‘You don't need Congress’: Biden increasingly pressured to unilaterally forgive up to $50,000 student debt

Democrats and experts are increasingly calling for the cancellation of federally-held student debt, pushing President-elect Joe Biden to take action soon after he enters office on January 20, 2021.

“President Biden can undo this debt — can forgive $50,000 of [student] debt — the first day he becomes president,” Senate Minority Leader Chuck Schumer (D-NY) recently told reporters. “You don't need Congress. All you need is the flick of a pen.”

The next education secretary — who has not yet been nominated — would be able to implement forgiveness, Schumer noted, adding there would be no tax liability associated with the cancelled debt.

“Student loan cancellation is a matter of racial and economic justice across our country,” Representative Ayanna Pressley (D-MA) said this week. “Black student borrowers are forced to borrow more than their white peers and are five times more likely to default on us to it alone.”

WASHINGTON - FEBRUARY 7:  U.S. Sen. Chuck Schumer (D-NY) and U.S. Vice President Joe Biden laugh during the National Prayer Breakfast at the Washington Hilton February 7, 2013 in Washington, DC. U.S. President Barack Obama reportedly used the occasion to call for unity and common ground Washington politics.   (Photo by Chris Kleponis-Pool/Getty Images)
U.S. Sen. Chuck Schumer (D-NY) and U.S. Vice President Joe Biden laugh during the National Prayer Breakfast at the Washington Hilton February 7, 2013 in Washington, DC. (Photo by Chris Kleponis-Pool/Getty Images)

Several experts have argued that while there are several inefficiencies within the unwieldy federal student loan system — including obstacles related to tuition inflation, lack of discharge in personal bankruptcies, insufficiency of income-based repayment plans, and defrauding of certain borrowers by predatory colleges — the clearest first step to reform is cancellation of some of the $1.5 trillion owed by 43 million Americans.

“There are a number of major problems with… how we finance higher education, but the first step… has to be cancellation,” Ashley Harrington of the Center for Responsible Lending, a nonprofit organization research group, told Yahoo Finance Live (video above). “That will disproportionately impact low-income borrowers, black borrowers, and other borrowers of color, the ones struggling the most, people in default.”

Harrington added that even “partial cancellation at $10,000 or $20,000 will be tremendously helpful for some of these borrowers, she added, and could also “provide a stimulus to the economy.”

Goldman Sachs ‘skeptical’ about student debt cancellation

Goldman Sachs economists, in a note published Monday, disagreed with the notion that debt forgiveness would function as a stimulus.

“There are several reasons to be skeptical that forgiving student debt would provide a large boost to consumption,” they wrote. “These households likely have significant earning potential and are less likely to be resource constrained, so eliminating their loan payments might not generate a large spending response.”

A more “progressive” policy, according to Goldman, would be to target debt forgiveness for those who have an income less than 150% of the federal poverty line, or are similarly economically distressed.

Goldman Sachs estimated that forgiving $10,000 would “add less than 0.1% to the level of GDP starting in 2021, and cumulatively add only $0.43 in real GDP for each $1 of forgiven debt over the next 10 years.”

Aarthi is a reporter for Yahoo Finance. Follow her on Twitter @aarthiswami.

If you would like to share your story about how you’re struggling or paid off your students, email her at aarthi@yahoofinance.com

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