Image source: BBC
On Wednesday, President Joe Biden announced he would forgive up to $10,000 in federal student loans for millions of Americans.
Student loan forgiveness applies to Americans earning less than $125,000.
Biden will also forgive students with $20,000 in Pell Grant student debt and reach out to students in financial need.
Analysis
Political analysts believe the move was announced to garner more support and attract more young voters ahead of November’s midterm elections.
More than half of Americans in debt are under the age of 35 — an age group Biden hopes to win over.
According to Ben Tulchin, a Democratic pollster who worked on Bernie Sanders’ campaign, recent actions on abortion, climate change and student loans have helped raise Biden’s profile among millennials and Gen Z.
“(So) I think it’s very helpful to kind of boost turnout among young voters and typically when younger voter turnout is higher, Democrats do better,” said Tulchin.
Who benefits from the decision?
Student debt can be a heavy burden, but it is not evenly distributed among different socioeconomic groups.
A study from the Brookings Institution shows that four years after their bachelor’s degree, black graduates have almost $25,000 more debt than their white counterparts.
The debt can be attributed to the fact that they borrow more than white students and earn about $5,000 less than white graduates, according to the National Center for Education Statistics.
Wisdom Cole, youth college director for the National Association for the Advancement of Colored People, said $10,000 in debt relief was not enough.
He also released a statement ahead of Biden’s announcement, saying, “At this point, just cancel it. $50,000 is the bare minimum.”
Meanwhile, other people criticized Biden’s plan, saying he gave money to “elites”.
Those without a post-secondary education are likely to come from poorer backgrounds than their heavily indebted peers.
However, statistics show that people with high incomes tend to get into debt.
US business school Penn Wharton estimates that Biden’s debt relief plan would come from households in the top 60% of the income distribution.
Student debt
While higher education is seen as a key contributor to lucrative job opportunities, the cost of tuition and student debt raises questions about whether it’s worth it.
Over the past fifteen years, total student debt has tripled, from $500 billion in 2007 to $1.6 trillion in 2022.
Wages are also stagnating while tuition fees are rising, making it harder for young people to afford them.
How much is due?
More than 43 million Americans are in debt for their college loans, which means that one in six American adults, or one-third of Americans with a post-secondary education, has college debt.
According to the Federal Reserve, the average student loan debt is over $17,000 – 17% owe less than $10,000 on state student loans, while a small percentage of 7% owe more than $100,000.
Most of the debt is concentrated in a small group of people, holding more than half of the total 16% debt and over $60,000 in debt.
For heavy borrowers, $10,000 seems like a drop in the ocean.
How Biden’s plan will affect the economy
Student loans are the second largest type of household debt in the United States, after mortgages.
According to the Federal Reserve, people spend about $222 per month paying off student loans.
The problem with debt is that it reduces the amount of money people can spend on goods and services, which weakens the country’s overall economy.
Debt can also ruin credit scores, making it harder for them to borrow and spend money.
Prior to the pandemic, Biden announced a pause in student loan repayments as about 3% of federal loan holders were in arrears.
He announced that he would extend the repayment break until the end of the year.
One of the most important parts of Biden’s plan is his intention to limit the repayment of college loans to 5% of a person’s discretionary income.
The White House estimated the move would cut loan payments in half.
References:
‘Debts and no degree’: Biden cancels as much as $20k in student loan debt: recap
