Biden Loan Forgiveness – Is The Mess Behind The White House Now, Or Ahead?

Union College in New York. Credit: Union College.

A few months ago I speculated about options for a Biden student loan debt relief gambit. I offered the nakedly political advice – because this is a political problem – that Biden should do a modest forgiveness coupled with a broader jobs and skills training package. That would both give progressive debt relief champions something, and also not make this just a straight up wealth transfer from Americans who didn’t attend higher education, or did and paid off their debts, onto others. A debt jubilee is not broadly popular and creates resentments for reasons that should be obvious.

I suggested straight across the board $10k relief, not means-testing, because while I generally favor means testing it’s harder to do in this instance. So across the board seems cleaner. Basically, do it, bank the campaign promise, and move on. It’s not great policy, the courts might say no, but at that point Biden has acted. Politics.

Meanwhile, the administration is taking steps to help loan holders in cases of fraud. So some debt relief has been happening. And yes, sure, a better option would be a better higher ed policy overall, but that wasn’t on the table in the constraints of this particular commitment. Policy.

However, the time to just do it and move on sort of passed as the issue was kicked down the road again and again and took on growing prominence. In the Administration’s defense, doing this before they got big parts of their agenda through Congress might have caused problems. So, here we are with this announcement, which you’ve probably already heard about. It’s a mix of targeted loan forgiveness, 10k and then 20k for Pell recipients, and some changes to repayment.

Unfortunately, in trying to get all these loan angels to dance on the head of a pin the Biden Administration may have reaped less political upside and set themselves up for more downside. And at the same time pleased no one. That sometimes indicates a great compromise, but sometimes just means you pleased no one.

It’s $10k/$20k more than the critics want and a lot less than debt relief advocates want. Some critics are also upset about the repayment relief. So that’s political problem number one. But that one was unavoidable as soon as this issue got rolling – inclusive of the option of doing nothing there was just no way to please everyone. And again, the courts will get a say. Even among Democrats there is a lot of debate about the wisdom, legality, and precedent of this whole approach. It is a stunning use of executive power.

Republicans were going to jump on this regardless, and will get some traction given the nature of the policy though less than they would have for an even broader debt relief plan that hit more high income Americans. Still, offsetting these pretty straightforward class politics politically is important for The White House. In coming days you’ll see the most unsympathetic cases highlighted starting with a focus on couples or families making close to $250k and getting $40k in relief. Some borrowers who have low incomes now won’t in the future, which also raises equity questions given the selective benefits and broad cost to taxpayers.

Also, even means tested $10k/20K of debt relief is a lot of money – $300 billion* it looks like – and it’s worth asking the counterfactual about what else that money could be used for in post-secondary education. Regardless of your take on the policy or executive authority none of this does anything to help the structural problems in higher education and post-secondary more generally – and may exacerbate some of them. 

And the means testing may turn out to be a bigger issue – and a messier one. The availability of data to do it is going to require a whole new process.

Years ago Lois Rice, Art Hauptman, and I led an effort at Brookings to try to figure out some new approaches on student aid. To do that we wanted to better understand the impact of various programs and tax policies. The sheer almost impossibility of getting data from Treasury and IRS – often for not ridiculous reasons from a taxpayer point of view – was really something. (Colleges are really opaque, too, but that’s a different issue for this policy). My understanding is that many of those same problems persist so while means testing sounds like a reasonable policy – and in theory is – it is not straightforward.

If the processing of this doesn’t happen cleanly and you get more borrowers caught up in a bureaucratic run around or big process, something familiar to many student loan holders now, you could end up with all the dissatisfaction about the policy and a bunch of frustrated beneficiaries. At best it’s going to create a big process, at worst it’s Healthcare.gov2.0. And there will be some horror stories with older borrowers and paperwork. And as we all know, in the social media era it only takes a few of those to create a vibe.

In other words, the very measure intended to make this more politically palatable and somewhat better policy, means testing, could turn out to be a liability. Perhaps not until after the election though. And the election, not higher ed, is what this is really about.

I hope I’m wrong about all that and the Biden team has a card up their sleeve. I hope I am overestimating the resentment this could stoke. And I do wish this had been wrapped up in a broader set of policies to help Americans get ahead in post-secondary education, especially working class Americans.

*Typo, was millions originally. It’s billions.