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White House officials weigh income limits for student loan forgiveness

Biden aides consider how to cut off eligibility to exclude high-earners

President Biden in the White House on April 29. (Demetrius Freeman/The Washington Post)

The White House is considering income caps for eligibility for student loan relief that would exclude higher-earning Americans, as President Biden nears a decision on the matter, according to three people aware of administration discussions.

The administration is considering various ways to forgive some student loan debt through executive action. In recent weeks, senior Biden aides have examined limiting the relief to people who earned less than either $125,000 or $150,000 as individual filers the previous year, the people said. That plan would set the threshold at around $250,000 or $300,000 for couples who file their taxes jointly, the people said. No final decisions have been made, and the people familiar with the matter stressed that planning was fluid and subject to change.

President Biden has the power to forgive student loan debt. What would that mean for the average Jo? (Video: Monica Akhtar, Sarah Hashemi/The Washington Post)

Biden signals he’s open to canceling student loans

The White House is also weighing exactly how much student debt to eliminate for each borrower. Biden indicated to reporters this week that the amount would be lower than $50,000 per person. Administration officials have also signaled that the White House will cut at least $10,000 per qualifying borrower, the people said, embracing a position Biden himself appeared to support in a private meeting with the congressional Hispanic Caucus. The administration has also discussed limiting forgiveness to undergraduate loans, excluding those who had taken out loans for professional degrees in fields such as law and medicine, the people said.

“There’s different proposals floating around the administration about how to structure this,” said one person involved in the discussions, who spoke on the condition of anonymity to reflect private conversations. “Over the course of the past week especially, administration and congressional staff have focused the conversation on debt cancellation on how to best meet the president’s desire to ensure the most economically vulnerable people with student debt benefit from any action.”

The Washington Post first reported this week that Biden signaled to a recent meeting of Hispanic lawmakers that he planned on taking significant action on student debt relief. On Thursday, the president confirmed publicly that he’s taking a “hard look” at the matter and expects to make a decision “in the next couple of weeks.” The administration has already extended a Trump administration moratorium on repayment of loans, originally prompted by the coronavirus pandemic, until Aug. 31.

Biden’s recent comments provoked a major debate over whether canceling student debt would truly benefit borrowers in need, or primarily help more affluent college graduates who chose to take out hefty loans. White House officials are looking at adding the income cutoffs to preempt the arguments made by Republicans — but echoed by centrist Democrats as well — that debt forgiveness rewards higher-income college graduates who do not need federal assistance.

A White House spokesman declined to comment on internal discussions but said in a statement that the administration is assessing what options can be taken to provide relief, while pointing to the president’s support for cutting $10,000 in student debt through legislation. The administration has also taken actions resulting in the discharge of more than $17 billion in loans for more than 700,000 borrowers, the spokesman said. Continuing the pause in interest and payment on student loans has saved tens of billions for 41 million student borrowers, the spokesman said.

But the loan forgiveness under consideration would go much further. In 2019, the most recent year for which data is available, 97 percent of all student debt was held by people earning below the threshold of $150,000 per single and $300,000 per couple, according to Matt Bruenig, the founder of the People’s Policy Project, a left-leaning think tank. Canceling $10,000 in debt for every student borrower would cost roughly $245 billion, according to the nonprofit Committee for a Responsible Federal Budget, which argues for curbing the federal debt. The average amount borrowed by college graduates in 2020 who took out loans to pay for their degrees was $28,400, according to the College Board. Fifty-four percent of borrowers owed less than $20,000, while 10 percent owed at least $80,000.

Even a substantially sharper income cutoff would be unlikely to mollify critics of student loan forgiveness. Student debt is mostly held by Americans with higher-than-average incomes, and the poorest 20 percent of Americans, as measured by income, hold just 8 percent of the total share of student debt, according to the People’s Policy Project. In 2019, 44 percent of adults who earned below the median of $47,500 had no education beyond high school, compared with just 19 percent of those who earned more than that. Conservative economists and Republicans have already spent the week pillorying Biden for the idea of forgiving college loans.

“This is who the Democratic base is — upwardly mobile urban professionals with high incomes. Subsidizing college graduates with often expensive graduate degrees is really going to offend those who did not go to college, as well as those who paid off their student loans,” said Brian Riedl, a conservative policy analyst at the Manhattan Institute, a center-right think tank. “It’s a slap in the face.”

But Biden faces substantial pressure to take substantial action, particularly during the collapse of the rest of the White House economic agenda aimed at lowering health-care, housing and other household costs. The congressional Hispanic Caucus and Congressional Black Caucus are among those that have pushed the administration to take aggressive action, in part because Black Americans represent a disproportionate share of student debtors. Black people are 16 percent of the U.S. population but owe 23 percent of the nation’s student debt.

U.S. could have forgiven thousands of student loans but never told borrowers

Rep. Alexandria Ocasio-Cortez (D-N.Y.), who has been pushing the White House to forgive student debt, said the administration should cancel as much as $50,000 per borrower and expressed concern that $10,000 would not amount to a meaningful improvement for many people. For Americans with $30,000 in debt or more, canceling $10,000 of that total would not significantly affect their monthly payment obligations, a hardship exacerbated by the decline in inflation-adjusted wages for millions of workers, she said.

While student debtors, like college graduates overall, have higher incomes on average than Americans overall, those who owe student loans are much less wealthy than most college graduates are. More than half of student debt is held by people with essentially no wealth, according to the People’s Policy Project. The wealthiest 20 percent of the population has only a small fraction of student debt.

“I don’t believe in a cutoff, especially for so many of the front-line workers who are drowning in debt and would likely be excluded from relief,” Ocasio-Cortez said. She added that a nationwide income threshold does not account for the much higher cost of living in some parts of the country. “Canceling $50,000 in debt is where you really make a dent in inequality and the racial wealth gap. $10,000 isn’t.”

Economist Larry Summers, who served under presidents Bill Clinton and Barack Obama, said he would prefer Biden approve policies targeted at the half of the population that did not go to college, who on balance have less money than those who did. He also said there are “concerns” student debt cancellation could increase inflation, depending on the total amount of loans forgiven.

Still, Summers stressed that the administration’s current policy — a moratorium on loan payments — is more poorly targeted than one that would cut debt for a certain segment of the population.

“I would much rather the priority be people who have not gone to college than people who have. Period,” Summers said. “But it’s better to do a limited, targeted program than across-the-board relief.”

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