With his signature student-loan-forgiveness plan struck down by the Supreme Court, President Joe Biden is pushing to cancel debts by other means. His latest proposal aims to relieve nearly 30 million borrowers, on top of those who’ve received forgiveness under previous initiatives. Regardless of whether it survives the inevitable legal challenges, Biden’s Plan B is as misguided as the original.
The policy announced last month would cancel up to $20,000 in accrued and capitalized interest for those who owe more than they originally borrowed. Those making less than $120,000 ($240,000 for couples) would have their entire balances above the principal wiped out, so long as they had enrolled in an income-driven repayment plan. The government would also cancel all remaining debts for people with undergraduate loans older than 20 years, or 25 years for graduate borrowers, with no conditions attached.
The administration has portrayed this approach as more “targeted” than its 2022 plan, which eliminated $10,000 in debt for borrowers making $125,000 or less and $20,000 for the poorest students. It projects that about 28 million borrowers would get relief under the revised plan, down from 40 million in the earlier version. Plan B may cost anywhere from $85 billion to $150 billion over 10 years.
By its nature, such debt forgiveness is inequitable, rewarding college-going Americans at the expense of the rest of the public, most of whom don’t have degrees. Even by those standards, the current proposal is egregiously regressive. About 16 million borrowers with accrued interest, who have an average household income of $82,000 — slightly above the national median — will receive an average benefit of $3,600. But a smaller group benefits from Biden’s elimination of debts from older loans, many of which were for grad school. As a group, they have average incomes that put them among the top 5% of all earners.
