Biden’s student debt plan would aid millions of Californians

In summary

Both President-elect Joe Biden and the Democrats in Congress want to cancel some of the federal debt on student loans. The question is how much – $ 10,000 or $ 50,000 – and is that even a good idea?

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Millions of Californians could receive one of the largest cash transfers in the history of this country as lawmakers and the new president duel over competing plans to rid the nation of $ 10 billion in student debt.

If President-elect Joe Biden keeps his election promise to cancel $ 10,000 in federal student debt, up to 1.3 million Californians could wipe out the balance of their state college loans entirely.

The plan, which would redeem a once marginally progressive student forgiveness goal that has become mainstream in the past five years, would benefit a total of approximately 3.9 million Californians who collectively owe $ 140 billion in federal loans to the used for college.

But a chorus of Democrats in Congress, including Sens. Chuck Schumer, Elizabeth Warren, and California US Representative Maxine Waters, want Biden to pay off up to $ 50,000 in federal student debt. A $ 50,000 debt relief would pay off the federal student debt of far more Californians – between 2.9 and 3.3 million people, according to a CalMatters analysis of US Department of Education data.

What that could mean for California

Graduates from new California colleges with typical federal loan debt would have more than half of their undergraduate loans under the Biden Plan canceled, and lower-income students who qualified for the federal Pell Scholarship would have more of their debt canceled.

Pell Scholarship students who have undergraduate degrees from California’s public and private nonprofit universities 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 from the Institute for College Access & Success for CalMatters. This does not include the debt that students can accumulate as they continue their education.

At the national level, college graduates tend to owe more. The typical debt of graduates across the country is about $ 27,000 for Pell recipients and 23,000 for those without Pell. The fact that California is funding the largest government aid program in the United States, the Cal Grant, as well as its college awards, likely limits student loan needs.

Experts are divided on the potential economic impact of paying off more than half the debt of a typical California college graduate.

On the one hand, economists like Christopher Thornberg do not believe that this would put a great strain on the economy as a whole. “If you can’t pay back $ 10,000 in debt, you’re not making much,” said Thornberg, founding partner at Beacon Economics, a Los Angeles-based consulting firm. “And if you’re not making a lot of money, you are, as I would call it, not a macroeconomic driver.”

On the flip side, some experts believe that debt relief could boost the economy by helping young people afford more goods, take business risks, and get closer to home buying.

Then there is the impact that debt relief can have on career choices. “Students with little or no debt can feel free to pursue a career, especially in the public interest, that pays less – but benefits everyone more,” said Jonathan Glater, UCLA law professor who studies debt relief.

Is Debt Relief a Good Policy?

Critics say any debt relief, especially up to $ 50,000, is a giveaway for the middle and upper classes. Since college debt holders tend to be wealthier and already have government repayment programs in place that reduce monthly payments to a portion of their income when they’re not making a lot, getting rid of some or all of their debts is an argument in the regressive movement.

“We suggest only helping people who went to college and forgetting about the people who didn’t. I find this incredibly unfair and not a progressive policy, ”Sandy Baum, a student debt scientist, said in an interview. Baum presented her research at a December meeting of the California Student Aid Commission on student debt, which oversees the Cal Grant and helps establish financial aid policies in the state.

She advocates targeted debt relief, such as partial debt relief for every year a borrower cannot make payments, and for parents who live below the poverty line and who have taken out loans for their children.

“We suggest only helping people who went to college and forgetting about the people who didn’t. I find that incredibly unjust and not a progressive policy. “

Sandy Baum, scholarship holder on student debt

Proponents of comprehensive debt relief say debt relief can fill the racial wealth gap. While white borrowers largely pay off their student loans after 20 years, black borrowers have hardly left a dent in theirs, a recent study shows. Second, comprehensive debt relief makes much more sense for people on lower incomes as they will get the greatest relief relative to their economic situation, as others have shown.

Current debt relief programs are lagging

Even with programs like Income-Based Repayment, which are in place to reduce borrowers’ monthly payments when their income is low relative to their debt, Californians still struggle. Less than a quarter of California borrowers who repay a federal loan have incomes under $ 40,000, but these individuals make up more than half of borrowers who have defaulted on a federal student loan in the state, according to Student Borrower Protection Center, a group that supports Federal Reserve for CalMatters debt relief and crunched data.

Debt relief can also save tens of thousands of Californians from defaulting on their student loans, a problem that can particularly plague communities of color.

Part of the problem is that too few low-income borrowers who are struggling to repay their federal student loans either do not have access to income-related repayment or are ignorant of income-related repayment, despite the fact that loan relief programs have been in full effect since 2009 Criticism of debt relief is that it could help former students, but new students will suffer the same higher educational costs that plagued previous borrowers. Biden has two solutions for this.

One doubles the Pell Grant’s maximum grant, which is currently around $ 6,300. Nearly one million California students are eligible for a Pell Scholarship, according to the latest data from the U.S. Department of Education. Such a move could bring the grant’s purchasing power closer to its glory days of 1975, when the Pell maximum grant covered three-quarters of a student’s state tuition and housing costs at a public university. Today it is 28%.

The President-elect also advocated making public colleges free of charge for students from families with less than $ 125,000.

source https://collegeeducationnewsllc.com/bidens-student-debt-plan-would-aid-millions-of-californians/