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Section 2.7 Solving for Change: Student Loan Reform & Activism in the U.S.

In August \(2022\text{,}\) President Biden committed to forgiving \(\$10,000\) in student debt for around \(43\) million debtors in the U.S., with an additional \(\$10,000\) being forgiven for Pell Grant recipients. The debt was forgiven only for single adults earning under \(\$125,000\) a year and married couples earning under \(\$250,000\) a year 61 .
Student debt in the U.S. in \(2022\text{,}\) when President Biden proposed his student loan debt forgiveness plan, was roughly equal to the size of the economy of Brazil 62 . Additionally, the amount of funding for higher education provided by state governments has declined from around \(70\%\) in the \(1970\)s to slightly under \(60\%\) in \(2019\text{.}\)
An independent analysis by the University of Pennsylvania Wharton School of Business found that about two-thirds of the financial benefit from Biden's student loan forgiveness plan will be to households making \(\$88,000\) or less per year, especially households earning between \(\$51,000\) and \(\$82,000\) a year 63 . The impact to the U.S. budget will be between \(\$469\) and \(\$519\) billion.
The Wharton School also released the data in Table 2.7.1 on the distribution of student loan forgiveness benefits by income.
Table 2.7.1. Student Debt Forgiven under the \(2022\) Biden-Harris Plan
All Ages Age \(25\)-\(35\)
Income Group Percentage of benefit Percentage of benefit
Bottom \(20\%\) \(13.27\%\) \(10.97\%\)
\(21\)st-\(40\)th percentile \(22.89\%\) \(24.56\%\)
\(41\)st-\(60\)th percentile \(30.90\%\) \(30.62\%\)
\(61\)st-\(80\)th percentile \(23.19\%\) \(23.03\%\)
\(80\)-\(90\%\) \(8.06\%\) \(10.39\%\)
\(90\)-\(95\%\) \(1.70\%\) \(0.43\%\)

Reading Questions Student Loan Activism & Policy

For each of the following questions, read the cited article, considering the listed questions. Then use what you've read, as well as your own thoughts, to make your best attempt at answering these questions. Finally, bring these attempts to class and discuss them with your group. Choose someone in your group to report your group's conclusions during full-class discussion.

Exercise Group.

This article by Mother Jones 64  (known for being a left-leaning publication) investigates the history of the student loan debt forgiveness movement, beginning with the activism of Occupy Wall Street in \(2011\) (see Figure 2.7.2) and America's first debtors' union, the Debt Collective.
What does the article describe as the origin of the Debt Collective and the movement to cancel student debt from for-profit colleges?
Why did Gokey decide to focus on forming a debt collective?
A photo of two Occupy Wall Street protesters, one of whom carries a sign saying "I Owe SallieMae \(\$25,123.91\text{.}\)" Photo by Bob Jagendorf entitled ``Occupy Wall Street - Student Loans'' under a CC BY-NC 2.0 license.
Figure 2.7.2. A photo of two Occupy Wall Street protesters, one of whom carries a sign saying "I Owe SallieMae \(\$25,123.91\text{.}\)" Photo by Bob Jagendorf entitled "Occupy Wall Street - Student Loans" under a CC BY-NC 2.0 license.

For-Profit Colleges and Department of Education Policy.

For-profit colleges have defrauded students and led to an increase in student debt; this was a major concern of Occupy Wall Street activists and is described in the following 2014 Last Week Tonight video 65 . In June \(2022\text{,}\) the federal Department of Education automatically canceled all debt currently held by Corinthian Colleges students and alumni 66 .
What makes Corinthian and other for-profit colleges different from private nonprofit colleges or public universities?
Do you agree with the Department of Education's actions? Why or why not?
What should the Department of Education do with student loans held by other for-profit colleges, including those who were not as openly fraudulent as Corinthian (who paid companies to hire their students for two days in order to inflate their job placement numbers)?
What should the Department of Education do with student loans held by nonprofit colleges?

Exercises Exercises

Assume for a moment that the Biden-Harris policies you investigated in Reading Questions 2.6 stay constant for the next \(10\) years (perhaps an unlikely assumption given the changes in policy between Presidential administrations as well as Supreme Court rulings).


What percentage of the benefit will your age and income group receive \(10\) years from now?


If you are in one of the groups (single adults earning under \(\$125,000\) a year and married couples earning under \(\$250,000\) a year, plus an additional \(\$10,000\) for Pell Grant recipients) that President Biden targeted for debt forgiveness in \(2022\text{,}\) what amount of debt will you have forgiven?


Do you believe that President Biden's student loan debt forgiveness policy is a good idea? Why or why not? Do its benefits for lower-income debtors outweigh its impats on the U.S. budget? Estimate whether your taxes will rise as a result and, if so, by how much, using a well-explained dimensional analysis.


The following note from the Wharton Budget Model describes the income groups listed in Table 2.7.1: “Estimate household income percentile thresholds for 2022 all age: 20%: $28,784; 40%: $50,795; 60%: $82,400; 80%: $141,096; 90% $212,209; 95%: $321,699; 99%: $961,711; 99.9%: $3,668,499.”
  1. Given this information, estimate the percentage of the student loan forgiveness plan your income group will receive.
  2. The Congressional Budget Office 67 , a nonpartisan organization within the legislative branch of the United States government, estimated the total cost of Biden's student loan forgiveness program at \(\$400\) billion. Use this estimate, together with the information above, to estimate how much total debt relief (in U.S. dollars) your income and age group wlil receive \(10\) years from now.


President Biden's loan forgiveness program involves an “income cap”, which means that the program only applies to individuals who earn below \(\$125,000\) or households who earn below \(\$250,000\) each year. According to the Wharton analysis shown in Table 2.7.1, whether or not an income cap is applied, the most loan forgiveness would go to households earning between \(\$51,000\) and \(\$82,000\) a year.
  1. What income percentile(s) in Table 2.7.1 do these earners belong to?
  2. Assuming that the loan forgiveness policy stays constant for the next \(10\) years, estimate the percentage of loan forgiveness that will apply to these income percentile(s). Make the simplifying assumption that all student loan borrowers are individuals and not households.
  3. Does the Wharton estimate make sense? Why or why not?