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Debate Over Student Loan Forgiveness Hinges On 2 Numbers: $10,000 Vs. $50,000

Franziska Barczyk for NPR

For months, Democrats in Washington have been debating what to do about student loan debt. About 43 million borrowers owe $1.6 trillion in federal student loans. While some lawmakers have pushed for President Biden to forgive up to $50,000 per borrower via executive order, Biden has so far only expressed support for more limited forgiveness, of $10,000, through pandemic relief legislation.

This week, the president and the White House clarified his stance. At a CNN town hall on Tuesday night, Biden was asked if he would forgive up to $50,000 in debt. The president's reply: "I will not make that happen." He went on to say, "I understand the impact of debt, and it can be debilitating. I am prepared to write off the $10,000 debt but not $50 [thousand], because I don't think I have the authority to do it."

On Wednesday, White House press secretary Jen Psaki expanded on Biden's comments, saying the president "does not favor $50,000 in student loan relief without limitation."

The sticking points between the $10,000 and $50,000 proposals revolve around which borrowers would benefit most, and the legality of forgiving student debt through legislation versus through executive action.

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

"Borrowers who have the lowest student debts are the ones who struggle the most," explains Adam Looney, an economist at the University of Utah.

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

Often borrowers with low debt balances went to college for a semester or a year or two, and never completed a degree. Without a degree, those borrowers often earn less money, making it harder for them to pay their student loans, and making them more likely to default. Roughly 8 million federal student loan borrowers are currently in default, and the typical defaulter takes out less than $10,000.

Being in default means the government can take part of your tax refund or paycheck. When you get older, you can even lose part of your Social Security checks.

Those garnishments make it even harder for borrowers to build wealth.

University of Pennsylvania researcher Jalil Mustaffa Bishop studies the experiences of student borrowers. He says, "What we know from research is that those who borrowed student loan debt [did it] because they come from households or personal financial situations where they don't have the assets or the income to afford higher education."

Student debt is not a burden for everyone. Economist Looney points out that many borrowers who took out loans to get a bachelor's degree are able to pay down that debt. And research shows that more than a third of student debt is owed by the top 20% of income holders in the U.S.

But income is different from wealth, Bishop says. Wealth is the value of all your assets, minus your debts, and households with student debt tend to 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 student debt — and more of it — than white or Latino families. They're also more likely to default on their loans, even if they've earned a bachelor's degree, thanks to discrimination in the labor market.

Proponents of the $50,000 proposal say a more generous policy would target those wealth gaps, especially among Black families. About 80% of borrowers have student debt under $50,000, according to federal data. Advocates of this proposal also argue this level of forgiveness is about racial justice — the dollar amount comes from research that found $50,000 would help grow the wealth of the highest number of Black households. (That research was later updated to reflect growing debt balances.)

"The student debt crisis is disproportionately impacting borrowers of color and communities of color, Black borrowers in particular," explains Ashley Harrington, senior policy counsel at the Center for Responsible Lending. "When we talk about cancellation, we have to start there."

Many Black and Latino families have missed out on ways to build wealth in the past — such as homeownership and job training programs — due to racist policies. Researchers who study and talk to student loan borrowers say student loan debt is a primary factor in holding them back now.

"They're experiencing the mental stress of not being able to plan or see a life passed having a student loan debt," Bishop says. "So the $10,000 doesn't really get at that kind of reality and burden."

Sens. Elizabeth Warren, D-Mass., and Chuck Schumer, D-N.Y., are among those calling for $50,000 of debt forgiveness. "Canceling student loan debt is the single most effective executive action that President Biden can take to kickstart the economy," Warren said at a recent press conference.

Warren and Schumer have argued the president has the power to forgive this level of debt via executive action, citing a September opinion from attorneys at Harvard's Project for Predatory Lending. Earlier this month, the White House signaled it was looking into the legality of such an executive action. In January, before Biden was sworn in, lawyers at the U.S. Department of Education issued a memo concluding that forgiving federal student loan debt via executive action would be illegal.

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

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Elissa Nadworny reports on all things college for NPR, following big stories like unprecedented enrollment declines, college affordability, the student debt crisis and workforce training. During the 2020-2021 academic year, she traveled to dozens of campuses to document what it was like to reopen during the coronavirus pandemic. Her work has won several awards including a 2020 Gracie Award for a story about student parents in college, a 2018 James Beard Award for a story about the Chinese-American population in the Mississippi Delta and a 2017 Edward R. Murrow Award for excellence in innovation.