On August 24, President Biden announced his plan for $10,000 in student debt forgiveness for people earning less than $125,000 a year ($250,000 for couples filing jointly). Those who received Pell grants when in college will be eligible for up to $20,000 in debt forgiveness.
Controversy has been raging over the plan’s impact on everything from equity to inflation. What’s too often missing in the discussion is the overriding purpose of higher education, not as a privilege, but as a public good. As Jamie Merisotis, President and CEO of the Lumina Foundation, reminds us, it’s only recently — since the 1980s — that college has been regarded “as mainly benefiting graduates.” He points out that “passing rising expenses along to students and families has been a costly failure,” according to recent Public Agenda–USA Today polling.
The success of the American democracy requires an educated population, prepared not only for economically rewarding and fulfilling careers but also for the responsibilities of citizenship. The deep partisan divide along educational lines is disturbing. The New York Times reports, “President Biden won about 60 percent of college-educated voters in 2020 … “
When the burning national issue is what Ali Velshi calls “democracy or not democracy,” we must understand the importance to all Americans of transforming higher education from a personal financial burden to a public good.
Analyzing Biden’s Executive Order
The small print in the Executive Order is extremely important to all college borrowers:
Those debt-holders who are enrolled in an income-driven monthly payment plan will have their payments currently set at 10 percent cut to 5 percent. “The new income-driven plan will also fully cover a borrower’s unpaid monthly interest and allow them to have their debts forgiven after 10 years, as opposed to 20, for borrowers with balances under $12,000, which the department says will allow nearly all community college borrowers to be debt-free in 10 years.”
This provision is important because many college borrowers live in interest-paying hell for countless years. With this new order, they have the option of paying off the interest first and then the principal, saving about $1,000 per year.
Some opponents of the plan argue that debt forgiveness will increase inflation. The Biden administration counters that the resumption of debt payment scheduled for January 1, 2023, will offset the simultaneous impact of loan forgiveness.
The neediest students could not afford to pay for college without taking out loans exceeding those assumed by their classmates with somewhat higher family incomes.
“We’re taking an economically responsible course, and as a consequence, about $50 billion a year will start coming back into the Treasury because of the resumption of debt [repayment],” Biden said. “Independent experts agree that these actions taken together will provide real benefits for families without meaningful effect on inflation.”
While I’m not an economist, I draw on my 24 years as a university president to make an anti-inflationary point. We know that millions of individuals have left college with no degree and plenty of debt. Many, because of this debt, have not returned to college. It’s difficult to estimate how many will interpret this debt relief as a sign from the universe that they should complete their degree. I hope that a large number will and that colleges will begin now to recruit on that basis.
In any case, this potential investment in further education will be deflationary. Rather than spending more on clothes and gasoline, returning students will opt for more learning. Everybody wins.
Another economic point concerns the rate of default on student loans, particularly among those with no degree. A study by Judith Scott-Clayton of Columbia University found that the loan default rate for borrowers without any degree was 40 percent. For those with a bachelor’s degree, it was less than 8 percent. The U.S. Treasury receives no money from those who default. Everyone benefits when students are protected from financial despair.
The inflation argument is speculative at best and politically manipulative at worst.
How will loan forgiveness work — and keep working
Although the President made the announcement, it will be the Department of Education (DOE) that implements the plan through their appropriate regulatory powers.
The $20,000 linkage with Pell grants makes sense. Those who had Pell Grants in college had documented low family income. Even with the support of Pell grants, which do not have to be paid back, Pell Grant recipients, according to Inside Higher Ed, owe an average of $4,500 more in student loan debt than their peers who did not receive these grants. Clearly, the neediest students could not afford to pay for college without taking out loans exceeding those assumed by their classmates with somewhat higher family incomes.
From a practical perspective, the Department of Education will be able to process loan forgiveness more readily for Pell recipients. They already have financial information for those who filled out the FAFSA form. The Pell eligibility marker supports something I have written about before. Every prospective college student should fill out a FAFSA form. The information is useful in numerous, unanticipated ways.
The DOE also has information on around 8 million borrowers who have reported their income as part of an income-driven plan for repayment. If the DOE already has income information, the loan forgiveness will be automatic. Others will have to fill out an application, which President Biden says will be “short and sweet.”
The role of the DOE is crucial as it pertains to possible legal challenges. According to Slate,
“…the federal government forgives student loans all the time. Multiple statutes give the Department of Education sweeping authority to cancel loans for a broad range of reasons. Before Wednesday, the administration had already approved $32 billion in student loan relief for more than 1.6 million borrowers.
These actions did not provoke substantial controversy or litigation. Nobody raised a legal challenge when Biden canceled $5.8 billion in student loans for more than 323,000 disabled borrowers. Nobody raised a legal challenge when Biden announced rolling loan forgiveness for borrowers who entered public service — a plan that has already granted $10 billion in debt relief to more than 175,000 borrowers … Biden’s secretary of education, Miguel Cardona, already relied upon the Heroes Act to forgive $10 billion for public service borrowers. Now the administration is using the law as its basis for a much bigger, less targeted student debt relief program.”
To most reasonable people, the Executive Order appears to be legal. It’s also difficult to determine who would have standing to bring a case against it. States cannot do so against a department of the federal government. Nonetheless, it’s possible that a right-wing Supreme Court could find a way to overturn the provisions. That would cause chaos since many loan holders will already have seen their debts forgiven.
What you can do to help:
- Prepare for a potential Supreme Court overturn of the Executive Order by electing Senators and Representatives who will pass the provisions into statute.
- Support further reforms in debt forgiveness for public servants.
- Lobby for an important change in federal financial aid regulations: Right now financial aid officers are required to inform students of the maximum debt they are eligible for. This requirement sometimes leads low-income students to burden themselves with the largest possible indebtedness, deferring to family pressure to use the funds to pay mortgages and other non-educational costs. Financial aid officers should advise students to incur minimum debt, strictly directed to educational costs.
- Encourage colleges and universities to make sure that their financial aid officers function as counselors and advisers. Rather than raising tuition, as skeptics predict will happen, higher education institutions should focus on helping current students to graduate debt-free.
- Lobby for improved state funding for regional public universities. Not raising tuition requires improved financial support from the state. Vote for candidates who favor further support.
- Encourage “college promise” programs, making higher ed “free” when possible.
- Petition the DOE to continue its reformed policy on what’s called “verification,” the process through which low-income students experience delays and get caught up in red tape while the government verifies their financial status.
- Lobby for doubling the minimum Pell grant to about $13,000.
- Lobby the Pennsylvania legislature to require high schoolers to submit the FAFSA (free student aid application).
- Lobby for federal and state provision of affordable, high-quality, on-campus child care. Many students drop out or go into debt trying to take care of their kids.
- Lobby for a change in the rules on student loan repayment. Now student loans are forever and cannot be included in bankruptcy. That provision is particularly ironic given the six bankruptcies that managed all debt incurred by a former president.
We have much to do. Our success in reestablishing higher education as a public good requires deep cultural change. We might remember that many who have already paid off their debts went to school when Pell grants covered a much larger percentage of college costs. If we believe that the success of democracy depends on education, we will be less likely to begrudge debt forgiveness for those who might use this liberation to resume their studies.
Elaine Maimon, Ph.D., is the author of Leading Academic Change: Vision, Strategy, Transformation. Her co-authored book, Writing In The Arts and Sciences, has been designated as a landmark text. She is a Distinguished Fellow of the Association for Writing Across the Curriculum. Follow @epmaimon on Twitter.
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