Is Biden’s Student Loan Forgiveness Plan Fair?

The recent White House announcement promising to partially forgive student loan debt has elicited both praise and condemnation. For many, the matter boils down to a question of fairness.

But fairness for whom? And by what measure?

Before we examine the various “fairness” arguments, let’s review the details of President Joe Biden’s plan.

The debt relief plan will cancel up to $20,000 for borrowers who received a Pell Grant and up to $10,000 for those who did not. To qualify, individuals must earn less than $125,000 per year. Couples filing taxes jointly must fall below the $250,000 threshold. Parents who hold PLUS loans are also eligible for debt reduction.

Bear in mind this applies only to federal student loans, not those issued by private sources.

A White House fact sheet claims the plan will provide relief for as many as 43 million borrowers and will cancel the full remaining balance for about 20 million people.

Many who stand to benefit from Biden’s plan are among the nation’s neediest. Roughly 27 million Pell Grant recipients will be eligible for $20,000 in forgiveness, noted Education Secretary Miguel Cardona. Almost two-thirds of Pell Grant recipients in 2019-2020 came from families earning under $60,000, he pointed out.

Overall, the White House estimates 90% of the debt relief will assist those making under $75,000 a year.

In addition to forgiving some debt, Biden’s plan extends the moratorium on loan repayments until Dec. 31. It also caps income-driven repayment plans at 5% of a person’s discretionary income, thus halving the current 10% minimum.

Some argue that forgiving student loans is regressive, benefiting people who least need help. They claim individuals with considerable loan debt, such as graduates of law and medical schools, have correspondingly high salaries and net worth and shouldn’t warrant financial assistance.

In this sense, the notion of “fairness” pertains to the intended primary audience for loan forgiveness. Does Biden’s plan fairly treat those most in need of assistance, or does it unfairly benefit those who need it least?

An easy answer is “both,” but that’s not exactly accurate.

Harvard economist Susan Dynarski notes that while a majority of the dollars are owed by a small percentage of borrowers who often have high incomes, the majority of people with student debt have moderate incomes and low debt totals. The impact of a $10,000 debt reduction is far greater for someone with $25,000 in loans making minimum wage than it is for a doctor with $200,000 in loan debt, a six-figure salary, and greater lifetime income potential.

The “high-income” argument hits a wall at $125,000, don’t forget.

What’s more, forgiving $20,000 for Pell Grant recipients — about 27 million of the 43 million people who stand to benefit — in fact makes the policy progressive, not regressive.

Then there’s this argument, courtesy of The National Review:

“There is no possible definition of ‘need’ in which college graduates in the United States of America would rank first.”

While that may be true, remember that almost 40% of borrowers never finished college. They hold the burden of student loan debt without the benefit of a degree. Over a career, they’ll earn about a million dollars less than degree holders.

Does Biden’s plan help people in need? Yes. Does it aid those who don’t need it? Probably. Is it fair? Or perhaps just fair enough?

Americans owe a collective $1.75 trillion in student loans, a staggering figure. But they also collectively owe $11.7 trillion in mortgage debt, and many have considerable credit card balances, car loans, medical bills, and other forms of debt.

Why is the White House focused on reducing the burden of collegegoers — far less than half of the adult population — and not other individuals?

Republican Senate Minority Leader Mitch McConnell called Biden’s plan “a slap in the face to working Americans who . . . made different career choices to avoid debt.”

A simple answer is that the federal government has the authority to cancel loans it generates. It cannot as easily erase debt issued by private lenders, which is why private loans aren’t included in Biden’s plan.

True, the government could just give every qualifying American (say, beyond a certain age and below a certain income threshold) $10,000 to use however they want. Some would argue such a plan would fuel even greater inflation, much like the CARES Act stimulus funds did. Of course, student loan borrowers haven’t had to make payments for more than two years, so the resumption of payments next January — even at lower amounts — will help calm inflation.

Another argument pertaining to student loans versus other forms of debt involves bankruptcy. A common misconception is that student loans cannot be discharged in bankruptcy court like other forms of debt can, making them even more burdensome.

They can. Under an action known as an “adversary proceeding,” borrowers can argue that repayment would impose an undue hardship on themselves and their families.

So is Biden’s plan fair to people who didn’t attend college? Only insofar as any targeted government program excludes certain people. If the government wiped away $10,000 of car loan debt per individual, wouldn’t that be unfair to people without car loan debt?

According to a study by the University of Pennsylvania’s Wharton School, Biden’s loan cancellation plan will cost taxpayers upwards of $519 billion. A National Taxpayers Union Foundation study estimates student loan relief will cost each taxpayer an average of $2,500.

That burden is progressive, meaning people with higher incomes pay a greater amount. Those earning between $200,000 and $500,000, for example, will pay about $9,948.

Is it fair to ask taxpayers — especially those not among the population benefitting from loan forgiveness — to pay for other people’s student loans?

As with any government welfare program, corporate bailout, disaster relief, infrastructure project, war effort, or space expedition, we all collectively bear the financial burden.

“The answer to ‘who is going to pay for this?’ is always ‘we are’ — whether on the front end by addressing issues as a society or paying for the more expensive fallout from ignoring our problems,” wrote LZ Granderson in the Los Angeles Times. “Time and time again, we are forced to face the reality that we are all in this together.”

The rationale behind this approach is that a rising tide lifts all boats. If Biden’s relief plan enables people to spend more money, reduce their reliance on government assistance, and perhaps start businesses that create jobs, then everyone benefits.

Higher education is both a public good and a private good. To the extent that a more educated populace benefits society as a whole, collectively paying for debt relief does seem fair, much like paying for public elementary and secondary schools seems fair even though some taxpayers don’t have children.

The notion of timing pertains to those excluded from Biden’s plan. Is this plan fair to people who are just starting college and won’t benefit from debt relief? Is it fair to people who already paid off their loans?

“It is not fair to the generations of students that borrowed and repaid,” David McClough, professor of economics at Ohio Northern University, told Newsweek. “It is not fair to the future generations that will pay the interest on the debt in perpetuity who derive no benefit. It is not fair to the students who will borrow even more with the expectation of forgiveness in the future.”

The possibility of another round of loan forgiveness fuels speculation that colleges won’t rein in tuition hikes.

“If the government creates an expectation that debts are likely to be forgiven, universities won’t hesitate to raise tuition,” wrote Allison Morrow on CNN Business. “Students may take on more debt, expecting some of it will eventually be wiped clean. Bottom line, canceling debt certainly doesn’t push tuition costs down.”

As with much in life, timing is everything. If you just finished paying your loans or are just starting college now, you won’t benefit from Biden’s plan. That’s the luck of the draw.

Often the concept of “fairness” is subjective. Courts may decide what is fair according to the law, but in this case, Biden’s loan forgiveness measure will be adjudicated in the court of public opinion (at least for now).

If you’re among the millions who will realize debt relief, you might think the plan is fair, just, or equitable, or at least advantageous. If you believe in big government and its role in leveling playing fields and yanking people up by the bootstraps, then you would likely applaud Biden’s decision.

At the same time, plenty of people rail against loan forgiveness for the various reasons explored here. Even Biden’s fellow Democrats find fault. Some wanted $50,000 of debt canceled, or even all of it. Fairness is a matter of perspective and expectation.

But what truly isn’t fair is a system that compels people to earn degrees for jobs that shouldn’t require them, allows educational costs to spiral out of control, asks students to assume loans they’ll struggle to repay, and forces them to put many of life’s milestones and momentous decisions on hold, sometimes forever.

Maybe that’s the injustice Biden’s plan is designed to redress.