The Political Debate Over Student Loan Forgiveness – From left, Sabrina Kalajans, director of borrower outreach at the Student Loan Crisis Center, and Howard University students Aiden Thompson and Sydney Stokes rally with other student loan debt activists outside the White House on Aug. 25. (Craig Hudson for The Washington Post)
When he heard President Biden was canceling billions in student loans, attorney Eric Steiner immediately thought of the father of five he was defending in bankruptcy court. This client lost his job during the coronavirus pandemic and is financially strapped with a mortgage he can’t pay, but he has no student loans and won’t benefit from the new policy.
The Political Debate Over Student Loan Forgiveness
“When I saw the news, I thought there was a disparity for my clients who don’t have student loans and can actually use those funds,” said Steiner, 39, who represents low-income people in bankruptcy proceedings in the Baltimore area. “I think it’s mostly a good move — but it’s a little unfair to people who are still struggling and don’t have student loans.”
Biden Admin. Announces Student Debt Forgiveness For 804,000 Borrowers
The administration’s decision to wipe out up to $20,000 in student loans for most borrowers — unveiled by the White House last week — will provide relief to tens of millions of people, but it will exclude millions of others. And it’s fueling a broader debate on debt relief.
The issue raises personally and emotionally charged questions, touching on fundamental issues on the structure of the economy: Who is eligible to have their debts forgiven? Does debt cancellation reward irresponsible behavior? How does a graduate student with good job prospects qualify for relief, but a senior citizen with medical debt does not? And how do some people who benefit from some debt cancellation — through business loans, for example — oppose others?
“Always at the center of these discussions is the merits of the person being discharged: Is it their own fault that the debtors can’t get out of their debt?” said University of Utah economist Marshall Steinbaum. “When people say there’s no precedent for canceling student loans, what they’re saying is, ‘I think these people are in this predicament through no fault of their own, against those who felt their misfortune was not their own.
Traditionally, debtors can discharge undischargeable debts through bankruptcy proceedings, which renegotiate their obligations to make them more manageable. At least in theory, the laws attempt to strike a delicate balance between borrowers and lenders — giving lenders enough security to give borrowers the money they need to grow the economy, while giving borrowers a chance to avoid punishing debt burdens or misfortune.
Student Loan Forgiveness And The National Debt
But these systems can fail or overwhelm the hard realities of everyday life, putting pressure on government to intervene. The federal government often waives loan payments, for example, to people who live in areas affected by natural disasters. Congress halted student loan payments across the country at the start of the coronavirus pandemic. When the housing market collapsed at the start of the Great Recession, the Obama administration implemented a program to help struggling homeowners renegotiate their subprime mortgages, but the plan helped few Americans.
Loan forgiveness is not just for individual borrowers. New York City took out federal loans during the financial crisis of the 1970s, which were later repaid. After several years of bankruptcy, Puerto Rico has discharged most of its debt as part of a federal court ruling earlier this year.
Many lawyers say the bankruptcy law makes it less painful for corporations and the wealthy to get out of bad debts than for the poor, especially after the 2005 law — drafted in part while Biden was in the Senate — made it harder for people to discharge. Student loan and credit card debt. In addition to hiring accountants and lawyers that most people can’t afford, the wealthy can get more generous debt relief through the Chapter 11 bankruptcy process — a maneuver used by former President Donald Trump, for example — that is unavailable to most debtors.
The White House announced the decision to cancel student loans on par with relief for troubled institutions, with administration officials offering forgiven Paycheck Protection Program loans to some GOP critics of student loan policy.
Student Loan Forgiveness: White House Weighs Structure
Steve Rosenthal, a senior fellow at the Tax Policy Center, a nonpartisan think tank, pointed out that Congress also later approved more than $200 billion in relief to make spending under the loan program automatically tax-deductible. A bailout for businesses, he said.
“The short answer to the debt relief question is that it all comes down to politics: which groups are elite lawmakers favorable to and which groups are less favorable,” said Bob Hackett, a public policy expert at Cornell University who supports Biden. Procedure “Student loan forgiveness is a rare example of us getting debt forgiveness for average people.”
Preeti Paliwal, 32, a physical therapist raised by a housekeeper in the Bronx, said Biden’s move would reduce her student loan debt from $194,000 to $174,000. She only earns $80,000 a year and claims debt relief. There is a need to compensate for the misleading trap of higher education being pushed on vulnerable young students. “If you live in a country that says you can pull yourself up by your bootstraps and punishes you for doing so, that’s confusing. It’s brutal,” she said.
Critics see several reasons to avoid this type of policymaking. Economists use the term “moral hazard” to describe situations in which someone has an incentive to take on debt without having to pay it back. In this context, many economists warn that the Biden administration has created a moral hazard: Students could take on additional debt and expect future Democratic presidents to forgive it. Although Biden limited the plan to those making less than $125,000 a year, critics point out that many of these borrowers will earn more later because they have college or graduate degrees.
Biden Gave In To Pressure On Student Debt Relief After Months Of Doubt
“You create significant uncertainty and you create the risk that borrowers will go higher the next time around, raising tuition and the overall student debt burden,” said Tyler Cowen, an economist at George Mason University.
While many economists are sympathetic to student loan cancellation, they warn of unintended consequences from the policy. The International Monetary Fund and the World Bank, for example, often make loans to poor countries that then default on the loans. This raises interest rates for these countries to borrow, leaving them worse off than they would have been without the debt in the first place.
A similar dynamic in the U.S. Higher education could be affected, said Noah Smith, an economist who previously taught at Stony Brook University. The nation provides hundreds of billions of dollars in subsidies for colleges and universities, with no requirement that schools expand enrollment or lower tuition costs. Colleges can pocket the subsidy by raising costs for students. While loan forgiveness would benefit many, the move risks allowing colleges to raise prices even further.
“Tackling college costs with repeated debt cancellations might be fair in a way, because we’re already doing it for the rich, so why not do it for the lower and middle class? Yeah, that’s good,” Smith said. “But the problem is: Where does it end? Does it just raise tuition and make everyone take on a whole bunch more debt in the hope that another president will cancel it?
Student Loans Latest Updates: Supreme Court Strikes Down Biden’s Forgiveness Plan
Similarly students are eligible for loan waiver but why not given to other eligible groups. Economists have hotly debated the extent to which the benefits of Biden’s student loan relief plan will benefit more affluent Americans. But other types of debt also hurt the poor.
For example, Americans have about $110 billion in medical debt that goes to collection agencies, a staggering amount compared to other developed countries, says David Himmelstein, a professor of public health at the City University of New York. According to Himmelstein, 35 percent of bankruptcies are due to medical debt, but estimates vary widely, and when time lost from work due to illness is taken into account, that number rises to 60 percent. One in 20 Americans owes $10,000 or more in medical debt.
U.S. According to the Administrative Office of the Courts, a strong economy has eased financial pressures on low-income people over the past year, leading to a nearly 30 percent drop in annual bankruptcy filings. But as the economy cools and federal stimulus fades as the pandemic fades, those numbers are likely to rebound.
California attorney Sparky Abraham, who is helping 15 people who may be considering bankruptcy, says the process is “painful and humiliating” and that policymakers have a duty to try to help.
Live Updates: Student Loan Forgiveness Supreme Court Arguments
“All debt and all debt collection is mediated by the state – there is no such thing as purely private debt,
Graduate student loan forgiveness, public student loan forgiveness, student loan forgiveness debate, student loan forgiveness center, student loan forgiveness, latest student loan forgiveness, teacher student loan forgiveness, student loan forgiveness form, debt forgiveness student loan, nursing student loan forgiveness, private student loan forgiveness, government student loan forgiveness