Critics warned the payouts will cause inflation to balloon further and don’t put a dent in the debt problem
The long-promised US President Joe Biden’s student loan forgiveness plan was announced Wednesday by him. Declaring he had fulfilled a campaign pledge, the package forgives 10,000 student loan debt to those earning under $125,000 per annum and prolongs a post-pandemic pause on loan payments.
However, the president’s critics on the left have argued that the plan forgives only a tiny (and relatively wealthy) portion of those Americans holding the country’s $1.7 trillion in student loan debt, while his critics on the right point out it will actually end up punishing poor Americans by driving inflation further skyward. Some even claim he doesn’t have the authority to forgive the loans at all.
Debt holders paying back a Pell Grant – the government financial subsidies given to students who can prove financial need – can have as much as $20,000 taken off their loans if they make under $75,000 per year, or $10,000 if they make under $125,000 per year. Those who make under $125,000 per year but secured loans through some other means – meaning they weren’t poor enough to qualify for a Pell Grant – can still get $10,000 slashed from their loan bill, and a pandemic-era pause on repayments has been extended until the end of the year.
Progressives pushing for loan forgiveness had demanded $50,000 or even the entirety of students’ loans be retired, noting that the average loan balance is $37,667. This is vital for young people to vote in the Democratic Party’s November election.
The Republican members of the House Ways and Means Committee have argued the program’s cost – between $300 billion and $980 billion over the next decade, according to the Penn-Wharton Budget Model – actually punishes poor Americans at the expense of the relatively well-off by turbo-charging inflation. Given that 87% of Americans don’t even have student loans, they get zero benefit from the package and must shoulder the inflation burden anyway.
Many of the president’s opponents have argued his cabinet lacks the legal right to cancel debts without congressional approval. The Education Department has stepped in to defend Biden, explaining in a legal memo released on Wednesday that the 2003 HEROES Act gives it power to waive or modify federal student loan rules during a declared national emergency – such as the recently-extended coronavirus pandemic. Officially, a memo stating that the Secretary of Education doesn’t have the authority to cancel wholesale loans, was released by Trump-era appointees last January.