University students, professors respond to Biden’s student debt forgiveness plan
Katrina Lee, News Editor
President Joe Biden announced a plan last week to forgive large amounts of student loan debt for up to 43 million Americans, according to a press release from the White House.
The press release states Biden is using the authority Congress granted the Department of Education to wipe out $10,000 in outstanding federal student loans for those earning $125,000 or less per year. In addition, students who qualified to receive a Pell Grant will have their debt reduced by $20,000.
VCU psychology alum Caitlyn Savage is currently getting their master’s at VCU following their undergraduate graduation in 2021. Savage said Biden’s debt forgiveness plan is going to “significantly” help them with paying off their student loans, but there is still more to be done.
“I did everything right. I went to community college before this. I lived with my parents before this. I worked throughout college, like I’m still working right now. And I thought I did everything right. And I’m still going to be $70,000 in debt at the end of my college career,” Savage said.
The Federal Pell Grant Program provides need-based grants to low-income undergraduate and certain post-baccalaureate students to promote access to postsecondary education.
Savage also said they believe this plan will help stimulate the economy.
“I know so many people who are like, a lot of my debt is wiped out, I can afford to start thinking about buying a house; I can afford to think about having children,” Savage said. “I think it’d be really beneficial in the long run.”
Overall, borrowers have accumulated 1.75 trillion in student loan debt, spread out among more than 40 million Americans, according to the United States Student Loan Hero.
“All of this means people can start to finally crawl out from under that mountain of debt to get on top of their rent and their utilities, to finally think about buying a home or starting a family or starting a business,” Biden stated in a press release. “And, by the way, when this happens, the whole economy is better off.”
A press release from the White House states the Department of Education will work to set up a “simple application process” for borrowers to claim relief. The application will be available no later than when the pause on federal student loan repayments terminates at the end of the year.
The debt relief will not be treated as taxable income for the federal income tax purposes because of the American Rescue plan.
Biden created the American Rescue plan in 2021 to provide “direct relief to Americans, contain COVID-19, and rescue the economy,” according to the White house. However, up to six states may consider student loan forgiveness a taxable event, according to Tax Foundation. These states are Arkansas, Massachusetts, Minnesota, Mississippi, North Carolina and Wisconsin.
VCU associate economics professor Christopher Herrington said default rates on student loans, meaning those who have missed one or more payments on a loan after a certain amount of time, have been very high.
“If you look at people who attempted college but didn’t complete it, and if you look at particular socio-economic groups, default rates on student debt are disturbingly high,” Herrington said. “I think there are concerns there and I think we should think hard about how to address those with public policy.”
Herrington said a lot of the criticism toward Biden’s plan is the design of it, for it may potentially give large debt relief benefits to graduates who are in high earning positions and might not need financial assistance.
“You’re essentially asking taxpayers, non-college educated individuals, people who have high school degrees who don’t have the benefits of an advanced degree, to help pay for the student debt to college education of those who do,” Herrington said. “So a lot of the criticism is based on the idea that this is a regressive policy: a transfer of money from those who are less well off to those who are of higher income.”
Another concern individuals have about the implications of this plan is the current rate of inflation in the U.S. and how this may affect it, according to Herrington.
The current inflation rate in the U.S. is 8.5%. In July, the inflation rate was at 9.1%, the highest it’s been since 1981, according to the U.S. inflation calculator.
“I saw one estimate that I think was probably a reasonable estimate. It may add as much of a quarter of a percent to the inflation right now,” Herrington said. “I personally don’t think we’re going to see huge effects on inflation from this, but it’s also not zero. You can’t just create resources out of thin air and expect there should be no consequences.”
Student debt forgiveness is a “very complicated issue,” as some rhetoric on either side is not grounded in economics concepts, Herrington said.
“Fairness is a human concept,” Herrington said. “It’s an ethical or moral concept. It’s not an economic concept and so we can have disagreements about what’s fair or appropriate from a policy perspective.”
Biden tweeted on Monday he will be holding colleges accountable for “jacking up costs without delivering value to students.”
The Department of Education will publish an annual list of colleges that leave students with unmanageable debt, so students can avoid these programs, according to the tweet.
Senior political science student Bo Belotti said they believe that all student debt should be forgiven.
“As someone who benefited from it, like almost all of my federal loans were erased, I still have, I want to say $25,000 in private loans. I feel like it just didn’t go far enough,” Belotti said. “The real predatory loans, like the ones with the highest interest rates are these private loans. Legally it’s harder to get rid of private loans, but he [Biden] still has the ability through an executive order.”
Belotti said due to one third of their debt being erased, they now can start thinking about other ways to invest their money that they never thought would be possible.
“It’s impacted me like I’ve actually thought about the possibility of being able to own a house in my lifetime,” Belotti said.