Joe Biden’s stealth proposal to cancel billions in student loan debt

Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) have received a lot of praise and criticism, depending on whom you ask, for their plans to cancel federal student loan debt. But a careful look at the platform advanced by Democrats’ allegedly “moderate” candidate for president, Joe Biden, shows he’s got a costly debt cancellation plan of his own. 

Unlike many of the plans put forward by Biden’s challengers, the former vice president’s proposal seems to have been deliberately designed in such a manner that most wouldn’t realize its extreme and far-reaching effects.

Instead of immediately cancelling debt, Biden’s proposal would alter existing student loan forgiveness programs to eliminate billions in student loan debt decades in the future, potentially affecting millions of borrowers. 

Here’s how it would work: Under current law, borrowers with federal student loans (most current students and recent college graduates) who are enrolled in income-based repayment plans receive student loan forgiveness after 20–25 years of making payments. The amount of years required varies with the repayment plan. 

Because these borrowers’ monthly payment amounts are tied to their income, those with very high amounts of debt and low or moderate incomes would not pay off their student loans, because their monthly payments will never amount to the full value of the loan plus interest charged.

For example, a single borrower in New York earning $40,000 per year with $100,000 in graduate student loan debt would end up receiving more than $157,000 in loan forgiveness after making 20 years of payments while enrolled in the federal Pay as You Earn plan.

Additionally, you might be surprised to learn that the current system allows borrowers with no or little income to pay nothing in monthly payments and still receive student loan forgiveness — regardless of how much they owe. 

There is one catch, though. Existing law requires borrowers who receive loan forgiveness to pay taxes on the amount of debt forgiven, which is treated like income.

Under Biden’s proposal, titled “The Biden Plan for Education Beyond High School,” most college students would be enrolled in an income-based repayment plan automatically and would not need to pay any taxes on the undergraduate student loan debt forgiven after two decades of making payments — even if those “payments” are $0 per month.

Further, the maximum monthly payment would be cut by more than half for income-based repayment plans, and those with incomes of $25,000 or less would pay nothing each month until their income surpasses $25,000 or they reach the 20-year forgiveness threshold. Undergraduate loans would also be interest-free.

When you add all these changes together, the result is that significantly more borrowers would be permitted to cancel huge amounts of student loan debt. This would not only be true for those with little or no income but also for millions of students with moderate incomes and high levels of debt. Because the monthly payments for those with moderate incomes would be cut substantially, it’s less likely they will be able to pay off their student loans within the Biden Plan’s 20-year period, making many eligible for loan forgiveness who otherwise wouldn’t be.

Biden’s plan would not only cost countless hundreds of billions of dollars over the long term – at a minimum – it would also incentivize borrowers to disregard the costs associated with attending an undergraduate higher-education institution.

Even worse, it would reward those who take out large student loans but choose not to work or work in low-paying jobs by offering them student loan forgiveness without requiring that they pay taxes on the amount of the loans cancelled.

This is the exact opposite approach policymakers should take. Rather than incentivize poor economic choices, reforms are needed that reward students who limit their debt load and work their way through college. 

Perhaps most importantly, because higher-education institutions know students can obtain virtually any amount of money they need in the form of federal student loans, the current system encourages colleges to continuously increase the cost of attendance, even as technological advancements have made providing a high-quality education easier and more affordable than ever. The Biden plan would make this problem even worse and more widespread.

The only way to fix this problem is to create more competition and enhance market forces within the higher-education and student lending industries. A good place to start would be to gradually reduce the maximum amount of money students can borrow from the federal government, a reform that would put pressure on colleges to reduce tuition rate increases and provide alternative, more cost-effective means for providing education. 

Local and state governments should also develop substantially more vocational and skilled-labor training programs, beginning at the high school level. Hundreds of thousands or even millions of students attend college every year who, quite frankly, are wasting their time and money. Good, high-paying jobs are available in a variety of industries. But most high school students don’t know about them, because they have wrongly been told their entire lives that their only chance of success rests in attending a four-year college.

Thus far, Biden has received a pass for his reckless policy proposals. Although he might not be a full-blown socialist like some of his Democratic Party competitors, a close look at Biden’s platform reveals his presidency would also be incredibly destructive — not only for student lending, but for the entire U.S. economy. 

If Americans take the time to examine what Biden is really proposing, they’ll see the “common-sense Joe” routine is little more than carefully orchestrated political theater.

Justin Haskins (Jhaskins@heartland.org) is the editorial director and a research fellow at The Heartland Institute, a conservative-libertarian think tank. Follow him on Twitter @JustinTHaskins.