Student Loan Forgiveness: Biden’s Huge Political Gamble

Student loan forgiveness is a huge political gamble for President Joe Biden.

Here’s what you need to know — and what it means for your student loans.

Student Loans

Biden is weeks away from announcing a decision on student loan forgiveness that could forgive $10,000 of student loans for millions of student loan borrowers. The White House and Biden each confirmed that Biden will decide the fate of wide-scale student loan forgiveness and the student loan payment pause by August 31, 2022. No matter the outcome, Biden is gambling politically with student loan forgiveness, which could have a material impact on the November midterm election. Here’s how.

Student loan forgiveness: how Biden could gain politically

Let’s assume Biden cancels $10,000 of student loans for borrowers and extends the student loan payment pause. Progressive Democrats are still pushing Biden to cancel $50,000 of student loans, but $10,000 of student debt forgiveness is a reasonable estimate. If Biden pursues this playbook, here’s how Biden could gain politically.

Student loan forgiveness helps Biden re-energize his voter base

First, if Biden enacts wide-scale student loan forgiveness, he will re-energize his voter base. Rep. Alexandria Ocasio-Cortez (D-NY) warned Biden that failing to implement broad student loan cancellation will alienate Democratic voters in the midterm election. By canceling student loans before the November election, Biden can appease potential Democratic voters that demonstrate he understands the financial challenges of student loan repayment.

Student loan cancellation shows Biden is committed to student loan relief

Since becoming president, Biden has canceled more than $25 billion of student loans. For example, Biden recently canceled $6 billion of student loans for 200,000 student loan borrowers. While Biden has focused on targeted student loan relief, borrowers have questioned his commitment to broad student loan forgiveness. Biden campaigned on $10,000 of student loan cancellation for borrowers but said that Congress should pass legislation. Since Congress hasn’t acted on broad student loan forgiveness, student loan borrowers have directed their frustration at the president. By delivering $10,000 of student loan cancellation, Biden could provide student loan relief that Congress didn’t and appease student loan borrowers who feel uncertain about their economic future.

Student loan cancellation: how Biden could lose politically

For Biden, wide-scale student loan cancellation comes with inherent political risks.

Student loan forgiveness: Biden could alienate independent voters

With student loan forgiveness, Biden risks alienating various constituencies. For example, moderate and independent voters may oppose increased government spending. In an uncertain economic environment, these voter groups may prefer Biden to forgo broad student loan forgiveness. Why? Beyond the expected cost of nearly $400 billion, some voters could view wide-scale student loan relief as wealth redistribution. Democrats could lose control of the U.S. House of Representatives in the upcoming election. So, independent voters could play an important role in helping Democrats retain their majority.

Biden risks alienating voters who don’t have student loans

If Biden proceeds with wide-scale student loan forgiveness, he risks alienating voters who don’t have student loans. According to the latest student loan debt statistics, there are approximately 45 million student loan borrowers. If the U.S. adult population is approximately 250 million people, this means nearly 80% of adult Americans no longer have student loans or never borrowed student loans. This includes Americans who didn’t attend or couldn’t afford college. These constituencies are also facing economic hardship. They may question why Biden would approve substantial economic relief only for student loan borrowers while excluding others who are also struggling financially.

Student loan forgiveness could increase inflation

Forgiving student loans could increase inflation, which is at a 40-year record. Biden will consider the impact of student loan cancellation and the student loan payment pause on inflation. However, Republicans in Congress have expressed concern that Biden’s $400 billion of student loan cancellation and another extension of the student loan moratorium could increase inflation. If student loan borrowers don’t have to pay student loans, the argument goes, then borrowers have more cash to spend in the economy. In an inflationary environment, that incremental spending adversely impacts the supply-demand balance, which could increase inflation. Given the prospect of economic recession, Biden doesn’t want to craft policy that could be viewed as hurting the economy.

Student loans: next steps

Student loan forgiveness carries multiple political benefits and risks. Ultimately, Biden will decide by August whether to enact wide-scale student loan forgiveness and extend the student loan payment pause. Importantly, no matter what Biden decides, you should have a game plan for student loan repayment. For example, you may not qualify for student loan forgiveness or only a portion of your student loans could be forgiven. Similarly, an extension of the student loan payment pause likely is temporary, meaning student loan repayment would still be required. Learning all your options to pay off student loans is your best investment. Here are some top ways to pay student loans and save money:

• Student loan refinancing (lower interest rate + lower payment)
• Income-driven repayment (lower payment)
• Student loan forgiveness (federal student loans)

Student Loans: Related Reading

Student loan cancellation: Congress proposes 0% interest rates for student loans

Student loans: red, white and blues

Senators propose major changes to student loan forgiveness

Education Department cancels $6 billion of student loans