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Why Student-Loan Forgiveness Comes With Economic and Political Risks | WSJ - YouTube
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- [Lady] The Biden administration
is nearing a decision
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on student loan forgiveness
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an issue that could affect
millions of Americans
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and influence the coming
midterm elections.
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- No matter what he ends up deciding,
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Biden will be taking
a major political risk
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whether he decides to cancel
large amounts of student debt,
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$10,000 worth of student debt
or no student debt at all,
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it's going to anger somebody.
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And it's unclear whether that somebody
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will be voting in November.
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- [Lady] Biden has already
ruled out for giving $50,000
[28]
per student borrower, but has
shown support for legislation
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eliminating up to $10,000 in debt.
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Still some legal experts and economists
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say the administration needs a plan
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that will stand up to legal challenges
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and avoid contributing to
record high inflation rates.
[44]
As the debate over mass student
loan forgiveness continues.
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What are some of the key challenges
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complicating Biden's final decision?
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- So rather than taking
a stroke of the pen
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and saying all student debt is canceled,
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Biden has instead used existing powers
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that the Federal government already has
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for disabled borrowers,
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for students who have been defrauded,
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for people who work in public service.
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As Biden considers, whether to
cancel debt on a mass scale,
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he has to juggle legal,
political and economic fallout
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that might result from
that kind of decision.
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- [Lady] One concern tied to
mass student loan forgiveness
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is inflation.
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Some economists warn debt cancellation
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could intensify price pressures
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at a time when inflation is at
its highest level in 40 years
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with an 8.6% annual rate as of May.
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- There are worries that
canceling student debt
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on a mass scale could exacerbate
problems with inflation
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because it would give
borrowers more spending power
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which they would then
use to purchase goods
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and drive up inflation further
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in a supply constrained economy.
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In order to prevent that,
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the Biden administration is
looking at these lower levels
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of debt forgiveness which
would be less inflationary.
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- [Lady] Depending on what
forgiveness policy Biden lands on
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the price tag could range
anywhere from 321 billion
[122]
for $10,000 per borrower
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all the way up to about $1.6 trillion
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if all student debt is canceled.
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Eliminating all Federal student
debt could raise inflation
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by .37 to .5 percentage points.
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That's according to the committee
[136]
for a responsible Federal budget,
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an independent, non-partisan, non-profit,
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but some economists say a
smaller scale forgiveness program
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could have less of an
impact on inflation rates.
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Biden is also considering
limiting the program to borrowers
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who make less than $125,000 a year
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according to white house officials.
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- They're considering putting
an income threshold in place
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so that only lower income
borrowers will benefit
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as opposed to higher income borrowers
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who may still have student loans,
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but are in a much better
position to pay them off.
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If you canceled $10,000 worth of debt
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and especially if you
included an income threshold,
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the effects on inflation
would be pretty negligible
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according to most economists.
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- [Lady] Still some economists say
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there are long term inflationary risks.
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- In the long term
student debt forgiveness
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could exacerbate inflationary pressures
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by having borrowers treat
loans essentially as Grants
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because they expect those
loans to ultimately be forgiven
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by the Federal government.
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It could also push up the
price of higher education
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because colleges could
pretty truthfully say
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to their perspective students,
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it doesn't really matter
what our tuition costs
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because the Federal government
is just gonna forgive
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that debt in the future anyway
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- [Lady] In a statement, a spokesperson
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for the US Department of Education
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said our overall goal
is long lasting change
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that reduces indebtedness and
makes college more affordable
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including through rulemaking.
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Legal challenges may also
complicate the final decision.
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According to a legal analysis
[228]
prepared by Obama's former top
education department lawyer,
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Biden could be on shaky legal ground
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if he were to pursue broad-based
student debt cancellation
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by executive action.
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- Lots of people including Democrats
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think that they don't have the authority
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to cancel debt on a mass scale
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outside of an existing program
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like the income based repayment program.
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And if he just does it
by executive action,
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President Biden runs the risk
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that this could get overturned in court
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especially by a Supreme court
that tilts conservative.
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- [Lady] Biden has long been skeptical
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of using his executive authority
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to wipe away student loan debt.
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- I don't think I have
the authority to do it
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by sign of a pen.
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- [Lady] Still those
who are financially tied
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to the student loan industry
may be in a position
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to sue the administration
like loan servicing companies
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and investors that own securities
backed by student loans.
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- So, for instance, the companies
that service these loans
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could potentially sue
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because they would be
servicing fewer loans
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because some of those loans
would be forgiven entirely.
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People who hold investments
that are based on the debt
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held by these borrowers could also sue
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because their underlying
investments would be affected.
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- [Lady] If Biden chooses
to go the regulatory route,
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there could be other
bureaucratic challenges.
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- The issue for Biden if he
goes the regulatory route
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is that they haven't really
started a rule making process
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for mass debt cancellation,
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which means that any
future debt cancellation
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on a mass scale that
went through that process
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would be very far down the road
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because of how long the
rulemaking process takes.
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- [Lady] Implementing a
large new government program
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may come with logistical hurdles too.
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For instance, a wider forgiveness policy
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could require millions of
Americans to file paperwork
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detailing their income
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potentially creating a massive backlog.
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- Canceling debt on this wide of a scale
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would be a major logistical
lift for the Federal government.
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They would need to verify people's incomes
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if they're putting an
income threshold in place,
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they need to make sure
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that they're canceling the right loans
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and not canceling others.
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And all of that would take a
significant amount of time.
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And it's unclear how fast
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they would be able to implement it
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and whether that would even
happen in Biden's first term.
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- [Lady] About 40 million borrowers
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hold about 1.6 trillion
in Federal student debt,
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making student debt
forgiveness a potent issue
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ahead of November's midterm elections,
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and a pause on Federal
student loan payments
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is set to expire at the end of August,
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just as campaign season gets underway.
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- If Democrats lose
one seat in the Senate,
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they will have lost the majority.
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And if they lose more
than a handful of seats
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in the house of representatives,
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they will have lost the
majority there as well
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which could badly damage Biden's chances
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of enacting anything serious
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in the remaining two
years of his first term.
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- [Lady] Some Democrats
are urging Biden to go big,
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hoping that a sweeping
debt forgiveness plan
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can motivate voters who will decide
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which party controls Congress.
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Other Democrats worry such
a move would alienate voters
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who don't currently have
student debt or never did.
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At the same time,
Republicans broadly oppose
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any type of mass forgiveness policy.
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- 40 million people is a major portion
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of the American electorate
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making their student debt
payments when they resume
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is going to take a significant chunk
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of their income every month.
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So it's something that
voters are keenly aware of
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if they hold student debt.
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And if they previously
paid off their loans
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or never had loans to begin with,
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they might look at debt
cancellation policies
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and say, well, that wasn't around
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when I was paying for college.
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- [Lady] As millions of
borrowers await a final decision,
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the Biden administration is
weighing the long term impacts
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of a wide scale student
loan forgiveness program.
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- While progressives in
Congress would love for Congress
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to do something on
student debt forgiveness,
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they understand that those
votes might not be there
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and that nothing is likely
to happen in Congress
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at least right now.
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So it is up to the Biden administration
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to make these tough calls.
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