Critiques and Responses
Means testing a policy like debt cancellation will not provide forgiveness to all borrowers, but it will target the benefit to those who find themselves in the most distressing financial circumstances. Unlike universal debt cancellation proposals that use no discretion to determine who gets relief, targeting the spending to those on federal assistance programs would ensure the benefits are flowing in higher proportion to borrowers of color and low-income borrowers-groups with less generational wealth and who have been disproportionately impacted by the pandemic and economic downturn. 19 It is also the most affordable and realistic option for Congress to pursue given the significant COVID-19 economic relief packages that have already been passed. And while some may argue that this policy would direct additional federal benefits to those already receiving government assistance while others not on public assistance would get no help at all, it’s a worthwhile first step towards ameliorating the impact of student debt on a population of borrowers our higher education system has left most in the lurch, and Congress should continue working to pass longer-term affordability fixes for current students and protections for the broader universe of student debt holders. Freeing up the debt burdens of Americans on federal payday loans Virginia assistance programs could also save taxpayers money in the long run by contributing to poverty-reduction efforts that would s.
Means-testing debt cancellation may miss borrowers of color who need relief.
Means testing debt cancellation to direct it to borrowers on federal safety net programs will certainly not give relief to every borrower of color who needs it, as only 13.5% of Black Americans and 8.7% of Hispanic Americans currently participate in public assistance programs. 20 Expanding the number of programs included and reforming IDR plans to make them more generous and easier to access are two additional ways Congress could provide loan relief to borrowers of color in need. Policymakers could also add in a separate eligibility requirement based on income, for example, including borrowers earning at or below the poverty line, to avoid missing those who are in similarly bad financial situations but are not on public assistance programs.
Public assistance is pris as the basis for means testing could result in single borrowers and borrowers without dependents being missed.
It is true that single borrowers and borrowers who do not have dependents but are in bad financial shape could be missed by debt cancellation if the mechanism for means testing is based solely on public assistance programs. Public assistance is typically targeted at families with children and, as a result, can leave out those who are in difficult situations but are childless. A prime example of this problem arose in 2016, when up to one million low-income childless adults faced being cut off from SNAP because they did not have dependents and thus faced time limits on accessing food assistance. 21 Childless adults are the only group who face such time limits, are ineligible for Medicaid in 18 of the expansion states, and are eligible for a greatly reduced EITC. 22 Single borrowers or borrowers without dependents who have incomes at or below the federal poverty level are less likely to be able to meet the three-year time requirement proposed above given the much tighter timeframes for how long they can use the public assistance benefits for which they are eligible. Congress could address these issues by using an additional federal poverty level threshold to target funds to those with the greatest need-in addition to participation in public assistance programs. Means testing by income in this way could better ensure that single adults who need help aren’t left out in the cold.
Furthermore, these giant price tags offer only a short-term solution; a massive debt cancellation proposal that went into effect today would do nothing to address the loans students would begin accumulating again tomorrow. 8 Institutions could continue to charge increasing tuition and fees, and those entering college this year would continue to rack up federal loans immediately after cancellation takes effect, making it a mere band-aid fix on a problem that does nothing to address the needs of future students (dooming us to repeat this hugely expensive cycle moving forward).
Forgiving the entire balance of student loan debt held by borrowers on public assistance would help keep the costs of cancellation significantly lower than universal cancellation proposals while better targeting it to those in worst-case situations. According to an analysis by the Urban Institute, forgiving all debt of those participating in public assistance programs would target the benefits to a greater proportion of low- and middle-income borrowers-60% of the benefits would go to the bottom two income quintiles ($0-$40,000), with a total cost of $138 billion. This option would cost $823 billion less than Senator Warren’s plan and would have a tremendous impact on borrowers in the most difficult situations for a tiny fraction of the cost-making it a more realistic and affordable option. It would also reach borrowers of color who are more negatively impacted by student loans than their white peers. 17 Currently, 13.5% of Black Americans participate in public assistance programs compared to only 4.4% of white Americans. 18 Focusing on those participating in public assistance programs will better target loan forgiveness to borrowers of color that are in the most need, in contrast to universal cancellation, which favors white borrowers by the numbers. And if the federal government never expects to be able to collect on these student loans that are burdening our lowest-income borrowers anyways, it makes sense to simply clear the slate now to help these struggling Americans get back on their feet and live the more stable and secure financial life.