153,000 student loan cancellations: Is Biden right?


Fact Box

  • On February 22, 2024, President Biden announced the cancellation of $1.2 billion in student debt for 153,000 borrowers on his three-day campaign trail through California. He stated, “Too many Americans are still saddled with unsustainable debt in exchange for a college degree.”
  • Since taking office, Biden has canceled $138 billion dollars of student loan debt for nearly four million borrowers without the approval of congress, relying on “more than two dozen executive actions” instead.
  • According to the Federal Reserve System, the United States has amassed a total of 1.7 trillion in student loan debt by the end quarter of 2023. 
  • NerdWallet reports that over 43 million Americans have an outstanding student loan balance, which is 13% of the US population. 
  • An April 2023 poll from Reuters/Ipsos revealed that 47% of Americans wanted to forgive $20,000 of federal student loan debt and $10,000 without grants. However, 41% of Americans disapproved of the concept.

Curtice (No)

Canceling student loan debt sets a bad precedent and is a wild misuse of taxpayer funds, rewarding those with outstanding student loan debt by wiping it away while punishing those who have or are in the process of paying it back, per their original loan contract. The Supreme Court struck down Biden's plan for sweeping loan forgiveness last year, so this action is a back-door effort on a smaller scale. That doesn't make it any less wrong. Canceling student loan debt does not mean lenders won't get their money but that somebody else has to pay it—American taxpayers.

Cancellation creates a moral hazard, where an economic actor is incentivized to increase its exposure to risk because it does not bear the total costs of that risk. If students have a reasonable belief that they will never have to pay back a student loan, there is no incentive to act responsibly about it. The government has created moral hazards before, particularly whenever it bails out a bank, mortgage lender, or any other private institution. In the wake of the housing crisis in 2008, the government bailed out several such institutions on the argument that they were 'too big to fail.' The government created a moral hazard by not requiring many lenders to suffer the consequences of bad loans. Biden is continuing that today with student loan bailouts.

Student loan payment through tax dollars is ultimately a wealth transfer from the lower class to the upper class, as lower-class citizens are less likely to go to college for law or medical degrees. Likewise, those who skipped college may be in debt from their credit cards, home, business, or auto loans. Will the government bail out everyone who now faces financial hardship? With America in as much debt as it is ($34 trillion currently), there's no room for irresponsible programs that favor only part of the population.

Sam (Yes)

Loan cancellation helps address social inequality that negatively affects marginalized groups. Certain racial groups are more likely to default on loans, specifically Black and Latino populations, due to systemic injustices that make it more difficult for them to pay back student loans compared to their White counterparts. For example, systemic factors inform the reality that borrowers of color usually have lower levels of family wealth and are subject to discrimination in the labor market, thus making it more difficult for them to pay for the cost of college. Aside from racial minorities, other marginalized groups are also more likely to default on loans due to systemic reasons, specifically women and people with disabilities.

Canceling student debt may also boost America's economy by allowing people the financial security to contribute to the economy through investments and entrepreneurial ventures. Historically, a college degree has been a wise financial investment that leads to high-paying jobs and, therefore, more economic security. But recently, studies suggest that the boost in wealth/financial security from earning a college degree is decreasing partly because of the increased cost of education. Without student debt cancellation, recent college graduates may remain prevented from stimulating the economy by buying homes, starting businesses, and investing because of financial insecurity. 

Lastly, Biden's student loan cancellation motivates people to pursue meaningful, public-interest jobs that may not have high salaries. A study has shown that student debt discourages people from pursuing jobs in public interest that pay less, namely teaching or social work. These jobs are decreasingly attractive to college graduates seeking high-earning jobs to pay off their debt.

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