Debate over student loan forgiveness hinges on 2 numbers: $ 10,000 vs. $ 50,000

For months, Democrats in Washington have been debating what to do with student loan debt. About 43 million borrowers are due $ 1.6 trillion in federal student loansWhile some legislators have urged President Biden to forgive up to $ 50,000 per borrower Through an executive order, Biden has so far only expressed support for a more limited forgiveness, of $ 10,000, through pandemic legislation.

This week, the president and the White House clarified his position. At a CNN town hall on Tuesday evening, Biden was asked if he forgave up to $ 50,000 in debt. The president’s answer: “I will not let that happen.” He continued, “I understand the impact of debt, and it can be debilitating. I am willing to write off the $ 10,000 debt, but not $ 50. [thousand]because I don’t think I have the authority to do it. “

Wednesday, White House press secretary Jen Psaki extensively on Biden’s comments, saying the president “is not in favor of $ 50,000 in student loan without limitation.”

The bottlenecks between the $ 10,000 and $ 50,000 proposals revolve around which borrowers would benefit the most, and the legality of forgiveness of student debts through legislation versus through executive measures.

Some economists advocating forgiveness of $ 10,000 warn that anything higher runs the risk of rewarding borrowers who don’t need the help.

“Borrowers with the lowest student debt have the most trouble,” explains Adam Looney, an economist at the University of Utah.

According to federal data, more than a third of borrowers owe less than $ 10,000 in federal student debt.

Low-debt borrowers often spent a semester or a year or two attending college and never completed a degree. Without a degree, those borrowers often make less money, making it harder for them to pay their student loan and more likely to default. About 8 million federal student loan borrowers are currently in default the typical defaulter withdraws less than $ 10,000.

Default means that the government can pay a portion of your tax refund or salary. You can even do that when you get older lose some of your Social Security checks.

Those decorations make it even more difficult for borrowers to build wealth.

Researcher Jalil Mustaffa Bishop of the University of Pennsylvania studies the experiences of student borrowers. He says, “What we know from research is that those who borrow student loans are in debt [did it] because they come from households or personal financial situations where they do not have the assets or income to pay for higher education. “

Student debt is not a burden for everyone. Economist Looney points out that many borrowers who take out loans to earn a bachelor’s degree can pay off that debt. And research shows that more than a third of student debt is owed by the 20% largest income holders in the US.

But income is different from wealth, Bishop says. Wealth is the value of all of your assets, minus your debt, and student-debt households usually have the least amount of wealth, federal data shows.

Black families tend to have significantly less wealth than white families, according to the Federal Reserve, and black households are more likely to have a student loan – and more – than white or Latino families. They are too more likely to default on their loanseven if they have a bachelor’s degree, thanks to discrimination in the labor market.

Proponents of the $ 50,000 proposal say a more generous policy would tackle those wealth gaps, especially among black families. According to federal data, about 80% of borrowers have student debt of less than $ 50,000. Proponents of this proposal also argue that this level of forgiveness has to do with racial justice – the dollar amount comes from research that $ 50,000 would help grow the wealth of the greatest number of black households. (That investigation was updated later to show growing debt balances.)

“The student debt crisis is disproportionately impacting color borrowers and colored communities, especially black borrowers,” explains Ashley Harrington, senior policy adviser at the Center for Responsible Lending. “When we talk about cancellation, we have to start there.”

Many black and Latino families have missed ways to build wealth in the past – such as home ownership and job training programs – because of racist policies. Researchers who study and talk to student loan borrowers say student loan debt is a primary factor holding them back now.

“They experience the mental stress of not being able to plan or see a life with student loan debt,” says Bishop. “So the $ 10,000 doesn’t really add to that kind of reality and burden.”

Sens. Elizabeth Warren, D-Mass., And Chuck Schumer, DN.Y., are among those advocating $ 50,000 in debt forgiveness. “Forgetting student loan debt is the most effective executive action President Biden can take to jump-start the economy,” Warren said at a recent press conference.

Warren and Schumer have argued that the president has the power to cancel this level of debt through executive action. September advice from attorneys at Harvard’s Project for Predatory LendingEarlier this month, the White House flagged it was seeking the legality of such executive actionIn January, before Biden was sworn in, attorneys at the United States Department of Education issued a memo conclude that canceling the federal student loan debt through executive measures would be illegal.

Even as the legal issues are resolved, Biden has said repeatedly that he would rather take action through Congress. He has also thrown his support behind other efforts to tame the beast of the federal student loan, including income-driven repayment plans and making college more affordable.

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