Does Biden’s Student Loan Forgiveness Help?

President Biden’s long-awaited scheme for student loan forgiveness plan will clear debts of millions of borrowers, with minimal impact on others. Saddled with a federal student loan, $10,000 will be waived if you earn less than $125,000 while Pell grant awards for lower income family students are eligible for $20,000 waiver. The student loan pause halting interest and repayments since the pandemic hit, is extended to Dec. 31.

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Student debt relief has been on the agenda since the 2020 presidential campaign. Biden has been advised to wipe out $50,000 per borrower or even cancel it, using executive authority to bypass lengthy lawmaking processes, while critics say any waiver was unfair to those who never went to college. Federal student loan repayment for undergraduate loans, has capped monthly payments at 5% of monthly income and after 10 years, balance amounts are eliminated if the original loan balance was less than $12,000.

Millions Will Have Debt Wiped Out as Younger Borrowers Benefit Most

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The student loans weigh heavily on finances as they are unable to meet urgent home repairs, and replace aging cars when they break down. Health issues and job losses during Covid, drain their retirement savings. The average student loan outstanding was $36,245 in 2021 as per Federal Reserve Bank of New York. The additional funds for Pell Grant recipients and income restrictions for others, ensure that lower-income borrowers benefit the most as 27 million Pell Grant recipients secure $20,000 in relief, while 20 million of those have loans fully canceled.   For young job entrants, $300 in monthly payments, are rather difficult. When payments were suspended in 2020, they could put funds for savings and retirement.  $10,000 in loan waivers ensures extra motivation to repay loans. Under the $10,000 forgiveness policy, younger borrowers benefit hugely. About 60% of loan waiver funds are for people under 40 under this policy. For heavily indebted borrowers, $10,000 makes no difference.

Student Loan Waiver and Inequality

Most waivers are targeted to lower and middle-income borrowers as 90% of eligible borrowers have household incomes under $75,000. Analysts have found different racial patterns for those gaining the most from $10,000 loan waivers. Black and White borrowers benefit equally but Hispanic borrowers receive less while others feel Latin and White borrowers benefit slightly more than Black and Hispanic ones under the $10,000 waiver, while the larger waiver amounts favor Black borrowers and reduce the racial wealth gap.

Cost of Student Debt

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Aside from loans affecting inequality, critics say it’s unfair for people who attended college to receive loan waivers, as those unable to afford college get nothing. The program would cost $300 billion researchers affirmed, excluding amounts for Pell grant recipients. Loan forgiveness advocates say that students were pressured to take loans before launching careers as government funds for colleges was cut for decades, leaving students with huge debt burdens. Debt forgiveness is no handout, but overdue support for education. Students are fortunate to secure college education but the debt burden is a punishment after graduation.  The diplomas are only expensive pieces of paper. Critics say it’s like pouring a cup of coffee on a forest fire. Full forgiveness is the only viable option because of the predatory nature of most of these loans and the havoc it creates for the new graduates.