President Joe Biden is reportedly considering forgiving at least $10,000 in federally-backed student debt for each borrower with income less than $125,000 or $150,000 as individual tax fliers in the previous year, and also double the amount for couples filing taxes jointly.
How many borrowers would be affected by that kind of student loan forgiveness through executive action, and what would be the cost to taxpayers?
Based on analysis by higher education expert Mark Kantrowitz, forgiving $10,000 per borrower at an income cap at $125,000 would affect 23.5% of all borrowers and cost roughly $46 billion. At $20,000 of forgiveness with the same income cap, the analysts found, about 37% of borrowers would benefit at a cost of $127 billion.
If the income cap for individual filers was $150,000, action to broadly cancel $10,000 per eligible borrower would affect an estimated 25.3% of borrowers at a cost of $50 billion and $20,000 in forgiveness would affect 39.9% of borrowers at a cost of $138 billion.
The concept of limiting debt relief by income is considered to be a prudent policy decision, given that Americans of all education levels would ultimately be footing the bill.
“Limiting student loan forgiveness based on borrower income will provide more financial relief to more borrowers who are experiencing economic distress while reducing the cost of the loan forgiveness,” Kantrowitz stated in his analysis.
President Biden, who backed broad student loan forgiveness of $10,000 on the campaign trail in 2020 amid more generous proposals from then-rivals Sen. Bernie Sanders (D-VT) and Warren, had initially been reluctant to forgive student debt through executive action.
Biden changed his tune recently, telling reporters on April 28: “I am considering dealing with some debt reduction. I am not considering $50,000 debt reduction. But I’m in the process of taking a hard look at whether or not there are going to — there will be additional debt forgiveness, and I’ll have an answer on that in the next couple of weeks.”
Bloomberg subsequently reported that the amount would likely be “at least $10,000” per borrower.
The basic argument for broad cancellation through executive action, as detailed by the Legal Services Center of Harvard Law School, is that the Education Secretary has the power “to cancel existing student loan debt under a distinct statutory authority — the authority to modify existing loans found in 20 U.S.C. § 1082(a)(4).” (Toby Merrill, who founded the Project on Predatory Student Lending at Harvard Law School and co-authored the legal analysis, currently works for the Education Department.)
A recent analysis prepared for and released by Sen. Elizabeth Warren (D-MA), showed that canceling $10,000 in student debt per borrower of student debt would be significant to borrowers of color. A separate analysis by the New York Fed reached similar conclusions.
Prominent Democrats, including Warren, Senate Majority Leader Chuck Schumer (D-NY), and Rep. Ayanna Pressley (D-MA), have also repeatedly called on Biden to cancel $50,000 in student loan debt immediately via executive order on the premise that there is sufficient legal backing for the administration to do so.
“This is an economic justice issue, it’s a racial justice issue, given the disproportionate burden borne by Black and Brown borrowers,” Pressley told Yahoo Finance in a recent interview (video above). “It’s also a gender justice issue — two-thirds of [borrowers] this two trillion-dollar crisis are are women.”
Consequently, Pressley added, “this is about being responsive to the multi-generational, multiracial coalition, which decisively elected him. This is about the president keeping his word.”
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Aarthi is a reporter for Yahoo Finance. She can be reached at [email protected]. Follow her on Twitter @aarthiswami.
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