Public reporting indicates President Biden may soon announce executive action canceling federal student loan debt for a large set of borrowers. Though parameters of the student debt cancellation have yet to be announced, the Biden administration may cancel $10,000 of debt per borrower for borrowers making $125,000 in income per year or less.
Based on projections from the Penn Wharton Budget Model for the total cost of such cancellation, we estimate President Biden’s plan would cost the average taxpayer over $2,000.
The Penn Wharton Budget Model (PWBM) released a policy report on Tuesday that estimated the total cost of $10,000 in debt cancellation for borrowers making less than $125,000 per year would be $329.1 billion over 10 years. There were just under 158 million taxpayers in 2019 according to the IRS, meaning that the average cost of debt cancellation is $2,085.59 per taxpayer.
This is not a perfect proxy for cost, however, given the U.S. tax code is progressive and tax burdens are not evenly distributed across households. Accounting for the share of taxes paid by low- and middle-income households, we estimate that:
Analysis of the policy’s taxpayer costs.
Biden probably balked at this because he understands the bad politics for Democrats. Two out of three American adults didn’t complete a four year degree. They have every right to question why people who did, and who on average make about twice as much as they do, should get this big government handout.
And then, of course, there are the millions of us who did go to college, did take out a loan and did, in fact, do what we promised to do: pay it back.
This is bad politics for Democrats because it should be. Asking taxpayers to pay off the student loans of people who were irresponsible or careless in taking on debt they couldn’t afford is horrible public policy. And worse, Biden’s plan does nothing about the real problem: the skyrocketing cost of higher education. What’s going to happen next year when a new crop of college grads starts demanding that they get the same handout that last year’s grads got?
This could well stop the progress Democrats have made in this election cycle. It was beginning to look like a combination of legislative wins, the abortion issue, public concern over gun violence and the easing of gas prices might result in a better November than had been predicted for Biden’s party. Now this policy will remind voters without a college degree just how much disdain the Democrats have for them.
Of the 43 million people with federal loans, 15 million owe less than $10,000. Another 9 million owe between $10,000 and $20,000. By eliminating a minority of outstanding debt, Biden would forgive most or all balances for the majority of student debtors, disproportionately those who are at the highest risk of default.
Is this even legal? Is there anything Biden’s political opponents can do to stop him?
Maybe? And, maybe? The Higher Education Act is almost 60 years old, and no president has ever done anything like this before. The Trump administration’s 2020 decision to suspend all federal student loan payments, which Biden has extended multiple times, came from a separate law granting the president powers during a national emergency like a pandemic. Biden is citing that authority for the new loan forgiveness plan.
There are a host of constitutional provisions, federal laws, and legal precedents that obligate federal agencies to collect on outstanding debts. Skeptics also point out that Congress has enacted a number of specific student loan forgiveness programs, including plans that eliminate remaining debt after 20 years of payments or 10 years of public service. The administration’s recent decision to wipe out debt for students who attended the notorious for-profit Corinthian Colleges was based on a discrete legal provision meant to protect students who were defrauded by their college.
Related: the moral cost of student loan policies.