The Secretary of Education, Miguel Cardona, is uncomfortable.
I’m starting an interview with him in the library at Glendora Elementary School (New Jersey) and we’re sitting in plush, giant, hand-shaped kids’ chairs when Cardona, himself a former fourth-grade teacher, calls out audibly. “Wait,” he says. “Let’s stop the interview and change these seats.”
Makes sense, Mr. Secretary. The chairs did not work. And with what’s going on these days, the man needs all the comfort he can get.
I mean Cardona is the point person in the Biden administration’s controversial student debt relief plan, which is due to start sometime this month, with updates now in real time.
In late August, President Biden signed an executive order that will forgive up to $10,000 of student debt for borrowers earning less than $125,000 per year. Federal Pell Grant borrowers, which go to people with exceptional financial need, will receive up to $20,000 in forgiveness if they earn less than $125,000.
The plan has become a political hot potato drawing criticism primarily from the political right, but also from some constitutional scholars and education and personal finance experts who see it as problematic, incomplete or both. On the other hand, the estimated 40 million Americans who would see their student loan debt reduced or even eliminated (more than 15% of the US adult population) might be delighted with the president’s determination to go ahead with the plan despite their criticism. .
I asked Cardona why the plan has become a lightning rod.
“If we are serious about America being the best and leading the world and producing the best thinkers, then we must invest in education,” he said. “It is almost hypocritical for people to complain about this and applaud what we did to keep businesses open during a pandemic, through our PPP. [Paycheck Protection Program].”
The left wing of the Democratic Party, some of whom, like Bernie Sanders, have pushed to write off all student debt, seem mostly on board with Biden’s plan. New York Rep. Alexandria Ocasio-Cortez applauded the plan, though she urged her supporters to fight for more forgiveness.
“President Biden responded to the stories we amplified, and his action is historic and will change lives for the better,” Massachusetts Rep. Ayanna Pressley, a member of the squad, told us. “There were those who considered this topic marginal and fringe. We worked with a coalition for two years to show that it wasn’t and that canceling student debt would be transformative.”
Pressley emphasized that the Biden administration should continue to support historically black colleges and universities; push for free college education; and invest in Pell Grants. “But this is a bold, strong and necessary step in the right direction. It’s a win for everyone,” he said.
‘Illegal and inflationary’
Now for the quibbles: Opponents say debt relief will stoke inflation, while others say the Biden administration doesn’t have the constitutional authority to eliminate so much debt. Some critics argue that this isn’t fair to people who never took on student loan debt, or that Biden went too far when he offered up to $20,000 in forgiveness for Pell Grant recipients.
“Student debt is crippling,” Texas Rep. Kevin Brady told Yahoo Finance. “And when you take on too much it can change your life. But this president’s proposal is illegal and inflationary. It is financially irresponsible. But mostly, it’s just unfair. It’s a kick in the teeth for all blue-collar workers and all Americans who don’t have student loans.”
Brady spoke of a pending bipartisan bill called SECURE 2.0 as an alternative to the forgiveness plan, which he says would allow businesses to contribute to employees’ retirement accounts when workers make student loan payments. Example: If you set aside $100 for your student loan, your company could match it with up to $100 for a retirement plan like a 401(k).
“So, in effect, as long as that worker is paying off their student debt, they no longer lose the opportunity to put matching funds into their retirement,” Brady said. “He brings a private sector approach to helping students with their debt while helping them save for the future and for retirement.”
The president’s plan also faces a series of legal challenges. Perhaps most significantly, six states — Iowa, Missouri, Nebraska, Arkansas, Kansas and South Carolina — have sued the Biden administration, claiming the plan will hurt state education programs and reduce tax revenue.
Sheila Bair, former chair of the FDIC and former president of Washington College, recently wrote for Yahoo Finance that while she supports forgiveness of some student loans, the plan doesn’t fix flaws in the broader student loan ecosystem. These include complexity, opacity, high enrollment, and poor performance.
As for Biden’s plan, he says: “It’s too generous. I think $10,000 in relief for eligible Pell students would have been much more defensible,” Bair said. “If we fall into a recession, I believe federal spending should be prioritized on those who have lost their jobs, not student debt borrowers. This may be a good political issue for Democrats in November, but it will prolong the uncertainty and difficulties among borrowers.”
With the midterms just a month away, Biden and Democrats hope to present student loan forgiveness to voters as a victory.
That is by no means a certainty. Legal challenges aside, the administration is looking to thread a needle, as it wants as many people as possible to sign up before November so it can recalculate millions of dollars in loan payments in January. That’s the same month the pandemic-related pause in student loan payments ends.
Should these students be required to pay this debt? The debate between those who favor a free market and those who push for government intervention reflects a timeless American theme.
The free market camp argues that these young people chose to go into debt, so that is their problem. To the extent that this is an unattractive contract, free market advocates would argue that the “invisible hand” of the market will make the student loan business unsustainable, as borrowers avoid accepting unattractive loans.
The problem with that perspective is that millions of people are hurt along the way, which is no way to run a society. We cannot allow people to sell Halloween candy with frosted glass and wait for the market to correct it. The government needs to protect people and, in some cases, recover them if they have already been injured.
The question is: is the government obliged to come to the aid of those who have already taken on too much debt? It is a debate that will probably keep Secretary Cardona in the dock.
This article appeared in a Saturday edition of the Morning Brief on Saturday, October 7. Receive the Morning Brief delivered directly to your inbox every Monday through Friday at 6:30 am ET. Subscribe
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