Opinion | Why income caps for student loan forgiveness would be a disaster

This weekend more than 460 women will get unusual letters in the mail: “We are writing to you with good news: Bennett College, in collaboration with the Rolling Jubilee Fund, has canceled the remaining unpaid balance you previously owed directly to the college.”

Bennett College is a small liberal arts college in Greensboro, North Carolina, and one of the country’s two Historically Black Colleges and Universities for women. All told, more than $1.7 million of tuition-related debt was erased for former students, some of whom had balances in excess of $20,000. Now, every single account the school had in collections has been wiped out as a no-strings-attached gift.  

Means testing and associated restrictions sound fair in theory. In practice, the results are like taxes, where the privileged are better able to hire accountants, navigate complexity, and reap associated rewards.

Why did the Rolling Jubilee Fund do this? The Rolling Jubilee is an initiative of the Debt Collective, the country’s first union for debtors, which I helped found. For nearly 10 years, we’ve been leading the movement to push the government to cancel all student debt. We decided to partner with Bennett College to call attention to the disproportionate impact the student debt crisis is having on Black women and to push President Joe Biden to keep his campaign promise on student debt elimination for the country’s 45 million borrowers.

But student loan holders are still waiting for relief. Biden should be wiping out federal student loans through an executive order. He could send letters like the one we just sent to former Bennett students, only to every single borrower in the country, lifting a crushing weight from their shoulders. 

Most people seem to have forgotten that the president pledged as a candidate to eliminate a “minimum” of $10,000 for every single borrower, in addition to vowing to cancel all undergraduate federal loans for people who attended public colleges and universities as well as private HBCUs and minority serving institutions for people who earn less than $125,000 a year.

Unfortunately, the White House seems determined to move the goalposts. This month, in speaking about loan cancellation, Biden said perhaps $10,000 tied to an individual’s income would be forgiven for those who earn less than $125,000. Debt cancellation is the right thing to do. But $10,000 is nowhere near enough, and it should not be means-tested in any way. In fact, these provisions are recipes for disaster. 

There are simply no convincing reasons to limit relief to $10,000 or to exclude borrowers over an arbitrary income threshold. Research shows that maximum economic and social benefits flow from canceling all student debt and to making that cancellation universal: The boost for the economy will be bigger, the racial wealth gap will correspondingly narrow, and more lives will be dramatically improved.

For millions of borrowers, $10,000 will not make a dent in the enormous interest that has accrued on their balances. A recent analysis in Forbes showed that the amount could have “little or no benefit” for many of the 9 million borrowers currently on Income driven repayment plans, which are designed to help struggling individuals by reducing monthly payments and spreading their loans out longer. Yet these are some of the nation’s neediest borrowers.

Targeting student debt cancellation by implementing an income cap will only harm the most vulnerable debtors — overwhelmingly people who are low income, women and people of color — because borrowers will have to apply and prove that they qualify rather than the cancellation happening automatically. As a result, millions likely won’t know that they are entitled to relief, or how to get it. 

Education Department officials have themselves warned, means-testing cancellation (tying cancellation to income) is far easier said than done. For example, the Education Department does not have access to IRS data and many poor people are nonfilers, which means they can struggle to verify their incomes as part of any application process. 

Education Department fiascos are all too common. Just last month a damning Government Accountability Office report detailed the failures of income driven repayment plans: Despite the fact that millions have been enrolled over nearly three decades, only 157 lucky individuals have been approved for the forgiveness. The report found that thousands of people have been arbitrarily denied relief, with many more set up to fail by a confusing and onerous system.

This is the reality the Biden administration must face: Means testing and associated restrictions sound fair in theory. In practice, the results are like taxes, where the privileged are better able to hire accountants, navigate complexity and reap associated rewards.

The restrictions on loan forgiveness are doubly nonsensical given that almost everyone would be screened in under the contemplated income cap. Only 5 percent of student debtors are calculated to make more than $125,000, and many of these high-earning borrowers still have low or negative net wealth

That means there’s no need for the Biden administration to create elaborate systems to exclude wealthy people from cancellation. Truly rich people do not have student loans because they (or, more likely, their parents) can pay the cost of tuition without borrowing money. In other words, cancellation is already means-tested: If you have debt, it means you need relief.

Why is the president so resistant to this fact? The answer seems to lie in his stubborn and mistaken belief that a significant number of borrowers are white elite graduates of Ivy League institutions. But Ivy Leaguers make up less than half of 1 percent of all student debtors and tend to graduate debt-free thanks to a combination of comparatively affluent upbringings and generous university endowments. Student debtors are far more likely to attend for-profit schools or HBCUs.

Instead of lending credence to conservative talking points, Biden should make an unapologetic case for cancellation. Republicans and right-wing pundits are spreading the lie that canceling student debt is “regressive” — that it helps the rich. The president should call their bluff. If student debt cancellation actually helped the wealthy, Republicans would have done it by now.

The Biden administration cannot afford to fritter away a historic opportunity by turning a winning policy into a political and bureaucratic fiasco — a HealthCare.gov 2.0. Only this time, it won’t be reports of a crashing website. It will be a self-imposed and avoidable bureaucratic, ethical and political disaster that further excludes and disappoints the very people Biden claims to care about and to whom he owes his 2020 victory.

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