by Tom Lebert, finance director
Political analysts have forecasted a Democratic trifecta come January—that is, a take over in the White House and both chambers of Congress. Democrats are now preparing with a massive slate of policy proposals covering topics from D.C. statehood to healthcare. But, as the pandemic worsens and millions of Americans fall into poverty, economic inequality is taking center stage. Legislators have pointed to student loans as one major source of economic burden, with Americans currently holding over $1.7 trillion dollars in student debt. As a result, student loan interest was lowered to 0% and required payments were paused through the end of the year as part of the CARES Act and President Trump’s executive order on August 8, 2020.
Even in light of these measures, Democrats have turned to student debt forgiveness and payment reform as forms of economic relief and stimulus. Democrats have proposed a variety of policies which would significantly alter how borrowers face the burden of student loans. Two proposals come from some of the most prominent members of the party. Vice President Joe Biden’s plan is a piece of his presidential platform which calls for $10,000 in student loan debt forgiveness, a reform of the Public Service Loan Forgiveness program, and for free tuition at public colleges and universities for families earning under $125,000 per year. The second plan, presented by Senator Chuck Schumer and Elizabeth Warren, addresses only debt forgiveness, arguing for $50,000 in relief completed solely through executive action.
Both plans capture different issues: Biden largely addresses the ongoing unaffordability of college and attempts to build a system for the future where student debt is not a crushing problem. The Schumer and Warren plan responds to the results of this ongoing systemic failure and provides support for those who are currently facing the weight of student loan debt. A strong plan should handle both the past failures of the United States to provide an affordable college education and create a new system so that student debt does not pile up in the future as it has now.
Combining these two plans could help address this two-pronged issue. According to the Roosevelt Institute, cancelling $20,000 in student loan debt–double what Biden’s plan proposes–would only eliminate a little more than half of the student loans in the United States. In contrast, the $50,000 in relief proposed by Schumer and Warren would eliminate about 75% of all student loans. This would create a largely clean slate upon which to build a new system of college affordability. Relieving most student loan borrowers of their debt would bring them a massive amount of financial stability and would also have great implications for the racial wealth gap. Studies have shown that debt relief can lead to higher incomes, less likelihood to default on other loans, and greater job mobility. Student loans also weigh more heavily on Black and Hispanic graduates, with Black borrowers holding around $25,000 more on average in student loan debt than white borrowers in the years after graduation. According to Warren, student debt relief in the amount of $50,000 would also increase Black wealth by 40%.
A largely clean slate through debt forgiveness would not fix the student loan crisis alone. Biden’s plan focuses on the future of higher education, and would aim to ensure students have free or affordable options through public colleges and universities. According to his website, by targeting families making under $125,000 per year, Biden’s plan reaches approximately 80% of American families. This plan also deflects arguments about free college as a handout to the rich. This tuition reform, alongside other changes to Pell grants and the Public Service Loan Forgiveness program, would create a new higher education system accessible to more people with a lower chance of leading to mass amounts of debt.
Democrats have proposed a variety of higher education plans as they prepare to step into power this January. Their plans to create financial stability for millions of Americans now and in the future must include bold policies that have widespread effectiveness to lift people out of debt and provide a path to affordable education for all. It would be unfair to limit relief to only a small portion of people facing the challenges of student loan debt. Particularly, as the president does have the authority to cancel this debt unilaterally, this can be addressed while avoiding the issues and compromises that come with working through Congress. Bringing these benefits to most borrowers would give many Americans access to opportunities some have written off as unattainable, such as buying their own house or a new car. Additionally, this relief would lift a great weight off of the shoulders of Black and Hispanic borrowers who bear an extremely unequal burden of student loan debt.
Democrats have the ability to make a great step toward reviving the American Dream. They can fight racial wealth inequality and provide relief to people who’ve long had no opportunities to get ahead. To do this, the Democratic Party must be bold. Joe Biden should adopt the $50,000 in student loan forgiveness proposed by Senators Schumer and Warren and combine it with his own plans for public colleges and Public Service Loan Forgiveness. This plan would be a strong step toward fixing the past failures of the United States to provide affordable higher education and grant new opportunities to all Americans.
Featured image: Doug Mills/The New York Times, https://www.nytimes.com/politics/first-draft/2015/06/10/elizabeth-warren-calls-out-education-department-over-student-loans/