Biden’s announcement on student debt last week addressed a huge challenge.
Cumulative student loan debt in the U.S. is $1.75 trillion, of which federal loans make up $1.62 trillion, involving 43 million borrowers. The average federal loan balance per student is $37,667. For students with outstanding private loan debt, the average balance is $40,274.
The average public university student borrows $32,880 to obtain a bachelor’s degree. Students at private, non-profit institutions borrow $35,983, and private, for-profit students borrow $42,551.
Nearly one-half of federal loan debt belongs to graduate students. Average graduate school loan debt is $76,620, ranging from around $50,000 for master’s degrees to well over $100,000 for students seeking professional (law, medicine, veterinarian, etc.) degrees.
As a measure of how times have changed, average student loan debt increased by 317 percent since 1970. It was then that, according to Philadelphia Inquirer columnist Will Bunch in his new book, After the Ivory Tower Falls, state governments began to cut support for public universities in response to student political activism.
Beginning with the Reagan administration, federal support for students diminished. Created in 1973, the Pell grant program once covered 80 percent of the costs of going to a public university. Pell grants today cover less than 30 percent of public university costs and under 20 percent of private institution expenses.
In the interest of full disclosure, my employer is a private, non-profit, small college that has a relatively high sticker price. Recognizing the escalating costs of higher education, Elizabethtown cut tuition by one-third several years ago. Nearly all our students receive some form of financial aid.
Compared to the scale of the problem, President Biden’s response was modest. For individuals making up to $125,000 a year and married couples earning up to $250,000, Biden will absolve a maximum of $10,000 of federal loan debt. Low-income students who qualified for Pell grants may receive up to $20,000 of federal debt forgiveness.
In addition, the pause on repayment of student loans will extend for the seventh and final time to December 31, 2022. Those with undergraduate loans can cap payments at 5 percent of monthly income, and no interest will accrue if regular monthly payments are made.
Estimates are that the president’s initiative will cost the federal treasury $300 billion. According to the White House, 90 percent of program costs will be directed to those making $75,000 or less. The plan will benefit over 40 million debt holders, of which 20 million could have their entire federal loan debt erased.
Biden’s announcement fulfilled a promise he made during the 2020 presidential campaign to erase a minimum of $10,000 debt for every federal loan borrower. This was far less than proposals to cancel nearly all federal student debt from his Democratic rivals, U.S. Senators Bernie Sanders (N.H.) and Elizabeth Warren (Mass.).
Despite his campaign commitment, Biden hesitated to present a plan. He worried about the legality of such a move, the costs, effects on inflation, and whether the well-to-do would disproportionately benefit.
Though the president was satisfied, Republicans were not. GOP politicians spoke of unfairness to the many students and families who repaid their student loans on time.
In addition, critics said student loan forgiveness did not hold colleges and universities accountable for raising tuition costs beyond the cost of living and not providing students sufficient value for their investment.
U.S. Senator Mitt Romney, R-Utah, accused Democrats of “bribing” their political base, key elements of which are young voters and voters of color. Around one-half of Black, Hispanic, and Native American students receive Pell grants.
Biden and his supporters were prepared for GOP attacks. Soon after the storm of criticism began, the White House pointed out that government bailouts are nothing new. Even Republican members of Congress get them. What was new was bailouts helping the middle class.
Still, it is no coincidence that Biden announced his decision when fall campaigns for the 2022 midterm elections commenced. His subpar approval rating is largely due to a lack of enthusiasm among Democrats.
Judging from the joyful reactions of current and former students, Biden’s decision on student debt forgiveness is not only a political winner, but also a hopeful sign that government can work for the people it serves.
Our stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0. We ask that you edit only for style or to shorten, provide proper attribution and link to our web site. Please see our republishing guidelines for use of photos and graphics.