Why Biden's student-loan forgiveness comes with economic and political risks

On August 24, 2022, US President Joe Biden announced that he would forgive an amount of $10,000 for an estimated 43 million student loan borrowers and an additional $10,000 for Pell Grant recipients, low-income students who received loans for college expenses from the US federal government. The relief is limited to single adults earning under $125,000 and married couples making under $250,000. The decision will likely have a ripple effect on those who currently owe student debt. Currently, 15 million of the 43 million people with federal loans owe less than $10,000, and those who do owe money most likely can’t pay them back.

While President Joe Biden doesn’t have the political will to pass legislation in Congress to eliminate student debt completely, Biden has instead referred to executive fiat. For instance, the US government already has legislation that alleviates the financial burden for those with permanent disabilities, students who have been defrauded, and people who worked for the government.

However, concerns remain about such a decision’s potential economic and political fallout. At a time when inflation is at its highest level in 40 years, one concern tied to mass student loan forgiveness is inflation. Prominent critics such as Obama economist Jason Furman called the decision “reckless” and compared the decision to pouring “gasoline on an inflationary fire.”

The Committee for a Responsible Federal Budget, a non-profit that addresses issues related to the US federal budget and economic issues, calculated that the plan “will likely cost an astronomical $400-$600 billion” over time.

On the legal front, Biden’s executive order regarding student loan forgiveness may not stand. According to a statement prepared by Obama’s former top education lawyer, Biden could be on shaky legal ground. The report concludes, “The Executive Branch likely does not have the unilateral authority to engage in mass student loan cancellation.” President Biden also risks getting overturned in court, especially by a conservative-leaning Supreme Court.

Implementing a large-scale government program may come with logistical hurdles too. Because those who apply for student loan forgiveness need to declare their income, this could lead to a massive backlog in government databases. Not only does the government need to verify people’s incomes, but they also need to cancel the right loan and ensure that the applicant doesn’t exceed the income threshold.

The political reaction to all of this has been mixed. While progressive Democrats have urged Biden to cancel even more debt, some Democrats are hesitant as they fear the move would alienate those who don’t hold student debt. On the other hand, Republicans broadly oppose any student loan forgiveness policy.

While nobody is sure what the fallout from Biden’s student loan forgiveness program would entail, one way or the other, it represents a bipartisan consensus that the higher education system is broken and something must be done.