Moneybox

The Argument for (and Against) Only Forgiving $10,000 of Student Debt

President Joe Biden’s plan would actually do a lot of good—but it could do even more.

Joe Biden stands up and gestures onstage with one hand in his pocket at a CNN town hall.
$50,000? Nope. $10,000? Yep. Saul Loeb/Getty Images

For the past several months, leading Democrats have been pressing Joe Biden to embrace an ambitious plan for student debt forgiveness by canceling up to $50,000 of debt per borrower. But on Tuesday, the president unambiguously shot the idea down. “I will not make that happen,” he told an audience member during a CNN town hall in Milwaukee. Biden said he did not want to write off “billions of dollars in debt for people who have gone to Harvard and Yale,” and added that he did not believe he had the authority to erase the debt unilaterally via administrative authority, as some major figures in his party have suggested.

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Biden did say he was open to some student loan cancellation, however, telling his questioner that he was “prepared to write off a $10,000 debt, but not 50.” This was a position the president took during his White House campaign, when he backed the idea of including the proposal in a COVID relief bill. On Wednesday, the White House reiterated to me that Biden wanted Congress to enact loan forgiveness through legislation, and that he was not promising to do it himself via executive action.

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Biden’s comments on this issue were deeply frustrating for progressives who’ve rallied around the idea of student loan forgiveness. One reason why is that it’s unclear as of yet whether there are even 50 votes in the Senate for the more modest $10,000 plan Biden has backed. If the president isn’t willing to test out the power of his executive pen, and risk having the move blocked by our conservative Supreme Court, then there’s a chance we won’t see any broad-based debt forgiveness at all.

But the other, more straightforward issue is that a lot of forgiveness advocates think that canceling $10,000 a head simply wouldn’t give borrowers enough relief. (This was basically the message of the audience member who asked Biden about it Tuesday night.) Whether or not you think that’s true is a subjective judgment call, but I think it’s important to keep two somewhat contrasting points about it in mind when considering the issue.

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First, forgiving even $10,000 would actually do an enormous amount of good for many borrowers. It’s easy to lose sight of that fact in the middle of a Twitter fight on this topic, but it shouldn’t be discounted.

Second, unless you’re worried about the deficit, there isn’t really a strong, logical reason to stop at $10,000.

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To someone who borrowed to attend private college or go to law school, $10,000 in loan forgiveness may not sound like very much aid. For people who are already relying on income-based repayment plans, it might not even change what they owe each month. But while it might sound like a measly figure to some, for many others $10,000 would be a massive helping hand. According to the Department of Education’s most recent data, there are about 42 million Americans who currently hold some federal student debt. About one-third of them have balances below $10,000. Another 1 in 5 have balances under $20,000. We’re ultimately talking about a policy that, for more than 50 percent of borrowers, would cut what they owe by half or more.1

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A chart showing how much federal student loan holders actually owe.
Jordan Weissmann
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But why limit forgiveness to $10,000? The most compelling answer is probably that it’s a decent way to target the most troubled borrowers while spending a somewhat limited amount of cash. One unintuitive wrinkle of the student debt crisis is that the ex-students who have the most difficulty paying back their loans are not, generally speaking, the ones who took out the most money. In fact, the opposite is generally true—borrowers who default tend to have some of the lowest balances, in part because a large share of them never finished their degrees. (A long-term study of students who began repaying their loans in the 2003–04 school year found that, of those who eventually defaulted on their loans over the next 12 years, 49 percent had dropped out of school.) The students who rack up the largest loan balances, meanwhile, have often earned advanced diplomas in fields like law and medicine that usually pay off fairly well, at least in the long term (obviously, being a hospital resident is not a financial picnic). Forgiving just $10,000 wouldn’t be cheap, per se—my quick Excel math says you’d probably be wiping away around $375 billion of the $1.5 trillion in outstanding federal student loans2—but it would keep costs down, while relieving a lot of financial pressure. Plus it would make the whole scheme a bit more progressive, since Washington wouldn’t be forgiving as much debt belonging to doctors and lawyers.

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Of course, that’s also part of the argument against capping forgiveness. Once you set aside concerns about the debt, though—and in these days of trillion-dollar relief packages, it seems like a lot of Democrats have—it becomes pretty difficult to come up with a principled reason for keeping the limit at $10,000, especially once you start considering all the nuances of student debt that make it such a pernicious burden for many Americans, such as how Black Americans are particularly saddled by costly graduate school loans. I mean, once you’ve committed to doing any forgiveness at all, there just isn’t a clear philosophical dividing line between writing off 10 grand from everybody’s loans versus 20 or 30. The number isn’t really pegged to the typical debt of borrowers at graduation. It might be somewhere around the median student debt balance among lower earners, but there are plenty of poorer households grappling with well over $10,000 in loans.3 Insofar as lawmakers want to target forgiveness at people who badly need the financial help and didn’t attend Yale or Harvard, the most straightforward way to do that is to limit relief based on income—you know, good old-fashioned American means testing. If you were determined to get really fancy, you could do it based on a combo of age and income, to account for the fact that people tend to make more as they get older. But just capping the amount of forgiveness doesn’t directly address issues of economic fairness on its own.

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In the end, I suspect that the main thing that the number $10,000 has going for it, from the perspective of the White House, is that it sounds smallish, as far as major public policy gestures go, which means that it’s a bit less likely to arouse intense opposition and might have a slightly better chance of slipping into a bill that Sens. Joe Manchin and Kyrsten Sinema ultimately will be willing to vote for. Student debt forgiveness polls fairly decently overall, but there’s a vocal contingent that’s vehemently against the idea. Those voters (and pundits) will likely object to any amount of forgiveness, but by supporting a relatively modest number, Biden is keeping much of the conversation focused on how he’s resisting the more liberal wing of his party, rather than caving to them.

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When you stop and consider it in the grand scheme of things, though, it’s somewhat remarkable that this plan is actually considered the moderate option at the moment, given that just a few years ago mass student debt forgiveness was still considered a relatively fringe idea mostly advocated by self-identified socialists. Now the president is striking a moderate pose by talking about merely freeing a third of borrowers from their education debt entirely while the Senate majority leader is urging him to go bigger. Times have changed in the Democratic Party—just a bit less than many would like.

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1One little nuance to keep in mind is that there are approximately 3 million borrowers still in school, who will presumably continue taking on loans even if their current balance is wiped out. Still, that doesn’t really change the big picture much.

2 Borrowers with under $10,000 of debt each collectively owe about $74 billion. Meanwhile, there are around 30 million borrowers with higher balances. Multiply that out by $10,000 each, and you get another $300 billion in forgiven debt. Obviously, these figures change somewhat if you means-test forgiveness.

3 For various reasons involving survey limitations, the government does not really have good, up-to-date data on the distribution of student debt by income. But a study that linked tax records and Department of Education data from 2013 found that, among borrowers who are in lowest-earning fifth of households in their age group, the median balance was about $9,012. Which is to say, half owed more.

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