Biden Student Loan Plan Squarely Targets the Middle Class

WASHINGTON — The big winners from President Biden’s plan to forgive hundreds of billions of dollars in student loans are not rich graduates of Harvard and Yale, as many critics claim.

In fact, the benefits of Mr. Biden’s proposals will fall squarely on the middle class. According to independent analyses, the people eligible for debt relief are disproportionately young and Black. And they are concentrated in the middle band of Americans by income, defined as households earning between $51,000 and $82,000 a year.

The debt relief program, which by some estimates will cost as much as a half-trillion dollars over the course of a decade, will impose a future burden on American taxpayers. It has fueled criticism on several fronts, including that it could encourage colleges to raise tuition costs even faster than they already are. Some conservative and Democratic economists say it could add significantly to what is already the highest inflation rate in four decades, though evidence suggests those claims are overstated.

But in choosing to extend more generous debt relief than even many of his allies had expected, Mr. Biden is offering what independent analyses suggest would be his most targeted assistance yet to middle-class workers, while attempting to repair what he casts as a broken bridge to the middle class for young people across the country.

The people who will benefit from Mr. Biden’s plans, announced on Wednesday, defy the caricatures that critics have painted — at least the ones based on class and pedigree.

The Congressional Leadership Fund, an outside group that seeks to elect Republicans in the House, called Mr. Biden’s plan a bailout for “Ivy Leaguers with six-figure salaries.” But the vast majority of the people who will be helped by the plan do not fit either half of that description.

Nearly 90 percent of affected borrowers earn $75,000 a year or less, the Education Department projects. Ivy League graduates make up less than 1 percent of federal student borrowers nationwide.

“Most of the benefits are going to go to the middle class,” said Constantine Yannelis, an economist at the University of Chicago’s Booth School of Business who co-authored a study on the distributional effects of student debt relief that will soon be published in the Journal of Financial Economics.

On one front, Mr. Biden’s critics are indisputably correct. That middle-class relief will only touch Americans who pursued higher education, not those who attempted to climb the income ladder with a high-school diploma alone.

“The very poorest Americans aren’t going to benefit very much,” Mr. Yannelis added. “Many of that group don’t go to college, so they don’t have the opportunity to take out student loans.”

What to Know About Student Loan Debt Relief

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What to Know About Student Loan Debt Relief

Many will benefit. President Biden’s executive order means the federal student loan balances of millions of people could fall by as much as $20,000. Here are answers to some common questions about how it will work:

What to Know About Student Loan Debt Relief

Who qualifies for loan cancellation? Individuals who are single and earn $125,000 or less will qualify for the $10,000 in debt cancellation. If you’re married and file your taxes jointly or are a head of household, you qualify if your income is $250,000 or below. If you received a Pell Grant and meet these income requirements, you could qualify for an extra $10,000 in debt cancellation.

What to Know About Student Loan Debt Relief

What’s the first thing I need to do if I qualify? Check with your loan servicer to make sure that your postal address, your email address and your mobile phone number are listed accurately, so you can receive guidance. Follow those instructions. If you don’t know who your servicer is, consult the Department of Education’s “Who is my loan servicer?” web page for instructions.

What to Know About Student Loan Debt Relief

How do I prove that I qualify? If you’re already enrolled in some kind of income-driven repayment plan and have submitted your most recent tax return to certify that income, you should not need to do anything else. Still, keep an eye out for guidance from your servicer. For everyone else, the Education Department is expected to set up an application process by the end of the year.

What to Know About Student Loan Debt Relief

When will payments for the outstanding balance restart? President Biden extended a Trump-era pause on payments, which are now not due until at least January. You should receive a billing notice at least three weeks before your first payment is due, but you can contact your loan servicer before then for specifics on what you owe and when payment is due.

American shoppers who are wary of already soaring inflation are not likely to see prices spike as a result of the move, as many conservatives and even some Democratic economists warned this week. The economic consensus is that the announcements Mr. Biden made, including both debt forgiveness and a restart next year of loan payments for all borrowers after a nearly three-year pause, will mostly be a wash for consumer prices.

“Debt forgiveness that lowers monthly payments is slightly inflationary in isolation,” analysts from Goldman Sachs wrote in a research note on Thursday, “but the resumption of payments is likely to more than offset this.”

The real burden of the plans are likely to be carried by future taxpayers, who will shoulder what could be a half-trillion dollars in additional federal debt from the proposals. Economists generally agree that the distribution of that burden will depend on future tax and spending policies — who pays any increased taxes lawmakers might impose to reduce the federal budget deficit, or who suffers from spending cuts meant to do the same.

Experts say at least some future college students could also end up paying higher costs as universities respond to some of Mr. Biden’s moves by raising tuition at an even faster rate.

Mr. Biden said on Wednesday that the Education Department would forgive $10,000 in loan debt for borrowers with individual incomes of up to $125,000 or household incomes below $250,000. Students who received Pell Grants in school, which are available to lower-income families, would be eligible for an additional $10,000 in debt relief.

He also announced plans to ease the burden of paying off loans for students in the future, including a move that would limit many borrowers’ loan payments to 5 percent of their discretionary income and ensure they were not buried in accumulated interest costs if they keep up with payments.

The Pell Grant component and the moves to limit lower-income borrowers’ future payments were seemingly late additions to Mr. Biden’s plans. Mr. Yannelis and other researchers say they likely added significantly to the budgetary cost, while also tipping a much larger share of the benefits toward middle-class borrowers.

A rally in support of canceling student debt outside the Department of Education in Washington in April.Credit…Kenny Holston for The New York Times

The Committee for a Responsible Federal Budget, a deficit-reduction advocacy group in Washington, estimates the total cost of the moves could now exceed $500 billion over the next decade.

The University of Pennsylvania’s Penn Wharton Budget Model was set to release a similar estimate of the plan’s cost on Friday, modeling the effects of the $10,000 debt cancellation and the additional forgiveness for Pell grant recipients but not the moves to limit future borrowers’ payments. That estimate will also show that the middle fifth of income earners — households earning between about $51,000 and $82,000 a year — will reap more than a third of the benefits from the president’s student loan moves, more than any other income group by far.

Perhaps the broadest possible definition of the middle class — the three middle fifths of earners, who make between $29,000 and $141,000 a year — will receive about 80 percent of the benefits of the plans. Only about 5 percent would go to people earning more than that.

In contrast, the Budget Model estimated that the nearly $2 trillion collection of tax cuts that Republicans passed in 2017 would spread less than a third of its benefits to that broad middle class — and more than two-thirds of its gains to the top fifth of earners.

Mr. Biden has cast the plans as a victory for future members of the middle class as well, saying high student debt has effectively broken an economic promise America offered to young people in recent decades: Do what you can to pay for a college education, and you will be rewarded with a job that can afford the comforts of a home, health care and more.

“An entire generation is now saddled with unsustainable debt in exchange for an attempt, at least, at a college degree,” Mr. Biden said on Wednesday, announcing the proposals. “The burden is so heavy that even if you graduate, you may not have access to the middle-class life that the college degree once provided.”

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