Forgiving Student Loans Is a Costly Mistake

With Wednesday’s long-awaited announcement forgiving the debts of certain student borrowers, President Joe Biden hopes to give Democrats a boost in this fall’s midterm elections. Whatever the short-term political gains, the decision is a costly mistake — and one that the administration will almost certainly come to regret.

Biden’s plan cancels $10,000 in federal student-loan debt for borrowers with annual incomes of $125,000 or less, or $250,000 for married couples. Students who received Pell Grants, which help low-income families pay for college, will have up to $20,000 forgiven. Biden also extended the freeze on loan repayment for all borrowers through the end of the year — the seventh such extension since the start of the pandemic.

The new policy provides relief to more than 90% of the 45 million Americans carrying federal student-loan debt. The White House estimates that 20 million borrowers would see their ledgers wiped clean altogether. Yet student-loan forgiveness of any kind is highly regressive, benefiting those who graduated college at the expense of the roughly 60% of Americans who didn’t. An analysis released on Tuesday found that roughly 42% of the benefits of student loan forgiveness would go to the wealthiest two-fifths of Americans, with the bottom fifth receiving just 12%.