Today, Biden announced another key change in American policy, this time in education. The Department of Education will cancel up to $20,000 of student debt for Pell Grant recipients with loans held by the federal government and up to $10,000 for other borrowers. Pell Grants are targeted at low-income students. Individuals who make less than $125,000 a year or couples who make less than $250,000 a year are eligible. The current pause on federal student loan repayment will be extended once more, through the end of 2022, and the Education Department will try to negotiate a cap on repayments of 5% of a borrower’s discretionary income, down from the current 10%.
The Department of Education estimates that almost 90% of the relief in the measure will go to those earning less than $75,000 a year, and about 43 million borrowers will benefit from the plan.
Opponents of the plan worry that it will be inflationary and that it will not address the skyrocketing cost of four-year colleges. But its supporters worry that the education debt crisis locks people into poverty. They also note that there was very little objection to the forgiveness of 10.2 million Paycheck Protection Program (PPP) loans issued as of July 2022, with $72,500 being the average dollar amount forgiven.
The administration’s plan is a significant pushback to what has happened to education funding since the 1980s. After World War II, the U.S. funded higher education through a series of measures that increased college attendance while also keeping prices low. Beginning in the 1980s, that funding began to dry up and tuition prices rose to make up the difference.
A college education became crucial for a high-paying job, but wages didn’t rise along with the cost of tuition, so families turned to borrowing. Many of them choose the lowest monthly repayment amounts, and some put their loans on hold, meaning their debt balances grow far beyond what they originally borrowed. The shift to “high-tuition, high-aid” caused a “massive total volume of debt,” Assistant Professor of Economics Emily Cook of Tulane University told Jessica Dickler and Annie Nova of CNBC in May. Today, around 44 million Americans owe about $1.7 trillion of educational debt.
Because of the wealth gap between white and Black Americans—the average white family has ten times the wealth of the average Black family—more Black students borrow to finance their education.
Canceling a portion of student debt is a resumption of the older system, ended in the 1980s, under which the government funded cheaper education in the belief it was a social good. In his explanation of the plan, White House National Economic Council Director Bharat Ramamurti told reporters today that “87% of the dollars…are going to people making under $75,000 a year, and 0 dollars, 0%, are going to anybody making over $125,000 in individual income.” He told them it was “instructive” to compare this plan “to what the Republican tax bill did in 2017. It’s basically the reverse. Fifteen percent of the benefits went to people making under $75,000 a year, and 85% went to people making over $75,000 a year. And if you zoom in even more on that, people making over $250,000 a year got nearly half of the benefits of the GOP tax bill and are getting 0 dollars under our [plan].”
Republicans have warned that the massive investment the Democrats have made in the country during Biden’s term would rack up enormous deficits. But, in fact, today the Office of Management and Budget forecast that this year’s budget deficit will decline by $1.7 trillion, the single largest drop in the deficit in U.S. history. (The record deficit was $3.13 trillion in 2020, during the worst of the coronavirus pandemic.) This number is simply a benchmark, and the deficit remains at $1.03 trillion, but it suggests that numbers are currently moving downward.