Biden’s student loan plan targets the middle class squarely

Washington – The Big Winners From President Biden’s Plan To Forgiveness of hundreds of billions of dollars in student loans They are not wealthy graduates of Harvard and Yale, as many critics claim.

In fact, the benefits of Mr. Biden’s proposals will go largely to the middle class. According to independent analyzes, people who qualify for debt forgiveness are disproportionately young and black. They are concentrated in the middle tier of Americans by income, defined as households earning between $51,000 and $82,000 per year.

The Department of Education estimates that nearly 90 percent of affected borrowers earn $75,000 a year or less. Ivy League alumni make up less than 1 percent From Federal Student Borrowers nationwide.

Economists say the full scope of Mr. Biden’s plan, including important changes aimed at reducing payments to millions of borrowers for years to come, will help middle-income earners from a wide range of schools and backgrounds.

“You’re going to have a lot of people who don’t make any payments and they’re going to have a lot of loan forgiveness going forward,” said Konstantin Yanelis, an economist at the University of Chicago’s Booth School of Business. “Borrowing aid will be more targeted to the people who really need it.”

However, despite the allure of such debt forgiveness, the program continues to generate contentious controversy as economists and political figures assess the full results of the plan. By some estimates, it will cost up to half a trillion dollars over a decade, imposing a future burden on American taxpayers.

The plan could also encourage colleges to raise tuition fees faster than they already are. Schools can try to persuade borrowers to take on as much debt as possible to cover higher tuition fees, with the belief that the federal government will help pay it off.

And some conservative and Democratic economists say the program could add significantly to what is already the highest inflation rate in four decades. Evidence is that these claims are exaggerated, and US shoppers are unlikely to see a price hike due to the program.

Many economists say Biden’s announcements, including debt forgiveness and the resumption of loan payments next year to all borrowers after a nearly three-year hiatus, likely amount to consumer price laundering.

“Debt forgiveness that lowers monthly payments is a bit inflationary in isolation,” Goldman Sachs analysts wrote in a research note Thursday, but the resumption of payments is likely to offset that.

The real burden of the plan will likely be borne by future taxpayers, who will incur what could be an additional half a trillion dollars in federal debt from the proposals. Economists generally agree that the distribution of this burden will depend on future tax and spending policies—who pays any increased taxes that lawmakers might impose to reduce the federal budget deficit, or who suffers spending cuts meant to do the same.

Experts say at least some future college students may end up paying higher costs as universities respond to some of Biden’s moves by increasing tuition fees.

Debt relief will only affect Americans who have pursued higher education, not those who have tried to climb the income ladder with a high school diploma alone.

“The poorest Americans won’t benefit much,” Mr. Yanellis said. “Many of this group don’t go to college, so they don’t have the opportunity to get student loans.”

But by choosing to extend debt forgiveness more generously than even many of his allies expected, Biden is providing what independent analysts suggest will be the most targeted help yet for middle-class workers, and one that could help more young people make it happen. for the middle class.

Although legal challenges for the plan are anticipated, the proposal has the potential to help tens of millions of borrowers get out of debt.

Mr. Biden said on Wednesday that The Ministry of Education will waive $10,000 of loan debt For borrowers with individual income of up to $125,000 or household income of less than $250,000. Students who receive the school’s “Bell” scholarships, which are available to low-income families, will be eligible for an additional $10,000 in debt relief.

He also announced plans that would limit many borrowers’ loan payments to 5 percent of their discretionary income and ensure they wouldn’t be buried in accrued interest costs if they kept making the payments.

The Bill grant component and moves to limit future payments to low-income borrowers were apparently late additions to Biden’s plans. Yanelis and other researchers say they likely added significantly to the cost, while also shifting a much larger share of the benefits to middle-class borrowers.

The Committee on Responsible Federal Budget, a deficit-reduction advocacy group in Washington, estimates that the total cost of the moves could now exceed $500 billion over the next decade.

The University of Pennsylvania’s Ben Wharton budget model is set to release a similar cost estimate for the plan on Friday. This estimate would also show that the median fifth of income earners — families who earn between about $51,000 and $82,000 a year — would reap more than a third of the benefits from a president’s student loan moves, more than any other income group to date.

In contrast, the budget model estimated that collecting nearly $2 trillion in tax cuts passed by Republicans in 2017 would distribute more than two-thirds of its earnings to the top five earners.

Biden laid out his plan as a victory for members of the middle class in the future, too, saying that high student debt had already broken the economic promise America made to young people in recent decades: Do what you can to pay for a college education, and you’ll be rewarded with a job that can provide the comforts of home and care. health and more.

“An entire generation is now saddled with unsustainable debt in exchange for, at the very least, trying to get a college degree,” Biden said Wednesday, announcing the proposals. “The burden is so heavy that even if you graduate, you may not be able to reach the middle-class life that a college degree once offered.”

Even supporters of the move concede that debt cancellation won’t get anywhere close to a majority of American voters, a fact Republicans played in making a case for voters that Mr. Biden sought to help elites at everyone else’s expense.

Proponents of the move say that getting rid of the student debt burden has the potential to change lives in a way that few – and perhaps no policies available to Mr. Biden through executive actions – can do so.

“Not every American says I’m with this, like reducing prescription drug costs, for example,” Senator Chuck Schumer, Democrat of New York and majority leader, said in an interview. “But it has tremendous depth.”

Critics on the left say Biden has to go further — and that he won’t bring full relief to those truly in need until he does.

“While the Student Debt Relief Scheme is a positive step forward that will bring a measure of relief to millions of black borrowers, the reality is that it is simply not enough,” said Rashad Robinson, president of Color of Change, a racial justice group. “The Biden administration must completely eliminate student loan debt to make a meaningful and lasting impact on people’s lives and close the racial wealth gap.”

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