhauling the federal student loan system — so that down the road, young people don’t end up buried in debt and expecting loan forgiveness a second time.
Biden’s plan includes loan program “fixes” that we support. His administration should move forward quickly to implement them.
Income-based repayment, public service loan forgiveness
As announced by Biden, borrowers who earn less than $125,000 and who received Pell grants (needs-based financial aid) will be eligible for up to $20,000 in debt forgiveness. Borrowers who meet the income requirement but were not Pell grant recipients will be eligible for up to $10,000 in loan forgiveness.
As many as 43 million borrowers, most making less than $75,000, could eventually have their debt wiped out or substantially reduced once their applications are processed. Eight million borrowers could have their loans forgiven automatically, based on income data the federal government already has in hand.
That’s the big, flashy news. But long-term, the plan to make income-based repayment and public service loan forgiveness more accessible is exactly what’s needed.
The proposed changes to income-based repayment — in particular, raising the amount of income that is protected from repayment, forgiving outstanding loan balances after 10 years instead of the current 20 years and preventing accrued interest from driving up loan balances as long as the borrower makes monthly payments — will help make loan repayment more fair for those of modest means.
Proposed changes to the much-criticized Public Service Loan Forgiveness program are welcome and needed too. Notably, certain kinds of loan deferments and forbearances — such as those for Peace Corps and AmeriCorps service, National Guard duty and military service — will now count toward loan forgiveness.
Temporary changes to PSLF, set to expire on Oct. 31, have already led to more than $10 billion in loan discharges for 175,000 public servants.
The quicker these proposals become permanent, the better.
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