Biden’s student debt cancellation plans: Who benefits and who is burdened?

White House press secretary Jen Psaki similarly offered few details Thursday when pressed about Biden’s forthcoming plan.

BIDEN TEASES FINAL ANSWER ON STUDENT LOAN DEBT IN NEXT ‘COUPLE OF WEEKS’

How Biden decides to structure the debt forgiveness is especially important in determining the policy’s winners and losers.

Biden’s aides are reportedly considering ways to narrow the loan forgiveness effort, such as by imposing income limits on who can get their debts dismissed.

A general student debt forgiveness effort, however, could generate winners and losers that don’t necessarily align with the Democratic rationale for scrapping student debt.

WINNERS

Higher-income people with more education are the most likely to benefit from student loan forgiveness.

“Student debt cancellation disproportionately benefits middle- and high-income families, though income targeting makes cancellation less regressive,” researchers at JP Morgan concluded after an analysis of debt forgiveness scenarios.

People who attended graduate school could reap the most benefit because they hold the highest amount of student debt.

Although only a quarter of those with student loans attended graduate school, they hold roughly half the student loan debt, according to the Brookings Institution.

Colleges and universities could also benefit from widespread student debt forgiveness, as it would essentially absolve them from responsibility for steadily rising tuition rates over the past several decades.

The average private university tuition rose 144% in the past 20 years, according to U.S. News and World Report, with the average out-of-state public university tuition climbing 171%.

In-state public university tuition jumped the highest, on average rising 211% in the past two decades.

Instead of putting pressure on colleges and universities to lower their artificially high tuition costs, student debt forgiveness could deepen the system of effective government subsidies that have helped drive up education prices.

LOSERS

Forgiving student loan debt would benefit only those who have accrued it in the first place.

People who worked their way through community college, for example, or have already repaid their loans in full would not only see no benefit from the move, but they could also come to resent it.

The Biden administration risks facing backlash if Republicans are successfully able to characterize student debt cancellation as a bailout of the upper class, a move that would stoke tensions with working-class voters who are already fleeing the Democratic Party.

Larry Summers, former treasury secretary and Obama-era economist, described student debt relief as “highly regressive” late last year because wealthier people are more likely to have borrowed more money than those with a lower income.

Broadly forgiving student loan debts, Summers argued, “where the vast majority can pay and are expected to pay has the perverse effect of rewarding those most who borrow most.”

The cancellation could also indirectly hurt consumers.

Many economists attribute the recent spike in the cost of living to the amount of money the Biden administration poured into the economy in early 2021 with the American Rescue Plan Act.

Canceling student debt could result in a significant increase in disposable household income at a time when the economy is already unable to meet present demand, according to the Committee for a Responsible Budget.

Scrapping any amount of student debt could add to the deficit as well.

The precise amount of the burden placed on taxpayers is not yet clear because Biden has yet to lay out how much debt he plans to erase. Biden has said he does not plan to clear the slates of all college borrowers.

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However, Sen. Tom Cotton, an Arkansas Republican, noted this week that if the Biden administration were to forgive all student debt, taxpayers would effectively owe $13,000 each to counteract the effect on the deficit.