WASHINGTON — The big winners of President Biden’s plan to forgive hundreds of billions of dollars of student loans aren’t the wealthy graduates of Harvard and Yale, as many critics claim.
Indeed, Mr. Biden’s proposals will benefit the middle class. According to independent analyses, people eligible for debt relief are disproportionately young and black. And they are concentrated in the middle band of Americans based on income, defined as households earning between $51,000 and $82,000 a year.
The debt relief program, which by some estimates will cost half a trillion dollars over the course of a decade, will put a future burden on American taxpayers. It has sparked criticism on several fronts, including that it may encourage colleges to raise tuition costs faster than ever. Some conservative and Democratic economists say it could add significantly to the already highest inflation rate in four decades, although evidence suggests those claims have been debunked.
But in opting for more generous debt relief than many of his colleagues expected, Mr Biden is offering what independent analyzes suggest will be his most targeted aid to middle-class workers yet, while he is a Let’s try to fix whatever you put as broken. Bridge for the middle class, for the youth across the country.
Those who would benefit from Mr Biden’s plans announced on Wednesday disregard the caricatures portrayed by critics – based at least on class and pedigree.
The Congressional Leadership Fund, an outside group that wants to elect Republicans to the House, called Biden’s plan a bailout for “Ivy Leaguers with six-figure salaries”. But the vast majority of people who will be helped by the plan don’t fit half of that description.
According to the Department of Education projects, about 90 percent of affected borrowers earn $75,000 per year or less. Ivy League graduates make up less than 1 percent of federal student borrowers nationwide.
“Most of the gains are going to go to the middle class,” said Constantine Yanelis, an economist at the University of Chicago’s Booth School of Business, who co-authored a study on the distributional effects of student loan relief, which will be published soon. Journal of Financial Economics.
On one front, Mr Biden’s critics are undeniably right. Middle-class relief would only affect Americans who received higher education, not those who attempted to climb the income ladder with a high-school diploma alone.
“The poorest Americans are not going to benefit much,” Mr Yanelis said. “Many in that group don’t go to college, so they don’t have the opportunity to take out student loans.”
What to know about student loan debt relief
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What to know about student loan debt relief
Many will benefit. President Biden’s executive order means the federal student loan balances of millions could drop by up to $20,000. Here are answers to some common questions about how this would work:
What to know about student loan debt relief
Who is eligible for loan cancellation? Individuals who are unmarried and earn $125,000 or less will qualify for $10,000 in loan cancellation. If you are married and file your taxes jointly or are the head of household, you qualify if your income is $250,000 or less. If you have received a Pell grant and meet these income requirements, you may qualify for an additional $10,000 in loan cancellation.
What to know about student loan debt relief
What is the first thing I need to do if I qualify? Contact your loan servicer to ensure that your mailing address, your email address and your mobile phone number are listed accurately so that you can receive guidance. Follow those instructions. If you don’t know who your servant is, check the Department of Education’s “Who is my loan servant?” consult with. Web page for instructions.
What to know about student loan debt relief
How do I prove that I am eligible? If you’re already enrolled in some sort of income-driven repayment plan and submitted your latest tax return to prove that income, you don’t need to do anything else. Still, keep an eye out for guidance from your servant. For everyone else, the Department of Education is expected to set up an application process by the end of the year.
What to know about student loan debt relief
When will the payment of dues resume? President Biden extended the Trump-era moratorium on payments, which are no longer due until at least January. You should receive a billing notice at least three weeks before your first payment is due, but you can contact your loan servicer ahead of time to see what you owe and when the payment is due.
US shoppers who are already wary of rising inflation are unlikely to raise prices as a result of the move, as many conservative and even some Democratic economists warned this week. The economic consensus is that the announcements Mr Biden made, including loan waivers and the resumption of loan payments next year for all borrowers after a nearly three-year stagnation, would be a wash out for most consumer prices.
“The loan waiver that lowers monthly payments is slightly inflationary in isolation,” analysts at Goldman Sachs wrote in a research note on Thursday, “but the resumption of payments is likely to more than offset it.”
The real burden of the plans is likely to be borne by future taxpayers, which could result in half a trillion dollars in additional federal debt from the proposals. Economists generally agree that the distribution of that burden will depend on future tax and spending policies—which pays for any increased taxes lawmakers may impose to reduce the federal budget deficit. , or who suffer from reductions in expenses for doing so.
Experts say at least some future college students could also pay higher costs as universities respond to some of Mr Biden’s moves and raise tuition at an even faster rate.
Biden said on Wednesday that the Department of Education would forgive $10,000 in loan debt for borrowers with a personal income of up to $125,000 or a household income of less than $250,000. Students who receive Pell Grants at School, which are available to low-income families, will be eligible for an additional $10,000 in debt relief.
He also announced plans to reduce the debt repayment burden for students in the future, including a move that would limit loan payments for many borrowers to 5 percent of their discretionary income and ensure that if They are not buried in the accumulated interest cost if they continue. with payment.
The Pell Grant component and moves to limit future payments to low-income borrowers were added to Biden’s plans of late. Mr Yanelis and other researchers say they have significantly increased budgetary costs, as well as added a slew of benefits for middle-class borrowers.
The Committee for a Responsible Federal Budget, a deficit reduction advocacy group in Washington, estimates the total cost of the move could now exceed $500 billion over the next decade.
The University of Pennsylvania’s Penn Wharton budget model was set to release a similar estimate of the plan’s cost on Friday, modeling the effects of $10,000 of loan cancellations and additional forgiveness for Pell grant recipients, but not the future. Not to limit borrowers’ payments. The estimate would also show that the middle-fifth of income earners — roughly households earning between $51,000 and $82,000 a year — would benefit more than a third from the president’s student loan moves, far more than any other income group. More than.
Perhaps the broadest possible definition of the middle class — the three middle-fifths of earners who earn between $29,000 and $141,000 annually — will receive about 80 percent of the plans’ benefits. Only 5 per cent will go to those earning more than this.
In contrast, budget models projected that the roughly $2 trillion collection of tax cuts passed by Republicans in 2017 would spread less than a third of its benefits to that broad middle class — and more than two-thirds of its gains to the top fifth. will reach the place. earners
Mr Biden has also projected the plans as a win for future members of the middle class, saying high student loans have effectively broken the economic promise America has made to youth in recent decades. : Do what you can for a college education, and you’ll be rewarded with a job that can afford the comfort of home, health care, and more.
Announcing the proposals on Wednesday, Mr Biden said, “An entire generation is now saddled with constant debt in exchange for the pursuit of at least a college degree.” “The burden is so heavy that even if you graduate, you can’t reach the middle-class life that a college degree once provided.”