Report: Biden’s Plan to Forgive Student Loan Debt Does More Harm than Good

Student Loan Debt
PAUL J. RICHARDS/AFP/Getty Images

The Committee for a Responsible Budget released a report that claims Joe Biden’s plan to forgive student loan debt if he is sworn in as the next president will do more harm than good.

The non-profit, bipartisan public policy organization report shows the benefits are quite small compared to the cost:

  • Student debt cancellation would cost the government $1.5 trillion in revenue but only increase cash flow of borrowers by $90 billion per year
  • Student debt cancellation is poorly targeted. Three-quarters of student loan repayments come from the top 40 percent of earners, who would be more likely to save the extra cash than spend it compared to lower-wage earners.
  • Forgiving the full $1.5 trillion in loans would boost economic output between $115 and $360 billion, a much smaller return than other options available to policymakers.
  • Simply extending the current executive action to defer loan repayments and canceling interest during that period would achieve much of the economic benefit of loan cancellation at only a very small fraction of the cost.

“There is a debate over whether the President has the legal authority to cancel debt by executive order and whether or not it would be good policy overall.  However, one thing is clear: student debt cancellation would be an ineffective form of stimulus, providing a small boost to the near-term economy relative to the cost,” according to the report.

The report includes more analysis on forgiving student loan debt:

  • Student debt cancellation will increase cash flow by only $90 billion per year, at a cost of $1.5 trillion.
  • Student debt cancellation is poorly targeted to those most likely to spend, given that nearly three-quarters of repayments would come from the top 40 percent of earners.
  • Forgiving the full $1.5 trillion in loans will likely boost economic output during the current downturn by between $115 and $360 billion, a multiplier of 0.08x to 0.23x.
  • Partial loan forgiveness would cost less than total but also offer a smaller economic boost. We don’t expect a significant improvement in the multiplier.

The analysis found, in fact, that President Donald Trump’s current policy on student loan debt is more beneficial.

“Simply extending the current executive action to defer loan repayments and canceling interest during that period would achieve much of the economic benefit of loan cancellation at only a very small fraction of the cost,” the analysis said.

“This deferral is scheduled to end on December 31 but can be continued through the remainder of the pandemic through executive action,” the analysis said. “Extending this policy would generate most of the economic boost that would come from debt cancellation, but at only a small fraction of the cost.”

The Wallet Nerd website laid out more details about what student loan debt Biden is considering forgiving:

  • If you attended a public college or university. Attendees of private historically Black college and universities and additional minority-serving institutions would also be eligible.
  • If you used the loans for undergraduate tuition. Graduate student debt would not be canceled under Biden’s proposal.
  • If you earn less than $125,000. Biden’s plan references a phase-out of this benefit but does not offer further details.

“Biden also supports forgiving $10,000 for all federal student loan borrowers as COVID-19 relief,” the website report said. “That could wipe out debt completely for nearly 15 million borrowers who owe $10,000 or less, according to federal data. The majority of student loan borrowers (roughly 67 percent) have more than $10,000 in debt.”

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