On Wednesday, President Joe Biden announced he would forgive millions of Americans for up to $10,000 in federal student loans.
The student loan forgiveness applies to Americans earning less than $125,000.
Biden will also forgive students $20,000 in Pell Grant debt and reach out to students in need.
Political analysts believe the move was announced to garner more support and attract more young voters ahead of November’s midterm elections.
More than half of Americans in debt are under the age of 35 — an age group Biden hopes to win over.
According to Ben Tulchin, a Democratic pollster who worked on Bernie Sanders’ campaign, recent actions on abortion, climate change and student loans have helped raise Biden’s profile among millennials and Gen Z.
“(So) I think it’s very helpful to kind of boost turnout among young voters and typically when younger voter turnout is higher, Democrats do better,” said Tulchin.
Who benefits from the decision?
College debt can be a heavy burden, but it is not evenly distributed among different socioeconomic groups.
A study from the Brookings Institution shows that four years after their bachelor’s degree, black graduates have almost $25,000 more debt than their white counterparts.
The debt is because they borrow more than white students and earn about $5,000 less than white graduates, according to the National Center for Education Statistics.
Wisdom Cole, youth college director for the National Association for the Advancement of Colored People, said $10,000 in debt relief was not enough.
He also released a statement ahead of Biden’s announcement, saying, “At this point, just cancel it. $50,000 is the bare minimum.”
Meanwhile, others criticized Biden’s plan, saying he gave money to “elites”.
Those without a post-secondary education are likely to come from poorer backgrounds than their heavily indebted peers.
However, statistics show that people with high incomes tend to go into debt.
US business school Penn Wharton estimates that Biden’s debt relief plan would come from households in the richest 60% of the income distribution.
While higher education is seen as a major contributor to lucrative jobs, the cost of tuition and student debt raise the question of whether it is worth it.
Over the past 15 years, total student debt has tripled, from $ 500 billion in 2007 to $ 1.6 trillion in 2022.
Wages are also stagnating as university fees rise, making it more difficult for young people to pay them.
How much is due?
More than 43 million Americans are in debt to pay their college loans, meaning that one in six American adults, or one in three Americans with a post-secondary education, has college debt.
According to the Federal Reserve, the average student loan debt is over $17,000 – 17% owe less than $10,000 on state student loans, while a small percentage of 7% owe more than $100,000 .
Most of the debt is concentrated in a small group of people who hold more than half of the total debt of 16% and over $60,000 in debt.
For heavy borrowers, $10,000 seems like a drop in the ocean.
How Biden’s plan will affect the economy
Student loans are the second largest type of household debt in the United States, after mortgages.
According to the Federal Reserve, people spend about $222 a month paying off their student loans.
The problem with debt is that people have less money to spend on goods and services, which weakens the country’s overall economy.
Debt can also ruin credit scores, making it harder for them to borrow and spend money.
Before the pandemic, Biden announced a pause in student loan repayments, with about 3% of federal loan holders in default.
He announced that he would extend the repayment break until the end of the year.
One of the most important parts of Biden’s plan is his intention to limit college loan repayments to 5% of a person’s discretionary income.
The White House estimated the move would cut loan repayments in half.
‘Debts and no degree’: Biden cancels as much as $20k in student loan debt: recap