More fiscally conservative Democrats, and many moderate Republicans who supported Biden this election, argue that sweeping student loan forgiveness is precisely the wrong path forward, in part because Americans with a college degree have been, as a whole, less devastated by the economic effects of COVID-19 than their non-college-educated counterparts. While many white-collar office jobs were able to adapt to the pandemic world, by encouraging remote work or moving once in-person activities online, many traditional blue-collar jobs, like waitressing, bartending, and hospitality work, have been warped, down-sized or eliminated.
A late September report from Pew Research Center found that only 12% of people with college degrees were having trouble paying the bills amid the COVID-induced recession, versus 27% of Americans with some college education and 34% of Americans with a high school diploma or less.
There’s also the trillion dollar question of how the government pays for mass debt forgiveness, says Neal McCluskey, the director of the Center For Educational Freedom at Cato, a libertarian think tank. He says the burden of debt relief would likely have https://getbadcreditloan.com/payday-loans-tn/calhoun/ to be passed off to other parts of society in some form. The idea of stimulus sort of goes out the window if we’re just sort of moving under a shell where the money is and where it’s coming from, says McCluskey. (Some economists argue that concern doesn’t make economic sense, since the federal government issued the debt in a currency it also prints at a time when inflation is low.)
He has said that a bill from House Democrats calling for $10,000 worth of forgiveness of student loans should be done immediately
Then there’s the matter of whether Biden even has the power to use the Higher Education Act in the way that progressives suggest. It looks like it would be a pretty interesting debate about whether [Biden] would even have the authority in law to do what Senator Schumer is asking him to do, McCluskey says. And that could be a really big legal battle.
Eileen Connor, Legal Director at the Project on Predatory Student Lending out of Harvard Law School, which has supported Warren in advocating for the policy fix, says the power to cancel debt is clear. The language in the HEA is broad, has been there from the beginning, and has not been narrowed, she says, even as Congress has put other cancellation authority into the HEA and limited the compromise authority of other agencies in different ways.
If there’s precedent that the government can wipe out student loans moving forward, future college students may have an incentive to take on more debt, believing there are good odds it will be forgiven. Colleges may then be inclined to raise their prices even further as students continue to be willing to pay higher prices, McCluskey says.
A middle path?
In recent weeks, Biden has walked a fine line on the issue. But he has stopped well short of endorsing anything close to Warren and Schumer’s plan of issuing $50,000 per person in forgiveness through executive action.
Biden’s pared-down compromise might be part of its own political shell game, analysts say. Schumer and Warren’s plan may be a bargaining chip: it represents, perhaps, a more extreme option, giving cover to Biden’s comparatively more cautious approach, McCluskey says. Then the Biden administration can focus on getting $10,000 of debt forgiveness for everybody through Congress, or maybe even through executive action, which will seem much less extreme and people will be kind of okay with it, he says.
What’s clear, according to economists on both sides of the aisle, is that economic recessions, like the one we’re in now, tend to exacerbate the problem of student debt. The last time the U.S. dipped into a recession-in the late 2000s-the unemployment rate hit 10.6% and banks foreclosed on an estimated 3.8 million homes. Amidst that collapse, federal and state governments invested less in colleges and universities, which, in turn, raised their tuition prices and forced students to take on ever-larger loans. Between 2006 and 2012, inflation-adjusted tuition at public four-year institutions rose 19%, according to the Hechinger Report. Since 2006, America’s collective student loan debts have more than tripled, as students have struggled to find jobs with big enough salaries to cover their sky-high debts.