With the swipe of a pen, President Joe Biden is wiping away student debt for millions of Americans, with a hefty price tag of around $300 billion for the American people. But already, experts are questioning the long-term impact of this historic moment.
“When you provide one-time loan forgiveness to all borrowers, what do we do next week when more borrowers graduate from college with additional debt?” said Scott Buchanan, executive director of the trade group Student Loan Servicing Alliance.
On Wednesday, Biden announced debt cancellation up to $10,000 per borrower making less than $125,000 annually and up to $20,000 for those who received Pell Grants in college, targeting borrowers from lower-income families.
On one hand, Lindsay Clark of Savi said this move can retroactively right some of the wrongs of the past.
“Ultimately, something like $10,000 in forgiveness is going to bring a third of borrowers out of debt, and that will have huge implications for the economy in a positive way,” Clark said. But she didn’t stop there.
“We really need to fix the policies that are in place and go to the root of the problem. Wiping out all this debt isn’t going to do that,” she added.
One issue is two existing programs meant to provide debt relief: income-based repayment and Public Service Loan Forgiveness.
“It’s a great idea but the program’s a mess,” Biden said Wednesday of the latter.
“These are programs that are supposed to help borrowers ultimately achieve forgiveness or relief from their debt, but really haven’t,” Clark said. “They’re so cumbersome and complicated to navigate and so many borrowers haven’t been able to utilize them.”
Biden has issued temporary waivers to expand access to PSLF while proposing rule changes to income-based repayment, which would in part cap income contributions from 10% to 5%.
Buchanan said Congress intentionally drafted these programs to be more restrictive to control costs, making it harder for borrowers to access relief.
“When the government itself has to waive its own laws in order to get people access to its programs, then Congress needs to step back and fix those laws,” Buchanan said.
The second major issue is the cost of college, which is not addressed by widespread forgiveness and has ballooned in recent years. Clark noted there is a deep need to fix the systemic issues that caused the student debt crisis in the first place.
“A loan forgiveness program that’s a one-time shot will all be for naught in six months,” Buchanan said.
