Summary

The article discusses the unlikelihood of widespread student loan cancellation under the Biden administration, despite previous political promises.

Abstract

The article critically examines the political landscape surrounding the prospect of student loan cancellation, highlighting the shift in focus from this issue to other legislative priorities such as the American Jobs Plan and the American Families Plan. It argues that the promises made during the Democratic primaries by candidates like Bernie Sanders and Elizabeth Warren for substantial student loan forgiveness were largely political theater. The author suggests that the complexity of the issue, the potential exacerbation of income and wealth gaps, and the political reality of Biden's presidency make outright cancellation improbable. Instead, the administration is expected to focus on more politically feasible measures such as enhancing Income Drive Repayment (IDR) plans and making adjustments to the Public Service Loan Forgiveness (PSLF) program. The article concludes by emphasizing the need for borrowers to educate themselves and actively manage their student debt, as systemic relief is not imminent.

Opinions

The author believes that the talk of student loan cancellation during the Democratic primaries was a ploy to garner votes rather than a genuine commitment.
The article posits that President Biden's main priorities, the American Jobs Plan and the American Families Plan, take precedence over student loan cancellation.
It is suggested that student loan cancellation could widen the income and wealth gaps, as it would disproportionately benefit higher earners with larger loan balances.
The author implies that the complexity of the student loan crisis and the political ramifications make it a topic that is too difficult for calm and intelligent public debate.
The article conveys skepticism about the likelihood of any significant student loan cancellation, framing it as a "pipe dream."
It is emphasized that borrowers should not rely on government intervention and should instead take personal responsibility for managing their student debt through avenues such as IDR plans and tracking progress towards PSLF.
The author encourages readers to seek out information and assistance proactively, suggesting resources like the Department of Education website, relevant subreddits, and financial professionals.

Stop Dreaming About Student Loan Cancellation.

Forgiving student debt en masse was just a ploy to buy your vote.

We all hate being duped.

It’s embarrassing when we realize that all the anxiety and anticipation of something good coming our way was for naught.

We feel let down, not just because we didn’t get what we expected, but also because we feel like we let ourselves down; somehow our judgement was off.

Then the questioning begins.

How did I miss this?
Am I that unobservant?
What else am I wrong about?

This is exactly what is happening with student loan cancellation.

We are now 6 months into the Biden administration, and he has done nothing except think about commencing to begin.

Oh…and played some insider baseball to appease the progressives.

So, how did we get there, and is there any hope for cancellation in the future?

What Happened to Loan Cancellation?

During the Democratic primaries, there was a huge push by progressives to forgive student loans for all borrowers.

Bernie Sanders wanted complete forgiveness for all.
Elizabeth Warren wanted high forgiveness for the non-rich.
Others had some form of milquetoast proposal that amounted to throwing breadcrumbs at the starving masses.

The problem is that all the talk of student loan cancellation was just political theater, meant to rile up the true believers, persuade those who were on the fence, and draw a line in the sand among otherwise similar candidates.

No one was really going to cancel our student loans, and there are two main reasons why not.

Political Priorities

Now that Biden is President, his main political priorities are the American Jobs Plan (aka the Infrastructure Plan) and the American Families Plan.

When you become President, you only get one shot to deliver on the big promises you made during the campaign, and Biden made a lot of them.

I know I’m stealing from a previous article, but The West Wing summed it up best.

Forget about a 4-year term…the Presidency is 18 months, that’s your window.

After that there’s mid-terms, and no one on the Hill’s got time to do business with you. They’re too busy getting re-elected.

And then, suddenly, you’re running again,

George W. Bush passed the First Bush Tax Cut and No Child Left Behind.
Barack Obama passed the Affordable Care Act.
Donald Trump passed the Tax Cuts and Jobs Act.

Biden has one shot at passing the dual American plans, and he is not going to let student loan cancellation screw it up for him.

Both American plans have already been stripped down from their initial proposals with no guarantee that either will actually pass, so he needs to focus on getting this political win.

Loan Cancellation Worsens Income and Wealth Gaps

A rising tide lifts all boats, but loan cancellation lifts more for the wealthy.

There are two ways to measure the financial impact of any assistance: relative and absolute.

Research has shown that lower income earners with lower student loan balances will receive a much higher relative benefit since their net worth is already low.

$5,000 of forgiveness (out of a possible $50,000) when your net worth is $0 is a gargantuan leap in status.

However, that same research shows that higher earners with higher student loan balances (graduate degrees cost more but earn you more money) will receive a much higher absolute benefit, since they can absorb the entire amount of forgiveness.

$50,000 of forgiveness (out of a possible $50,000) when your net worth is $500,000 doesn’t move the needle that much. It’s just a lot (free) money.

Is it fair for the rich/well-educated to get the biggest benefit when they have the most advantages?

Is it fair to deny the poor any assistance in order to avoid benefiting the rich?

The economic and political complexity of these questions are too daunting for most people to discuss calmly and intelligently, much less be debated in Congress in front of voters.

What Will Actually Happen

In the end, student loan cancellation will never happen.

Biden will talk the talk, making heartfelt speeches about the financial pain that borrowers are facing.

He’s even thrown a few bones to the progressives by hiring Richard Cordray and Toby Merrill, the latter of whom has written about the legal justification for cancelling up to $50,000 in student loans.

This all looks good, but that’s all it is. A front.

This is just Biden appeasing the progressives while focusing on his bigger priorities, all the while claiming that Congress should be the branch that passes a student loan cancellation bill.

It’s old school politics, and it’s not going away anytime soon.

And neither is your student debt.

Instead, the Department of Education will probably roll out “enhanced” Income Drive Repayment (IDR) plans, already proposed by Biden.

Payment caps of 5% of discretionary income, but only for undergraduate loans.
Automatic enrollment in the new IDR, instead of 10-year plan.
No “tax bomb” on IDR forgiveness.

PSLF might also be adjusted, being replaced by either 5 years/50% or the 2-year/graduated forgiveness like the one described in the PSLF bill introduced by Kirsten Gillegrand and Tim Kaine.

Regardless, borrowers will have to meet some form of guidelines for student loan forgiveness.

Outright student loan cancellation is a pipe dream.

The Takeaway

The student loan problem isn’t going away anytime soon, as 45 million borrowers owe $1.7 trillion in student loan debt.

But a quick fix isn’t coming any time soon, either.

If you have student debt, you need to educate the hell out of yourself. The student loan servicers can’t be trusted to calculate your monthly payment or count the number of months you’ve been on PSLF.

You’ve got to do it yourself.

Case in point, when I was still with Nelnet, I had to correct their payment calculation three different times before they came up with the right amount.

It’s frustrating that we have to go through this, but this is reality.

If you’re going for PSLF or other forgiveness, track everything!

If you’re paying off your loans, do it quickly! (at least, after your other high interest rate debt)

If you are overwhelmed, start learning!

Ask a friend.
Read the DOE website.
Go to r/studentloans and r/personalfinance subreddits. They have a wealth of information.

If you need help, go find help.

Help is not bringing itself to you.

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This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.