Inequality of student loan debt underscores possible Biden policy shift

The potential forgiveness of student loan debt could be one of the biggest policy shifts in the first months of the incoming Biden administration.

President-elect Joe Biden has said that student debt forgiveness will be a key part of his economic agenda, though how and to what extent the loans will be forgiven has become a point of debate among Democrats.

The disproportionate impact of such debt on students of color, meanwhile, could be further accentuated in the new year, as the freeze on federal student loan payments that was implemented by the Trump administration amid the coronavirus pandemic ends at the end of December.

According to a Federal Reserve survey released earlier this year, more than 40 percent of Americans who attended college — about 30 percent of all U.S. adults — had at least some student debt last year.

The federal student aid website states that the government currently holds $1.57 trillion in student loan debt.

It’s not known what percentage of that belongs to students of color, but a study from the Consumer Financial Protection Bureau in 2016 showed that 90 percent of Black students and 72 percent of Latino students take out federal loans when paying for college, compared with 66 percent of white students.

A 2019 analysis from the Federal Reserve Bank of New York showed that the default rate on student loans majority-Black or majority-Latino zip codes were 17.7 percent and 13 percent, respectively, both higher than the 9 percent default rate in majority-white zip codes.

And a study from Brandeis University’s Institute on Assets and Social Policy found that “twenty years after starting college, the median debt of White borrowing students has been reduced by 94 percent—with almost half holding no student debt—whereas Black borrowers at the median still owe 95 percent of their cumulative borrowing total.”

All of this, coupled with the fact that amid the pandemic, unemployment rates for Black and Latino Americans remain higher than the national average, could see the student loan debt crisis snowball come January.

Approximately “22 million borrowers will have to resume their payments,” Andrew Pentis, a certified student loan counselor who writes for Student Loan Hero, told The Hill. “The vast majority of the eligible federal loan borrowers did take advantage of this break in the sense that they did not make payments.”

“If this suspension does end at the end of the year, it will absolutely disproportionately affect Black student loan borrowers,” he added.

Seth Frotman, executive director of the Student Borrower Protection Center, said that “there’s a very dangerous convergence between the communities that have been hit hardest by the student debt crisis and hit hardest by the fallout of the pandemic.”

Among Biden’s wide-ranging laundry list of education policy reforms, the former vice president has signaled that he’s in favor of canceling $10,000 of student debt for every individual borrower, doubling Pell Grants, improving the existing Public Service Loan Forgiveness Program and offering free public education to students who come from households earning less than $125,000 a year — an idea that was originally pitched in Congress by progressive lawmakers Sen. Bernie Sanders (I-Vt.) and Rep. Pramila Jayapal (D-Wash.).

“It’s holding people up. They’re in real trouble. They’re having to make choices between paying their student loan and paying their rent,” Biden said this month.

However, there is friction between the incoming administration and progressives on how the reforms, specifically automatic student loan forgiveness, should be implemented.

Senate Minority Leader Charles Schumer (D-N.Y.) and Sen. Elizabeth Warren (D-Mass.), who considers the cancellation of student debt a necessary aspect of the U.S.’s economic recovery, have pushed for Biden to eliminate up to $50,000 for every borrower — and for him to do it through an executive order on day one of his presidency.

“The President of the United States has the power to broadly cancel student loan debt, help close the racial wealth gap, and give a big boost to families and our economy,” Warren said in a statement.

Biden has balked at the $50,000 figure and the idea of using executive action, although such an action would most likely be within his presidential powers.

Getting student loan debt forgiveness of even $10,000 per borrower through Congress could be a tough task, as there is a good chance that Democrats will not have control of the Senate.

Senate Republicans agreed to an initial freeze of student loan payments in the multitrillion-dollar coronavirus relief CARES Act in March but didn’t support an extension of the freeze in their failed proposal for another stimulus package in July.

While the freeze was ultimately extended by President Trump in August, the outgoing president and his allies have previously stated their opposition to large-scale debt forgiveness such as Biden has proposed.

The right-leaning Center for a Responsible Federal Budget said in a report that widespread student loan debt forgiveness would act “poorly” as economic stimulus and that it’s “unlikely that broad student debt cancellation would be well-targeted toward those experiencing income loss.”

Frotman, however, said that Biden has an “unique opportunity.”

“The incoming administration, a new secretary of Education, has the ability to fundamentally reform the student loan system and dramatically limit the amount of student loan debt that tens of millions of Americans have,” he said.