Biden’s Debt Cancellation Plan Would Help Millions of California Students
Millions of Californians could get one of the biggest cash transfers in this country’s history as lawmakers and the new president tussle over competing plans to rid the nation of ten billion dollars in student debt.
If President-elect Joe Biden keeps his campaign promise to forgive $10,000 in federal student debtup to 1.3 million Californians could see their federal college loan balances completely wiped out.
The plan, which would meet a once marginal progressive goal of student forgiveness that has become mainstream over the past five years, would benefit a total of about 3.9 million Californians who together owe $140 billion in loans federal funds used to pay for their university education.
But a chorus of congressional Democrats, including Sens. Chuck Schumer, Elizabeth Warren and California U.S. Representative Maxine Waters, wants Biden to erase up to $50,000 in federal student debt. A $50,000 debt cancellation would erase the federal student debts of many more Californians — between 2.9 million and 3.3 million people, according to a CalMatters analysis of data from the US Department of Education.
What this could mean for California
Recent California college graduates with typical federal loan debt would see more than half of their undergraduate loans forgiven under the Biden plan, and low-income students who qualified for the federal Pell grant would see a greater part of their canceled debt.
Pell grant students graduating from public and private nonprofit universities in California typically have $18,000 in federal loans, slightly less than the $19,370 in federal loans borrowed by students who did not receive Pell scholarships, according to data analyzed by The Institute for College Access & Success for CalMatters. This does not include debt that students may accumulate as they continue their studies.
Nationally, college graduates generally owe more. Typical graduate debt nationwide is around $27,000 for Pell recipients and $23,000 for those without Pell. That California funds the largest state aid program in the United States, the Cal Grant, as well as the award for aid to its colleges, probably limits the number of students need to borrow.
Experts are divided on the potential economic impact of erasing more than half the typical debt of a California college graduate.
On the one hand, economists like Christopher Thornberg don’t think it would make a big dent in the global economy. “If you can’t pay off $10,000 in debt, you’re not making a lot of money,” said Thornberg, founding partner of Beacon Economics, a Los Angeles-based consulting firm. “And if you’re not making a lot of money, you’re not, what I would call, a macroeconomic driver.”
On the other hand, some experts believe that debt cancellation could stimulate the economy by helping young people buy more goods, take business risks and get closer to buy houses.
Then there is the impact debt cancellation can have on career choices. “Students with little or no debt burden can feel free to pursue careers, especially in the public interest, that pay less — but benefit everyone more,” said Jonathan Glater, professor of right at UCLA. who studies debt relief.
Is debt forgiveness a good policy?
Critics say any debt forgiveness, especially up to $50,000, is a giveaway for the middle and upper classes. The argument is that because college debt holders tend to be wealthier and already have federal repayment programs that reduce monthly payments to a portion of their income if they don’t earn much, clear part or all of their debt is a downward movement.
“We propose to help only people who have gone to university, to forget those who have not. I find this incredibly unfair and not progressive politics,” said Sandy Baum, a academic on student debt, in an interview. Baum presented his research at a December meeting on student debt held by the California Student Aid Commission, which oversees the Cal Grant and helps establish financial aid policy in the state.
It supports targeted debt relief, such as partial forgiveness for each year a borrower is unable to make payments and for parents living below the poverty line. who borrowed in the name of their children.
Proponents of comprehensive debt relief argue that debt cancellation can close the racial wealth gap. While white borrowers are largely repaying their student loans after 20 years, black borrowers have barely made a dent in theirs, a recent study shows. Second, full debt cancellation is much more meaningful for low-income people because they get the greatest relief in relation to their economic situation, others have shown it.
Current debt relief programs lag behind
Even with programs such as income contingent reimbursement, which exist to reduce the amount borrowers have to pay monthly if their income is low relative to their debt, Californians are still struggling. Less than a quarter of borrowers in California in federal loan repayment have incomes below $40,000, but those people make up more than half of borrowers who have fallen behind on a federal student loan in the state, according to the Student Borrower Protection Center, a group that supports debt cancellation and crushes Federal Reserve data for CalMatters.
Part of the problem is that too few low-income borrowers are struggling to repay their federal student loans can’t access or don’t know income-contingent repayment, even though loan relief programs have been in full effect since 2009. Another criticism of debt forgiveness is that it may help former students, but incoming students will bear the same costs of higher education that have plagued past borrowers. Biden has two solutions for this.
One doubles the maximum price of the Pell Grant, which currently sits at around $6,300. Nearly one million California students receive a Pell grant, according to the latest data from the US Department of Education. Such a move could bring the subsidy’s purchasing power closer to its glory days of 1975, when the maximum Pell grant covered three quarters tuition and housing for a student at a public university. Today it is down to 28%.
The president-elect also campaigned to make public colleges free for students from families earning less than $125,000.
CalMatters.org is a nonprofit, nonpartisan media company explaining California policies and politics.