Would forgiving student debt devastate millions or punish poor Americans?

“Today’s decision will be difficult — if not devastating — news for millions of student-loan borrowers nationwide who have had their financial futures held in limbo for nearly a year while this plan worked its way through the courts,” said Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators, a student-affairs organization with over 13,000 members.

Draeger’s comments were just one example of the chorus of voices, each with their own take on how student-loan cancellation would have been a boon or a disaster for millions of Americans.

The Heritage Foundation, a conservative think tank, was jubilant. “The astronomical cost to American taxpayers of this ill-conceived program was only surpassed by its unfairness — since it would have punished millions of Americans who dutifully paid off their student loans as well as those who never took out loans in the first place,” said Heritage Foundation legal fellow Jack Fitzhenry and Lindsey Burke, director of Heritage’s Center for Education Policy.

“If we want to help students deal with the increasing cost of getting a degree, giving a bailout to the very colleges and universities that hike prices is not the answer,” they said in a joint statement. “Breaking up the monopoly of college accreditors and offering students more higher education options, while simultaneously cutting off the open spigot of federal higher education subsidies, is a start. Ultimately, students should be equipped with the knowledge and certainty that the student loans they take out can be repaid in future employment.”

House Speaker Kevin McCarthy, a Republican, said Biden’s forgiveness went against working families: “The President of the United States cannot hijack 20-year-old emergency powers to pad the pockets of his high-earning base and make suckers out of working families who choose not to take on student debt,” he said Friday. “The Court’s decision today deals a heavy blow to Democrats’ distorted and outsized view of executive power.”

Democrats cry foul

The liberal-leaning National Consumer Law Center, a nonprofit based in Boston, Mass. that advocates for low-income people, was in stark disagreement. Abby Shafroth, the organization’s co-director of advocacy, “We are deeply disappointed by this decision: It is wrong on the law and threatens the financial security of millions of low-income Americans who are struggling with unaffordable student-loan debt. They were counting on debt relief to manage their payments when bills resume in September for the first time in three years.”

(Interest on federal loans is scheduled to start accruing again in September, and payments are scheduled to resume in October.)

“Fortunately, the opinion on debt relief is narrow — it is limited to what the administration can do using national emergency authority under the HEROES Act,” she added. “It does not prevent the administration from pursuing debt relief under authority granted by other laws. Every option must be on the table to ensure that Americans with student loan debt can get the relief they need now. There is no time to wait — the administration must act fast to deliver promised relief to worried borrowers and prevent the federal government from sending bills Americans cannot afford to pay in September.” 

Rep. Alexandria Ocasio-Cortez, a Democrat, sounded a defiant tone. She wrote on Twitter that the Supreme Court’s ruling “does NOT remove Biden’s ability to pursue student loan forgiveness.” The New York representative said the Biden administration can use the Higher Education Act “to continue loan forgiveness before payments resume. They should do so ASAP.”

Weighing up the pros and cons

So who’s right? Some research suggests both sides have a point.

Adam Looney, a nonresident senior fellow at the Brookings Institution, which describes itself as nonpartisan, did a deep dive into Biden’s student-loan forgiveness plan last year, and came up with mixed answers on whether the program would achieve its goals.

Pell Grants are means tested and so recipients come from low-income families, Looney said. Some 42% of dependent Pell Grant recipients’ parents were in the bottom 25% of the income distribution when they started college, and almost none are in the top quintile, he said. Very few of their parents had either a bachelor’s (28%) or a graduate degree (11%). “They are a substantially disadvantaged group,” he concluded.

“In contrast, borrowers who had never received Pell are relatively affluent — both in comparison to those who received Pell and to average American households,” he added. “Only 6% are Black and 7% Hispanic; 83% are white or Asian. Their parents are well educated and affluent.” Some 55% have a bachelor’s and 29% have a graduate degree, making them twice as likely to have a graduate degree as the average American.

His first takeaway: The aggregate dollar amount of debt relief could be misleading. “The $20,000 of relief afforded to Pell recipients costs about the same amount, on a per-borrower basis, as the $10,000 in relief afforded to the non-Pell group because of differences in how much Pell students owe and their expected ability to repay,” Looney wrote.

His second takeaway: Some 89% of all Black borrowers and 84% of Hispanic borrowers have received a Pell Grant. What’s more, Pell borrowers account for 90% of borrowers in default, and 79% of all dropouts were recipients of the Pell Grant. Looney concluded: “If the goal was to help these specific groups, why not spend all the money on them, rather than spending the same amount on non-Pell borrowers as Pell recipients?”

The debate will likely drag on long after the Supreme Court ruling. Draeger, meanwhile, said students will need more help navigating a complex student-loan system. “Communication from the U.S. Department of Education will be critical to ensure borrowers are not left worse off as they move back into repayment,” Draeger added. “We are encouraged by reports that the Department plans to provide students an extended on-ramp to repayment, but schools and borrowers will need more information as the repayment start date quickly approaches.”

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