"There are certainly some people who are struggling economically because of student debt they incurred," says Timothy Hagle, a political science professor at the University of Iowa. "In some cases it could be a matter of bad choices and lack of responsibility. Of course, in other cases a person may still be paying off school loans and is able to do so with no particular economic hardship. Thus, it is easy for those on either side of the issue to point to individuals who may be deserving of some relief and others who are less so."
According to the US Education Department, among those eligible for up to $10,000 in debt cancellation are individuals earning less than $125,000 annually or families earning less than $250,000 per year. At the same time, Pell Grant recipients will be eligible for an extra $10,000 in debt relief, for a total of $20,000.
Still, a far more pressing issue is where the money to pay for it will come from, with Biden administration officials seeming unwilling to address that question, according to the political scientist.
"Many on the right are more concerned that at some point (which the US may have already reached) the bill will come due, so to speak, and the enormous debt will have damaging effects on the economy," Hagle explains. "Regardless of that issue, in the short term it means an increase in the national debt, which means having to borrow more, which means more government spending that has to go to interest payments. That, in turn, would likely mean more taxes are needed to pay for it."
Biden's announcement came as the US economy shrank by 1.6% and 0.6% in the first and second quarters, respectively. According to the definition used by the National Bureau of Economic Research (NBER), two consecutive quarters of GDP contraction indicate a recession.
Meanwhile, recession keeps swirling in the US despite the Federal Reserve's repeated increases in interest rates. Year-on-year inflation stands at 8.5% for the 12 months ending July 2022. Republicans have warned that the Biden administration's student loan policy could further facilitate the troublesome trend.
"It seems that this type of action would tend to increase inflationary pressure," says Hagle. "The argument is that increased government spending generally increases inflation as more dollars are chasing the same number of goods. The president’s action is effectively government spending so there might be an increase in inflation, or at least less chance that inflation will ease in the near future."
Why Left and Right Say Biden's Policy is Unfair
Some congressional Republicans called Biden's loan forgiveness policy "unfair" with House Minority Leader Kevin McCarthy dubbing the plan nothing short of a "radical agenda." "Biden’s debt transfer scam will make inflation even worse and does nothing to stop the runaway cost of college for most families,” McCarthy tweeted on August 24.
On the other side of the political aisle, Democratic progressives keep saying that Biden's move with regard to student loans is not enough, calling for full cancellation of student debt.
In late May Democratic Representative from New York Alexandria Ocasio-Cortez warned the president that "$10,000 means tested forgiveness is just enough to anger the people against it and the people who need forgiveness the most."
"$10,000 relieves most of the people who owe the least. What relief is there for the most desperate? For them, interest will undo that 10k fast. We can do better," she tweeted while commenting on the notion by a National Association for the Advancement of Colored People (NAACP) CEO that "POTUS cancelling $10,000 in student loan debt is like pouring a bucket of ice water on a forest fire."
Suspicious Timing of Biden's Announcement
While the White House's move is unlikely to solve the student indebtedness problem once and for all, his most immediate goal is to improve the Democratic Party and Biden's image ahead of the 2022 midterm elections, according to Hagle.
"The timing is suspect given that it comes just a couple of months before the midterm elections when Democrats are expected to do poorly," he says. "The greater need, particularly in midterm elections, is to get more marginal supporters to the polls. Younger and politically less engaged voters tend to have a higher drop in turnout in the midterms. The middle voters also tend to focus more on economic, “'kitchen table', issues. Forgiving $10,000 or more for potentially millions of voters will have a bigger effect than most other issues. Again, it is easy to pick an example here and there where it can be seen as a generous move, but given the broad application of the action it seems more a way to 'buy' votes."
Another argument backing the assumption that the Democratic government is trying to curry favor with the voters are Biden's justification for it and certain rush to implement the measure, according to the political scientist.
The president announced the cancellation under the HEROES Act, a post-9/11 higher education law that allows the executive branch to provide relief in response to a national emergency. The measure allows Biden to bypass the US Congress. However, the COVID-19 emergency, cited by the White House, does not sound convincing enough, according to Hagle.
"The claimed emergency that justifies the action is the pandemic, but that justification would have made more sense a year or more ago," the political scientist concludes.