Aug 24, 2022 - Politics & Policy

Biden's student loan test

Illustration of a donkey hoof and elephant trunk holding up a graduation cap.

Illustration: Megan Robinson/Axios

In deciding to cancel some student loan debt, President Biden is carrying out a campaign promise that could leave progressive and working-class Democrats unsatisfied.

Driving the news: White House officials have told congressional allies that the president plans to cancel $10,000 in debt for many Americans, with an announcement expected today, according to people familiar with the matter.

  • Officials also expect Biden to extend the moratorium on loan repayments, which then-President Trump paused in 2020 in response to the COVID-19 pandemic, until the end of the year.
  • Congressional elections are ten weeks away, and Biden is looking to motivate young, progressive voters.
  • Senate Majority Leader Chuck Schumer spoke with Biden Tuesday night and urged him to cancel as much student loan debt as he can, according to a Democrat familiar with the call.
  • White House officials declined to comment on Biden's plans before he announces them.

Between the lines: While eliminating $10,000 in student debt for those earning less than $125,000 a year allows Biden to fulfill a campaign promise, it risks disappointing progressive allies while aggravating working-class Democrats.

  • It also gives Republicans an opening to claim that Biden’s move to erase billions in aggregate debt could stoke inflation.
  • Biden himself has been acutely aware of the political pitfalls of any debt forgiveness plan and has delayed a decision for months, peppering his advisers with requests for more information and inflation analysis.

Flashback: In March 2020 — at the beginning of the pandemic, but after it was clear he would be his party's nominee — Biden moved towards progressive proposals, like those from Sen. Elizabeth Warren (D-Mass.), to cancel some student debt.

  • But his support for wiping away a “minimum” of $10,000 in student debt fell short of Warren’s $50,000 plan.
  • In April of this year, Biden shut the door on the bigger amount. “I’m not considering $50,000 in debt reduction,” he said in the Roosevelt room at the White House.
  • All year, Schumer and Warren, along with Sen. Raphael Warnock (D-Ga.), have been pressing Team Biden to go big and bold on debt forgiveness.

By the numbers: Biden’s expected decision to eliminate $10,000 in debt for individuals making less than $125,000 a year would cost $30o billion, according to a new analysis from the Penn Wharton Budget Model.

  • Raising the amount to $50,000 would bump the total cost to approximately $980 billion.

The big picture: Biden has said that fighting inflation, which dropped to 8.5% in July, is his top priority. Officials across the administration are concerned about the effect of high prices on lower income Americans — not to mention the political implication for Democrats in November.

  • Biden has couched his $340 billion in new spending on climate and health care, paired with corporate tax increases, as an anti-inflationary bill. The White House has celebrated comments from Larry Summers, a persistent critic of Biden on inflation, that the legislation will lower costs over time.
  • But Summers has been sounding the alarm about the inflationary impact of debt forgiveness. “Student loan debt relief is spending that raises demand and increases inflation,” he tweeted Monday.

Zoom out: Republicans are already using Biden’s plan to argue that the Democratic Party is forsaking working-class Americans to curry favor with America’s elite.

  • “There's no such thing as student loan ‘forgiveness,’” Sen. Tom Cotton (R-Ark.) tweeted.
  • “There's only transferring the debt from those who took the loans (and benefitted) to those who didn't attend college or responsibly paid off their debts.”
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