President Biden has announced his three-part student loan relief program.
But, who will benefit from the debt forgiveness and does it make sense economically?
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Biden’s student loan forgiveness plan
President Joe Biden has made the decision to forgive up to $20,000 for those who received the Pell grant. Up to $10,000 in forgiveness will be available for individual federal loan recipients. Both of these forgiveness plans have an annual income cap of $125,000 to qualify.
Biden announced a three-part student loan relief plan, which is something he had been considering since before taking office. Part of this plan includes extending the Covid-19 payment pause. The pause will be pushed through December and repayments will pick back up in January.
Did I receive the Pell Grant?
As mentioned above, Biden’s student loan forgiveness plans includes up to $20,000 for those who received the Pell grant. But, how do I know if I received the Pell grant?
The Pell grant is a need-based federal funding that is given to eligible college students. Unlike loans, grants do not need to be repaid. However, many Pell recipients still needed to take out student loans to help pay for school.
If student borrowers are looking to see if they received the Pell grant, there is a way to find out. The Federal Student Aid website, run by the Department of Education, lists all of your federal student aid history, including the Pell grant. This information is available on your aid summary page after you’ve logged in.
You should never have to provide proof to the Department of Education that you did receive the Pell grant. The department should able to identify who received the Pell grant or not with their own data.
Republican pushback on loan forgiveness
Republicans have called President Biden’s new student loan forgiveness plan unfair, and Vermont senator Bernie Sanders feels differently. Sanders has made the argument that the GOP has turned a blind eye to government assistance in other sectors.
Sanders is frustrated that Republicans are making a fuss over helping out working class people but are entirely on board with “massive tax breaks” for billionaires. The senator agrees with the loan forgiveness plan laid out by President Biden. However, he is still advocating for public colleges and universities to be tuition-free. Sanders argues that free public college would keep the US “competitive in the global economy.”
One of the Republican senators that openly opposes President Biden’s forgiveness plan is South Dakota senator John Thune. He feels that it is “fundamentally unfair” to pay off college debts for those who went while those who didn’t or already paid off their debt.
Thune makes the point that 13% of people in the US carry student debt, which leaves the remaining 87% of people who don’t have debt to pay for it. He said that they will be paying it in the form of higher inflation and higher taxes or generational debt. The senator admitted that the loan pause is not the same as forgiveness but feels that it has provided enough leniency for borrowers.
Will loan forgiveness make inflation worse?
Many Americans are burdened buy debt. Biden’s new student loan forgiveness plan will reduce debt for 43 million people and eliminate it completely for an additional 20 million. Debt forgiveness has the potential to improve the standard of living for millions of people.
Critics think that loan forgiveness will only increase the problem of inflation. Inflation is near the highest rate in 40 years and the Federal Reserve is making notable changes in hopes of bringing prices back down.
Not all economists believe that debt forgiveness will fuel inflation. Unlike the stimulus checks sent, loan forgiveness isn’t a lump sum deposited into your account. Rather– they will no longer have to make such large loan payments, if any.
Is loan forgiveness fair?
Loan forgiveness would transfer billions of dollars in debt from individuals and families to the federal government, and then in time, the taxpayers. Some people hold the belief that this transfer penalizes those who worked hard and saved for college and/or already paid it off and the majority of Americans that never attended.
According to White House estimates, 90% of the debt relief would go to people making under $75,000 a year. Individuals making up to $125,000 are still eligible for forgiveness.
Is the forgiveness really helping those in need or is it raising tuition costs?
Student loan forgiveness fails to address the root of the problem– the cost of tuition. Some suggest that it could actually exacerbate the problem, like a band-aid on a problem that needs a more serious fix.
A general rule inn economics is that “when the government subsidizes something, you tend to get more of it.” High tuition and college are not exempt from that rule.
What about borrowers with private loans?
President Biden’s student debt forgiveness plan only benefits those with federal student loans. Private student loans make up just over 8% of the total outstanding student loan debt. The national balance for private loans is more than $140 billion.
However, these borrowers are not eligible for forgiveness because private loans come from independent providers– not the federal government.
It isn’t uncommon for families to make too much to qualify for any of the need-based federal loan programs, but for the students not to have the funds to pay tuition. This is when students will turn to private loan options.
Unfortunately, many borrowers end up feeling overwhelmed by their debt simply because they didn’t understand the potential financial impact when making these decisions as a young adult.