On August 24, the Biden Administration announced a student loan forgiveness plan that will cancel up to $20,000 of federal student loans. Borrowers are eligible for relief if their individual income is less than $125,000 individually or $250,000 for households. Pell Grant recipients will receive up to $20,000 of cancellation, while all other borrowers will receive up to $10,000.
“It’s great. It’s one less thing I have to worry about after school,” said an anonymous Carleton senior. “The loans I got over my four years at Carleton are just under the amount that a Pell Grant student would get forgiven. So it’s pretty sweet for me.”
In the 2021-2022 school year, 14% of Carleton students received Pell Grants, and would be presumably eligible for $20,000 in relief. While Carleton Financial Aid Director Danielle Hayden couldn’t provide specific numbers on how many Carleton borrowers would receive federal loan relief overall, she did note that Carleton students borrow significantly less than the national average.
“The class of 2022 has an average debt of $18,677, compared to the national average of $33,500, so we’re about 45% less than the national average. We offer federal loans in the financial aid package, so if a student were to pursue a private loan they’re pursuing that on top of the federal loan or in place of it. The vast majority of our students who have debt are holding federal debt.”
Hayden also noted that the Biden Administration loan forgiveness plan will not affect students’ financial aid packages, at least in the near future, a sentiment echoed by Dean of Admissions Art Rodriguez in an email to the Carletonian.
“We will not be making any changes to how we distribute financial aid at Carleton due to the loan forgiveness program implemented by the Biden administration,” wrote Rodriguez.
Hayden recommended that students who believe they may be eligible for loan forgiveness check the Carleton Financial Aid website, which will be continually updated as new information is available. The debt cancellation application is expected to be released in October 2022.
The Biden Administration plan is likely to relieve the financial burdens of many Carleton borrowers. However, Carleton Professor of Economics Nathan Grawe, who specializes in the economics of higher
education, noted that the plan will likely have a regressive effect in America as a whole.
“The income eligibility thresholds set by President Biden are so high as to exclude only a small minority of loan holders, so the program is likely to be regressive,” wrote Grawe in an email. “For example, a friend of mine is a farmer; he and his wife are solidly middle income. When he asked how I could justify his family subsidizing mine (through my daughter’s loan forgiveness), it was admittedly difficult to come up with a credible answer.”
The anonymous senior quoted above wrestled with similar questions of fairness and equality when it comes to the loan forgiveness program.
“I’m a Pell Grant student, but I’m also in an interesting position because I am going into a high-paying field. So I very well could have paid off those loans myself. But for every Carleton student like me, there’s someone who dropped out of college and is on the hook for loans and is seeing no benefit.”
While the one-time loan forgiveness program has made the most headlines, the Biden Administration’s plan also includes two other important policies. The current loan repayment pause period will be extended for a final time through December 31, 2022. The administration also proposed a new system for income-driven repayment, capping repayment at 5% of the borrower’s current income.
“While immediate forgiveness has gotten the lion’s share of attention, the executive order also made income-based repayment the default option,” wrote Grawe. “But not all income-based repayment plans are equal — details matter.”
Grawe compared the Biden administration’s plan to that of Harvard Higher Education Economist Susan Dynarski. Dynarski’s plan would cap undergraduate loan payments at 10% of their discretionary monthly income, compared to Biden’s 5%.
“While Dynarski and coauthors showed her plan to be progressive with most borrowers repaying their loans, the Biden executive order will likely create a continuous regressive subsidy from non-college-going to higher-income BA recipients who might be expected to repay roughly $15,000 of their loans,” Grawe said.
“In my personal opinion the plan recognizes that there is an inequity in higher education financing,” said Hayden. “I think that recognition is great. It’s benefiting students, but it seems like a small patch on a bigger issue. It’s good for the time, but I don’t think it’s addressing the larger issue of affordability within higher education.”