Can Biden's plan for 'Education Beyond High School' solve the student loan crisis?

Dr Terri MacDonald, NTEU Policy & Research Officer

In the race for the US Presidency, former VicePresident (and now President) Joe Biden put forward a higher education policy platform focused on community colleges, Historically Black Colleges and Universities (HBCUs) and Minority-Serving Institutions.

In addition to increasing investment in these colleges and institutions, his plan would make tuition debt free for those who attend two years of community college or high-quality training programs, and it involves some limited debt forgiveness. Currently budgeted to cost approximately US$750 billion, the plan would be paid for by increasing taxes on the super wealthy and eliminating what the Biden campaign had called tax ‘loopholes’.

Biden’s 'beyond high school’ policy continues the higher education approach under President Obama. That said, the now First Lady, Dr Jill Biden, undoubtedly has had some influence in its revival under her husband’s presidency; she has worked at community colleges for over 30 years and is currently teaching at Northern Virginia Community College. The question is, will this be enough? Supporters of Biden’s proposed plan argue that two free years of community college would cut four year education rates in half, since students could transfer their credits to complete their college education.

There are other aspects to the policy that would appeal to supporters of progressive politics. For example, the plan would see DREAMers – young undocumented immigrants who came to the US as children – be eligible to receive a free two-year education, as well as financial aid, based on requirements already established under existing financial aid eligibility. Yet, Biden’s policy falls short of proposals from more progressive democrats – Elizabeth Warren and Bernie Sanders both proposed four years of free community and public college tuition and, importantly, forgiving most, if not all, existing student debt.

The weight of student loan debt

Student loan debt is a major economic, social and equity issue for the US. In a country that remains politically divided over most things – including universal health care – the idea of ‘free education’ is similarly fraught. Many argue that to forgive debt now is unfair for those who have paid back their student loans. Regardless, the national debt for student loans is immense – in 2020, it was about US$1.56 trillion, and is effectively a national crisis across all ages and demographics.

The statistics reveal the extent of the problem – according to the Federal Reserve, there are some 45 million borrowers who collectively owe the nearly US$1.6 trillion in student loan debt. The average student loan debt is now US$32,731, which is an increase of approximately 20% from 2015-2016. Most borrowers have between US$25,000 and US$50,000 outstanding in student loan debt, making it the second highest consumer debt category – behind only mortgage debt – and higher than both credit card and auto loan debt.

Biden’s plan goes some of the way to addressing this issue, proposing to forgive outstanding student debt for those who have regularly paid it back for 20 years. Those working jobs in 'national or community service' like teaching or non-profits, would also receive $10,000 student debt relief annually, for up to five years for each year that they stay in that vocational job.

Reminiscent of Australia’s HECS-HELP scheme, Biden’s scheme would see loan repayments become income contingent, with people making more than $25,000 annually expected to contribute 5 per cent of their discretionary income toward their loan – half of the current 10 per cent cap. Those who make $25,000 or less would not be expected to pay back the government and would not accrue interest.

Calls to go further

Despite these measures, many – including Democrats – have criticised Biden’s plan for not going far enough in dealing with the student loan debt crisis. Recently, both House and Senate Democrats urged President Biden to 'broadly' forgive up to US$50,000 of federal debt through executive order. Indeed, Senate majority leader Chuck Schumer has repeatedly said Biden should take this major step during his first 100 days in office.

However, Biden has refused and even pushed back against his own party — repeating he will only support up to $10,000 of debt forgiveness and would prefer Congress to craft the legislation in support of his plan.

He gives a number of reasons for his refusal, but primarily argues that forgiving US$50,000 in student debt would disproportionately benefit students who go to 'elite' private colleges.

The problem is that his argument doesn’t stack up – the US Department of Education’s college scorecard tool shows that only 3% of Harvard students take out federal student loans and, among these students, the median amount owed at graduation is between $9,464 and $25,714 – significantly lower than the average student loan debt of US$32,731.

Although it is correct to say that student loan debt shows higher-income individuals are more likely to have such debt (Federal Reserve data shows that the highest-income 40 per cent of households owe almost 60 per cent of the outstanding education debt and make almost three-quarters of the payments), the reality is that students from higher-income households are more likely to attend college in the first place, which skews the figures.

A more useful indicator is to look at the overall data for those who attend college, which shows that Black and African American college graduates owe an average of $25,000 more in student loan debt than their White counterparts.

Despite the evidence contradicting his stance, Biden refuses to change his position, arguing that the extra funds involved in increasing the loan forgiveness could be better used 'to provide for early education for young children that come from disadvantaged circumstances'. He has also claimed that the powers of executive action are limited.

Regardless, the pressure for more action on student loan debt in particular is building. In one of the latest developments, a multi-state group of Attorneys-General have written to Congress, urging the adoption of two resolutions that call on Biden to cancel up to US$50,000 in federal student loan debt.

According to media reports, the letter states that many borrowers, struggling with student loan debt, are victims of mercenary for-profit colleges, and have been severely impacted by the COVID-19 pandemic. The authors also note there are few options for debt relief if the burden becomes unmanageable. Student loan debt generally cannot be discharged in bankruptcy, and few people have been able to get relief through current programs such as Public Service Loan Forgiveness.

Noting the racial disparity in levels of debt, the authors of the letter have also pointed out that forgiving $50,000 in student loan debt could help close some of the racial wealth gap.

How Biden responds to the growing pressure will no doubt set the tone for many of the other major economic and public policy problems currently facing the US – many of which have been amplified by COVID. Biden’s current policy platform takes much from the Obama era – which was ineffective in dealing with the issue of student loan debt, and in improving equity and access to post-secondary education.

Clearly, there are many that want more direct and extreme action to be taken – whether they have a President willing to do that is far from certain. ◆