Depending on the estimates one chooses to believe, the student loan cancellation announced by the Biden administration will cost the federal government anywhere between $240 billion and around $520 billion over the next ten years.
Both the low and high ends of the estimates have set off a furious debate across the country with reports that elements of President Joe Biden’s Democratic Party, as well as the Republican Party, have denounced the debt cancellation generally on the ground that it is a profligate move that America cannot afford. Some of them even argue that it would trigger untamable inflation.
Those who argue against the student loan cancellation on the ground of fiscal prudence would do well to bear in mind two unrelated figures. Over nearly a 20-year period America’s stunningly inept invasion and occupation of Afghanistan cost the exchequer $2.3 trillion, according to the Costs of War project at Brown University.
Now consider another statistic.
According to the National Bureau of Economic Research, “The Paycheck Protection Program (PPP) provided small businesses with roughly $800 billion dollars in uncollateralized, low-interest loans during the pandemic, almost all of which will be forgiven. With 93 percent of small businesses ultimately receiving one or more loans, the PPP nearly saturated its market in just two months. We estimate that the program cumulatively preserved between 2 and 3 million job-years of employment over 14 months at a cost of $170K to $257K per job-year retained. These estimates imply that only 23 to 34 percent of PPP dollars went directly to workers who would otherwise have lost jobs; the balance flowed to business owners and shareholders, including creditors and suppliers of PPP-receiving firms.”
The facts that a 20-year-long war costing $2.3 trillion ended with U.S. troops literally having to flee Afghanistan and roughly $800 billion in uncollateralized low-interest loans being written off are the bookends between which the outrage against the student debt forgiveness ought to be seen.
The White House has been remarkably sharp in its rebuke of those raging against the student debt cancellation on its official Twitter handle. It singled out Representatives Marjorie Taylor, Vern Buchanan, Markwayne Mullin, Kevin Hern, Mike Kelly and Matt Gaetz, all cavalier critics of the student loan cancellation, for themselves having secured cancellation of their own PPP loans. Between them they had more than $6 million in PPP loans forgiven.
These and many other critics had no compunctions consuming PPP handouts but have a problem with student debt forgiveness of a little over $500 billion even at the high-end estimate. The fact that some $800 billion in PPP loans has been written off is being conveniently forgotten. For that matter, even the largely unproductive Afghan war costing over $100 billion a month for close to two decades has been accepted without much outrage.
Bharat Ramamurti, Deputy Director of the National Economic Council, said on August 26 during a White House press briefing, “Our estimate is that the debt relief proposal will reduce average annual receipts in the student loan program by about $24 billion a year over the next 10 years.”
“The way to think about this is that because we are providing debt relief — reducing the outstanding balance for some people, eliminating it for other people — that means we’re not going to be collecting certain amount of payments that we otherwise would have been collecting. And that total is about $24 billion a year on average over the next 10 years,” Ramamurti said.
“So let’s put that $24 billion in context. That represents 1.5 percent of the deficit reduction that we are projecting for this fiscal year before the announcement. And it is far less than the $350 billion-plus that we’ve already done in PPP loan forgiveness since last July,” he added.
Laying out his case for student cancellation Biden said, “Using the authority Congress granted the Department of Education, we will forgive $10,000 in outstanding federal student loans.
In addition, students who come from low-income families which allowed them to qualify to receive a Pell Grant will have their debt reduced $20,000.”
“Both of these targeted actions are for families who need it the most — working and middle-class people hit especially hard during the pandemic making under $125,000 a year. You make more than that, you don’t qualify,” he said.
“No high-income individual or high-income household, on top of the 5 percent — in the top 5 percent of incomes, by the way, will benefit from this action. Period. In fact, about 90 percent of the eligible beneficiaries make under $75,000 a family,” he said.
He explained, “Here’s what that means: If you make under $125,000, you’ll get $10,000 knocked off your student debt. If you make under $125,000 a year and you received a Pell Grant, you’ll get an additional $10,000 knocked off that total for a total of $20,000 relief.
Ninety-five percent of the borrowers can benefit from these actions. That’s 43 million people.
Of the 43 million, over 60 percent are Pell Grant recipients. That’s 27 million people who will get $20,000 in debt relief.
Nearly 45 percent can have their student debt fully canceled. That’s 20 million people who can start getting on with their lives.”
The overarching logic of the Biden plan is what he said in his explanation: “All of this means people can start to finally crawl out from under that mountain of debt to get on top of their rent and their utilities, to finally think about buying a home or starting a family or starting a business.”