- [Lady] The Biden administration is nearing a decision
on student loan forgiveness
an issue that could affect millions of Americans
and influence the coming midterm elections.
- No matter what he ends up deciding,
Biden will be taking a major political risk
whether he decides to cancel large amounts of student debt,
$10,000 worth of student debt or no student debt at all,
it's going to anger somebody.
And it's unclear whether that somebody
will be voting in November.
- [Lady] Biden has already ruled out for giving $50,000
per student borrower, but has shown support for legislation
eliminating up to $10,000 in debt.
Still some legal experts and economists
say the administration needs a plan
that will stand up to legal challenges
and avoid contributing to record high inflation rates.
As the debate over mass student loan forgiveness continues.
What are some of the key challenges
complicating Biden's final decision?
- So rather than taking a stroke of the pen
and saying all student debt is canceled,
Biden has instead used existing powers
that the Federal government already has
for disabled borrowers,
for students who have been defrauded,
for people who work in public service.
As Biden considers, whether to cancel debt on a mass scale,
he has to juggle legal, political and economic fallout
that might result from that kind of decision.
- [Lady] One concern tied to mass student loan forgiveness
is inflation.
Some economists warn debt cancellation
could intensify price pressures
at a time when inflation is at its highest level in 40 years
with an 8.6% annual rate as of May.
- There are worries that canceling student debt
on a mass scale could exacerbate problems with inflation
because it would give borrowers more spending power
which they would then use to purchase goods
and drive up inflation further
in a supply constrained economy.
In order to prevent that,
the Biden administration is looking at these lower levels
of debt forgiveness which would be less inflationary.
- [Lady] Depending on what forgiveness policy Biden lands on
the price tag could range anywhere from 321 billion
for $10,000 per borrower
all the way up to about $1.6 trillion
if all student debt is canceled.
Eliminating all Federal student debt could raise inflation
by .37 to .5 percentage points.
That's according to the committee
for a responsible Federal budget,
an independent, non-partisan, non-profit,
but some economists say a smaller scale forgiveness program
could have less of an impact on inflation rates.
Biden is also considering limiting the program to borrowers
who make less than $125,000 a year
according to white house officials.
- They're considering putting an income threshold in place
so that only lower income borrowers will benefit
as opposed to higher income borrowers
who may still have student loans,
but are in a much better position to pay them off.
If you canceled $10,000 worth of debt
and especially if you included an income threshold,
the effects on inflation would be pretty negligible
according to most economists.
- [Lady] Still some economists say
there are long term inflationary risks.
- In the long term student debt forgiveness
could exacerbate inflationary pressures
by having borrowers treat loans essentially as Grants
because they expect those loans to ultimately be forgiven
by the Federal government.
It could also push up the price of higher education
because colleges could pretty truthfully say
to their perspective students,
it doesn't really matter what our tuition costs
because the Federal government is just gonna forgive
that debt in the future anyway
- [Lady] In a statement, a spokesperson
for the US Department of Education
said our overall goal is long lasting change
that reduces indebtedness and makes college more affordable
including through rulemaking.
Legal challenges may also complicate the final decision.
According to a legal analysis
prepared by Obama's former top education department lawyer,
Biden could be on shaky legal ground
if he were to pursue broad-based student debt cancellation
by executive action.
- Lots of people including Democrats
think that they don't have the authority
to cancel debt on a mass scale
outside of an existing program
like the income based repayment program.
And if he just does it by executive action,
President Biden runs the risk
that this could get overturned in court
especially by a Supreme court that tilts conservative.
- [Lady] Biden has long been skeptical
of using his executive authority
to wipe away student loan debt.
- I don't think I have the authority to do it
by sign of a pen.
- [Lady] Still those who are financially tied
to the student loan industry may be in a position
to sue the administration like loan servicing companies
and investors that own securities backed by student loans.
- So, for instance, the companies that service these loans
could potentially sue
because they would be servicing fewer loans
because some of those loans would be forgiven entirely.
People who hold investments that are based on the debt
held by these borrowers could also sue
because their underlying investments would be affected.
- [Lady] If Biden chooses to go the regulatory route,
there could be other bureaucratic challenges.
- The issue for Biden if he goes the regulatory route
is that they haven't really started a rule making process
for mass debt cancellation,
which means that any future debt cancellation
on a mass scale that went through that process
would be very far down the road
because of how long the rulemaking process takes.
- [Lady] Implementing a large new government program
may come with logistical hurdles too.
For instance, a wider forgiveness policy
could require millions of Americans to file paperwork
detailing their income
potentially creating a massive backlog.
- Canceling debt on this wide of a scale
would be a major logistical lift for the Federal government.
They would need to verify people's incomes
if they're putting an income threshold in place,
they need to make sure
that they're canceling the right loans
and not canceling others.
And all of that would take a significant amount of time.
And it's unclear how fast
they would be able to implement it
and whether that would even happen in Biden's first term.
- [Lady] About 40 million borrowers
hold about 1.6 trillion in Federal student debt,
making student debt forgiveness a potent issue
ahead of November's midterm elections,
and a pause on Federal student loan payments
is set to expire at the end of August,
just as campaign season gets underway.
- If Democrats lose one seat in the Senate,
they will have lost the majority.
And if they lose more than a handful of seats
in the house of representatives,
they will have lost the majority there as well
which could badly damage Biden's chances
of enacting anything serious
in the remaining two years of his first term.
- [Lady] Some Democrats are urging Biden to go big,
hoping that a sweeping debt forgiveness plan
can motivate voters who will decide
which party controls Congress.
Other Democrats worry such a move would alienate voters
who don't currently have student debt or never did.
At the same time, Republicans broadly oppose
any type of mass forgiveness policy.
- 40 million people is a major portion
of the American electorate
making their student debt payments when they resume
is going to take a significant chunk
of their income every month.
So it's something that voters are keenly aware of
if they hold student debt.
And if they previously paid off their loans
or never had loans to begin with,
they might look at debt cancellation policies
and say, well, that wasn't around
when I was paying for college.
- [Lady] As millions of borrowers await a final decision,
the Biden administration is weighing the long term impacts
of a wide scale student loan forgiveness program.
- While progressives in Congress would love for Congress
to do something on student debt forgiveness,
they understand that those votes might not be there
and that nothing is likely to happen in Congress
at least right now.
So it is up to the Biden administration
to make these tough calls.
(upbeat music)