Late last year,the Department of Education (ED) published a notice in the Federal Register indicating that it would formally withdraw its plans to cancel student loan debt for millions of Americans. The announcement represents a surprisingly anticlimactic end to the outgoing Biden administration’s repeated attempts to grant mass student loan forgiveness. It is also for the best, as not only does the executive not have such authority, but broad student loan forgiveness of this kind is expensive and would not address the underlying reason why student debt is a problem—the spiraling cost of attending university.
For years, the Biden administration prioritized erasing the enormous sum of federal student loan debt held by roughly 42 million Americans. For instance, after the administration unveiled its initial debt cancellation plan in August 2022—a plan that would have forgiven up to $20,000 of student loan debt for eligible borrowers and met income requirements but cost $519 billion—several states sued the administration arguing that it did not possess such power. The Supreme Court ultimately agreed, with Chief Justice John Roberts writing in a June 2023 opinion that whatever the tradeoffs exist for mass debt cancellation, such tradeoffs require “clear congressional authorization.”
Not satisfied with the case’s outcome, the Biden administration announced a new student debt cancellation plan called the Saving on a Valuable Education (SAVE) plan within hours of the court’s ruling. Like the administration’s previous plan, the SAVE plan would have waved up to $20,000 in accrued interest for student borrowers, but also canceled debt for borrowers who entered repayment 20 years ago, and even eliminated debt for those who didn’t apply to the program. According to the University of Pennsylvania, that would have cost taxpayers $475 billion over 10 years.
Fortunately, the plan was also challenged in court, with the Supreme Court later pausing its implementation until several lawsuits make their way through lower courts. This litigation is ongoing, with the new Republican majority in Congress also discussing ways to permanently block SAVE and any future attempts to introduce similar programs.
More recently, the administration has attempted to provide more targeted relief through negotiated rulemakings with the ED proposing a plan in April focused on certain subsets of borrowers. However, this too is tied up in court. Another proposal would have given the ED the power to forgive debts of borrowers it decided had faced “financial hardship.”
Part of what makes these proposals so problematic—aside from their questionable constitutionality and high cost—is that they don’t get to the root cause of the student debt crisis. Attending university is extremely expensive and it is only becoming more so as administrative bloat and spending on items not directly related to instruction drive up the cost of tuition. ED data suggests that between 1993 and 2009 alone, the number of administrative positions increased by 60 percent, more than 10 times the rate of growth of tenured faculty. Combined with the fact that more Americans are attending university than decades past, it is hardly surprising that student debt is a problem.
However, research suggests that much of this debt is held by wealthier Americans, with 63 percent of it belonging to Americans with incomes higher than the national average. It is also worth noting that those who attend university have much higher earning potential than those who don’t, meaning they are usually uniquely well-positioned to pay off their debt.
For instance, the lifetime earnings of a full-time, full-year worker with a bachelor’s degree are 75 percent more than for a worker with just a high school diploma. This isn’t to say that college debt isn’t crushing to those who experience it, but it certainly raises questions about why the Biden administration should forgive debt for a subgroup of the population that does not even constitute the majority of Americans. It also hardly seems fair to the sizable number of college students who repay their student loans on time.
For all these reasons, the ED’s announcement last month that it would be withdrawing its plans to forgive student debt for borrowers is the right move. These plans would not lower the cost of tuition, but they would cost a fortune and ask taxpayers to subsidize wealthier and more highly educated Americans at the expense of everyone else. If future administrations are serious about forgiving student debt, they should work with Congress to pass legislation that takes each of these facts into consideration.
The article is also published here.
Nate Scherer is the Director of Finance Policy at the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow on X @ConsumerPal.