Not the Win We Wanted, but a Win Nonetheless

The Biden administration has finally delivered on its long anticipated student loan cancellation plans. The timing is critical: Midterm elections are around the corner. Just a few weeks ago, the consensus was that the Democratic Party was in trouble. But a series of policy wins has changed that narrative.

President Biden’s executive order on student loans is another win.

The top-line debt cancellation numbers do not sound impressive at first: Ten thousand dollars will be forgiven for borrowers who earn less than $125,000 or households earning less than $250,000. But the policy has many layers. Taken together, it is a meaningful response that mostly gets the diagnosis for how we got here right.

The Student Loan Law Initiative at the University of California, Irvine School of Law and the Higher Education, Race and the Economy Lab analyzed Biden’s executive order. They estimate that around 41 million debt holders will be eligible for some form of student loan forgiveness, and that 25 million of those people will be eligible for up to $20,000 in student loan forgiveness. Twenty million people, including 3.8 million Black borrowers, could have their entire debts canceled.

That isn’t full debt cancellation, but it will help a lot of people. And the people it will help most are those who got the rawest deal. That includes the millions of people who have debt but no degree — nearly one-third of all borrowers. It also includes people who took on student loans to pay for occupational degrees in blue-collar trades like cosmetology and mechanics. Republicans are criticizing the policy as giving handouts to the rich. They really want to implant the image of a Harvard liberal arts graduate getting a free pass. But cancellation is squarely targeted at the debt that working-class students have accrued to hold pretty working-class jobs. The G.O.P. will have a hard time telling those voters that this relief has not improved their lives.

Other parts of the policy address underlying problems that created the student loan boondoggle. Millions of people have paid their loans as promised, following the official guidance of student loan servicers, only to owe more than when they started with because of interest. This negative amortization made it nearly impossible for some borrowers to pay off their loans. And documented problems with public student loan forgiveness programs meant that this burden often fell heaviest on people with public interest careers, such as public defenders, teachers and social workers. Now, income-driven repayments for undergraduate loans will be capped at 5 percent of the borrower’s take-home income.If you don’t have a lot of discretionary income, that payment could be low — too low to cover interest on the loan. Previously, this gap added up and increased the total amount owed. Under new guidelines, the government will cover that interest as long as the borrower is making payments. This does not get rid of the scourge of negative amortization for all borrowers. But it does two things: It effectively ends it for public interest workers. That lives up to the promise of public service loan forgiveness, which is that it becomes possible for people to do the work that society desperately needs done without living in eternal debt peonage. It also gives us a model for expanding that option for more borrowers in the future. It is a safe bet that student debt cancellation organizers are paying attention to that possibility.

The other bit of good news in the details of this proposal is targeted relief for borrowers who were also Pell grant recipients. Pell grants are a bright spot in our higher education financing ecosystem. They help reduce the impact of one of the biggest drivers of inequality in higher education access, affordability and returns: family income. As tuition costs have dramatically increased, Pell has struggled to keep up. Earlier this year, the Biden administration increased the maximum amount of money attached to Pell grants. When you add that increase to this proposal’s targeted cancellation for anyone who currently or at any time in their undergraduate career qualified for Pell, it is a big help for poor families.

Class — income and wealth — is how the Biden administration prefers to deal with racial inequalities that stem from student loan debt. Black borrowers come from poorer families who have less income and less wealth to pay their tuition. Those borrowers take on more student loan debt and their families take on more family loans, like the PLUS program, to help them pay for college. This is acute at lower levels of student loan debt, such as the millions of borrowers that will be included in the $10,000 and $20,000 forgiveness amounts. But these racial differences in debt also show up at the top of distributions. Black borrowers take on a lot of debt to be competitive in the labor market, from associate’s degrees to graduate programs. That debt then makes it hard for those borrowers to help their children pay for college. It’s a vicious cycle. This program won’t help those high-earning but negative wealth borrowers much.

It also won’t reduce the cost of college, but it was not designed to. The executive branch does not have a lot of tools it can use to address that. What it does have is the big stick of federal student loan programs. It has used that stick in the past to make college more accessible, but at a cost that became too much for many borrowers to bear. The fight for affordability is primarily a state issue. Like abortion rights, public education and public health initiatives, the real battle for the future of higher education will happen at the state level.

As for the federal fight, organizers will ask for more cancellations. I believe that they should. And while this recent policy is not total debt cancellation, it is far from where the Biden administration started. It accounts for research on how the student loan crisis became such a crisis in the first place. The administration has reformed target areas where abuses are the most egregious: bad student loan servicing companies and predatory for-profit colleges. The latest analysis from Goldman Sachs projects that inflationary pressures will be mild, at most. Restarting payments offsets a lot of the modeled risk. And this relief comes for poor and working-class families just as they start tuning in to midterm races. It is hard to argue that this is anything but good news for millions of people — and for the Democrats.

Sometimes policy helps people, and sometimes those people remember it when it is time to vote.