Canceling at least a portion of the nation’s $1.5 trillion in student debt is an element of the economic recovery plan he is working on, President-elect Joe Biden said Monday.
Biden, at a press conference at his transition headquarters in Wilmington, Del., outlined that he will propose massive investments in areas like electric cars and clean energy, as well as aid for states and local governments struggling financially during the pandemic.
“It does figure in my plan,” Biden said when asked if debt cancellation is an element of his plan. Biden noted that during the campaign he supported a provision in the Democratic House’s COVID-19 relief bill, which would cancel $10,000 of debt for all borrowers.
“They’re in real trouble. They’re having to make choices between paying their student loan and paying their rent,” he said of borrowers; those with federal student loans were excused from making loan payments through the end of the year under an executive order President Trump signed in August.
Biden also mentioned other campaign pledges to make community colleges and historically Black colleges and universities free for all students, as well as eliminating tuition at public institutions for students whose families earn $125,000 or less.
Biden also noted that he pledged during the campaign to reform the broken Public Service Loan Forgiveness program. Nearly everyone applying for the program has been denied.
Others like Elizabeth Warren, a progressive Democratic senator from Massachusetts, have proposed canceling up to $50,000 in student loan debt for 42 million borrowers, which would cost $1 trillion.
On Sunday night Jason Furman, who served as President Obama’s chief economist and is being mentioned for a similar role in the Biden administration, cast doubt on the wisdom of widespread debt relief on Twitter.
Furman, who has been mentioned in press reports as a potential member of Biden’s Council of Economic Advisors or chairman of the Federal Reserve, essentially argued that any debt cancellation would be taxable.
So any relief that borrowers would get would be offset at least in part by having to pay higher taxes. As a result, the amount of money borrowers would have left to spend and pump back into the economy wouldn’t justify the potential $1 trillion cost of forgiving debt.
“Student loan debt forgiveness likely has a multiplier close to zero,” tweeted Furman, now a Harvard University economic policy professor. “Forgiveness is taxable. If this negative cash flow effect outweighs interest savings would even be net negative. And wealth effect small in short run.
“Arbitrary/regressive $1T for ~$0 GDP, not a great idea,” he wrote.
It wasn’t clear which of the several proposals for student debt cancellation that have been offered he was referring to.