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This is Question of the Week, from BU Today.
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Will President Biden forgive student loans?
President Biden campaigned on student loan forgiveness,
promising to relieve up to $10,000 in debt per borrower.
A year after taking office, Biden has yet to make good on his promise and
is facing increasingly loud calls from advocates and
members of his party to cancel student loan debt before the midterm elections.
Back in December, Biden did provide some temporary relief to borrowers when he
extended the pause on federal student loan repayments through May 1st, 2022.
The pause on payments was first implemented in March 2020 under
the CARES Act, and later extended by the former Trump administration.
In this episode, BU Today executive editor Doug Most talks to Mark Williams,
executive-in-residence and master lecturer in finance at Questrom,
about the politics surrounding student loan forgiveness, and if and how,
Biden will forgive student loans.
>> Mark Williams, thanks for joining us today.
I wanted to talk to you about this question of politics first, and
whether or not Biden should forgive,
could forgive, or will forgive all, or none, or some of the debt?
>> Right, and Doug, that's a great question.
It's really a $1.7 trillion question and it's all about politics.
On one side, President Biden has the progressives, including Senator
[Elizabeth] Warren, who is asking for a $50,000 per loan forgiveness.
And Biden had gone on the campaign trail, and
continues to agree to only a $10,000 forgiveness.
>> Clip of Biden Speaking: "I proposed, and in the House Nancy [Pelosi] put it in the plan to
immediately provide $10,000 in debt relief and stimulus right now.
>> It's a huge difference, $50,000 forgiveness per loan would actually take
away 80% of the debt, over a trillion dollars worth of the debt.
The Biden idea of $10,000 per loan would give and take away about 400 billion,
it's still a big number but there's a big difference between the two groups.
Who's impacted the most by student debt,
what kind of person are we talking about here?
>> What's interesting, the undergraduate student, for example,
on average takes about $30,000 in debt.
And if you're a graduate student, you've upped it to around $70,000.
You know, these are professions, like if you're getting, for example,
a medical degree, you may increase it to $200,000 in debt.
Dental school is almost $300,000.
And nurses, if they go to graduate school,
it's almost $50,000 in average college debt.
So these are individuals that are providing a lot to society as well, and
yet, they're burdened by the student debt which impacts their decision making.
>> Is one of the issues he is facing on the political side sort of
a generational thing?
Is there concern from people who won't have their debt forgiven of how
they're going to react to the news that colleagues or
other people are having their debt wiped out?
How much does that play into this, do you think?
>> Well, I think it does play a lot into it because there's over 45 million
borrowers that have student loan debt.
And these are borrowers of different ages.
I mean, the average age of borrowers indebtedness is around 35.
But yet, we still have a group about 10% that are 60 years old and older.
These are parents that secured debt for their kids, and
they're still actually sitting there on the hook and having to pay that debt off.
>> Can you talk about the social impact of this debt?
Is one of the big incentives, perhaps, for the Biden administration that they believe
that forgiving this debt will pay off in the long haul?
That it will allow them to take that money and put it elsewhere into the economy?
Is that the hope and the incentive here?
>> Well, I think really COVID exposed the credit crisis that we have within debt.
When we think about student debt,
it's now the largest category with the exception of mortgages.
It's surpassed credit debt, that is credit card debt.
So I think the thought is, look, the average debtor, with student debt,
they're paying roughly $400 a month, so roughly $4,800 a year,
that money itself could go towards other things.
For example, maybe towards rent, maybe towards starting a new business,
maybe towards a mortgage.
Leading into COVID, we saw roughly 25% of borrowers were either late in payment or
actually were delinquent in payment.
So it's a significant issue and it impacts FICO scores for students and
their ability to get credit in the future.
So there's a lot riding on this.
I think financial health is a big issue, as well as sort of we're learning more
studies about mental health related to the financial consequences of having this
burden which can average 20 to 25 years for many of these student borrowers.
>> Can you just talk briefly about how the current COVID-19 student loan pause
may have affected borrowers and how it's sort of impacting their behavior?
>> Right, the pause itself was first started in March of 2020.
And that pause has been actually hit five additional times.
It's been extended in six month periods all the way out through May of this
coming year.
And what that's done is given relief in a sense that interest is not accruing
on these loans, which is very positive.
Payments aren't being made, which actually gives more cash flow to these individuals.
However, the concern is once the obligation is required to be paid again,
will this cash flow be there?
Or will we see an increase in the amount of defaults which actually impact borrower
credit ratings and
could have other detrimental impacts on their financial health?
>> So, how big of a role and
how big of an issue do you see this playing in the midterm elections?
Is this sort of a secondary issue?
Do you think Biden is going to try to make this into a front-and-center
issue that he feels plays to the Democratic base,
knowing that it might antagonize Republicans?
How big of an issue do you see this being?
>> Well, if we think about the amount of debtors, so we have 45 million debtors,
another way thinking about it is 45 million voters.
If he relieves, for example, $10,000 worth of the debt,
that's 15 million people he'll make happy.
>> It reminds me of that great scene in Ghostbusters when Bill Murray is trying to
convince the mayor to solve the problem of the ghost.
And he says: >> Clip of Bill Murray speaking in Ghostbusters: "Lenny, you will save the lives
of millions of registered voters." >> It's
a similar sort of the situation for Biden perhaps, where all those voters will have
their debt forgiven, might see this as sort of a big win for them.
>> Well, it's a real tangible thing.
I mean, Biden has been trying to push several initiatives through and
he's really come up short, so this could be a win for him.
The challenge, though, is that it's not just an executive order.
Many have argued that it's got to be a congressional agreement for
this to be done.
>> Is the money there?
You mentioned $1.7 trillion at the beginning of this.
Do you think there would still be a win if he did just a fraction of it, or a portion
of it, or would it be sort of muted and therefore maybe not even worth the effort?
>> Right, if he did $10,000 per borrower,
that would extinguish 15 million borrowers and that would go a long way.
It wouldn't actually address what the progressives want,
in particular Elizabeth Warren.
However, I think it would go a long way.
It's $400 billion, I mean, this is not small change.
>> We'd probably be remiss if we didn't acknowledge that here we are talking at
Boston University, which is a school that is not an inexpensive school to attend.
>> Can you just talked briefly about how we got here in the first place and
is there a way out?
>> Sure, well, I think we got here in part because since the 1980s,
tuition has increased eight fold relative to wages.
So in a sense, students that were going to a state school or
even a private school leading up to the 1980s, you could have a summer job,
you could save and tuition was much more reasonable than it is now.
So debt became a bigger issue.
We also had cuts as a result of the oil embargo of 1979,
federal cuts that started in California and swept the nation,
which reduce the amount of state funding that was received.
That put greater pressure on universities across the US to increase tuition costs.
And that was all borne by students themselves.
>> And do you see a way out of this?
>> I definitely see a way out of it.
I think it's really twofold.
The first is greater financial literacy.
It's really hard to imagine that a 17 or
18 year old really knows their critical career path or
actually how much debt they should take on and how to pay that debt back.
I mean, this is a decision that 17 and
18-year olds are making with their parents, sometimes.
And it's something that lasts 20 to 25 years, that's concerning.
So I think the first step is better financial literacy at the high school
level, especially career counseling.
Not all students really should go on to college.
Some of them actually would be well fit for trade school in particular or
going to community colleges or
state universities which have a lower tuition cost than private universities.
So I think there needs to be greater discussion on the front end before
students take on this excessive debt.
Now, where we are today, the debt itself is at $1.7 trillion.
It's going to increase in the next five years to almost 3 trillion.
So it has to be addressed.
Right now Congress makes it illegal to actually extinguish due to bankruptcy
these loans.
So, in essence, what I'm saying is that
students carry this debt to their death if it can't be extinguished.
So it's a very unusual obligation to have and that's concerning.
So I think there's got to be better and more flexibility with lenders,
more flexibility with universities in coming up with ways in which to
attract top students that won't create excessive debt.
And then ultimately the government really has to, and including the President,
has to extinguish some of this debt.
>> I appreciate you taking the time to answer some of these questions.
I think it's an important conversation and it's obviously a timely and
very topical conversation happening right now in the political climate.
So thanks for the time, Mark.
>> Yeah, Doug, which is really interesting, you got me the dust off
an article that I wrote two years ago and it appears as if it was written yesterday.
[LAUGH] All the best to you.
>> Thanks, Mark, we'll talk to you soon, you too, take care.
>> Thanks to Mark Williams for joining us on this episode of Question of the Week.
This episode was hosted and edited by BU Today executive editor Doug Most,
engineered by Andy Hallock and produced by me, Dana Ferrante.
Thanks for listening and
see you in two weeks.
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