The limits of Biden's plan to cancel student debt
There’s a growing consensus among Americans who want President Biden to cancel student debt — but addressing the ballooning debt burden is much more complicated than it seems.
Why it matters: Student debt is stopping millions of Americans from buying homes, buying cars and starting families. And the crisis is rapidly getting worse.
By the numbers: Student debt — which stands at $1.55 trillion — is the biggest category of debt Americans owe, aside from mortgages.
- Most borrowers are white, but Black college graduates owe an average of $25,000 more than their white counterparts.
- According to a new Harris Poll survey, 64% of Americans support canceling some student debt, and 55% support canceling all of it.
What's happening: Biden has proposed immediately cancelling $10,000 of federal student loan debt for every borrower. The move would cost around $370 billion.
- That would eliminate debt for the 15 million borrowers who owe $10,000 or less. And it's a broad-based approach that would help all 42 million borrowers.
Yes, but: Here's what that alone wouldn't do:
- It wouldn't make much of a difference for the nearly 30 million borrowers who owe more than $10,000. Many of them went to graduate school and owe hundreds of thousands.
- It wouldn't stimulate the economy. Student debt stops many from investing or buying property, which is a drag on the economy, but canceling a small amount of debt wouldn't change that, experts say.
- It wouldn’t target the most vulnerable borrowers. Canceling the same amount of debt for all doesn’t account for the fact that many Americans with student debt are also among the most well-educated and high-earning individuals.
- It wouldn't help future borrowers. “The problem with forgiving student debt is that every day we’re making new loans in this broken system,” says Adam Looney, an economist at the University of Utah. “You’ve not solved the problem.”
Insurmountable student debt is a recent phenomenon, Looney says. It's been growing at six times the rate of the U.S. economy, and it's only getting worse.
- There are no limits on how much students can borrow and few restrictions on how they spend the money.
- And, on top of that, the cost of college and graduate school is skyrocketing. As a result, young people are borrowing sums of money they can’t possibly repay and many are using that money to pursue degrees at online or for-profit colleges with higher than average dropout rates.
What we're watching: Among the American public, canceling debt isn't a fringe or far-left idea any more.
- In the Harris Poll survey, 78% support putting restrictions on the price of a university education. And 59% support no tuition at public universities.