The White House announced President Biden’s new student loan relief plan on August 24. This plan is designed as a three-part plan to alleviate the outstanding student debt across the country. Off the bat, it seems either poorly designed or on track to have negative effects. Get your mental seatbelt on and let’s take a look.
Here is a quick breakdown of the plan: part one is direct student loan forgiveness, part two is restructuring student loan programs to benefit current and future students, and part three is lowering the cost of college and universities to help students in the first place. Two-thirds of this announcement seems great on the face of it. Part one is not great, though.
The first tine of this trident is an immediate cut to outstanding student loans by at least $10,000 and $20,000 if the borrower is also a Pell Grant recipient. These will be directed to borrowers who earn less than $125,000 single or $250,000 married. The median outstanding debt amount is $20,000-24,999, which means that these folks will see almost half of their debt—if not more—completely erased. The people who will benefit from this part will represent 95% of folks with outstanding student loan debt.
The second tine is restructuring the repayment process. This itself is a tag-team of two initiatives: cutting some of the monthly repayments back by half, and making changes to the current Public Service Loan Forgiveness program. It also forgives outstanding student loans after 10 years of repayment instead of 20, for loans with original balances of $12,000 and under. It seems that the changes to the PSLF are because it’s already a program that does not work well. But who knows if the final product will be any better than the original.
The third is working to lower the price of attending colleges and universities in the first place. Probably the only thing everyone can agree on. This part is also the only one which, to this author, seems to have decent mechanics, such as organizing a watch-dog type list of the programs with the worst debt level in the country.
The first part is absolutely the worse. The White House estimates that this action will fully eliminating the remaining debt for 20 million borrowers. At $10,000 a person (at least) times 20 million people, we will watch -$200,000,000,000 vanish into thin air. We also have an outstanding national debt, as well as inflation getting a little wild. That is $200 billion that can not reduce the amount of other imaginary debts. That is potentially $200 billion that can now be thrown into the money supply. Not great.
The money that is still outstanding after this amount will be more slowly repaid and then forgotten quicker. The rest of the outstanding balance will also deteriorate.
The third point is right on the mark in theory, but could still be tweaked. The idea of communicating bad decisions before they are made is something that should be done already. It’s too late to turn back the dial on prices rising as a side-effect of federal student aid in the first place, but we can continue in other aspects.
The White House could have done a lot better with this. Instead of erasing thousands of dollars of debt right off the back, make people pay back loans. Before loaning money to people, make sure they fully understand what taking out a federal loan entails. Restrict loans so that students who take them out will be studying in a field that can pay it back. Let the money flow to STEM students, maybe choke the supply to the liberal arts. And lean on public universities to hit benchmarks of expenditure reductions and tuition and fee reduction. Which, if any school is looking for volunteers to do so, please let me know. I know about ten things to change and 5 people to fire at my alma mater to start chipping away at that cost.
Sources:
Bayou Observant 
I would like to know -what percentage of students with loans graduate?
My husband took out loans to attend college and graduated. We paid back the loan monthly like a car note or rent. We made some sacrifices like not eating out and cooking more.
When we finished paying it off it felt so good. We were proud.
Years later, when buying our first house when they saw our credit report showed we paid off the student loan. It spoke volumes. They asked how much do we want and without
hesitation we secured a loan at a lower interest rate.
Hard work pays off. We are very proud we did it.
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