President Biden announced a $300 billion student loan forgiveness plan last week. About 45 million Americans have student loan debt; and the Office of Federal Student Aid estimates about $1.62 trillion of this figure, or 93% of all student loan debt, is federal and owed directly to the U.S. government. Biden's plan will wipe out approximately 1/3 of this total plan by forgiving:
- $10K in Federal loans for single borrowers making $125K or less, and married or head of household borrowers making $250K or less; and
- $20K for borrowers with Federal Pell grants.
How does this impact us in the DMV? Well for starters, due to high loan balances, borrowers in the District are the least likely in the nation to have their entire debt eliminated if the policy is fully implemented. Per the Education Data Initiative, the DC has the nation's highest federal student loan debt average for a single borrower at $54,945. Maryland and Virginia follows this debt load at about $42,861 and $39,165 respectfully. As a reminder the average American borrower in 2022 has about $37,358 in student loans.
But honestly are we surprised the figure is so high here? 'DC is an area that attracts a lot of professionals and a lot of professionals that need a high level of education in order to be competitive,” Jacob Channel a senior economist with Student Loan Hero explains.
Thoughts around the beltway on Biden's plan differ. Some point out the moral hazard of the bill and say it's unfair to those who paid off their loans or didn't go to college. While some supporters argue there's instead a net gain to the economy since working class people can redirect personal funds that would be used for student loans to other purchases—thus bolstering the economy at a time when many fear a possible recession.
Either way, we must be cognizant that this policy does not wipe out student loan debt in America. Instead it transfers a large portion of the debt to the American citizenship at a time when our National debt is at record highs. This is especially worrisome to residents in the DMV that are often disproportionally impacted by Federal budget cuts.
In addition, the policy doesn't appear to address the root cause of the student loan crisis – the rising cost of higher education. A Georgetown University report stated how college and university costs have increased by 169% since 1980—but pay for young workers rose by just 19%.
Instead of combating this issue, Biden's student loan forgiveness policy is expected to increase the cost of college over time due to (1) seemingly green lighting college tuition hikes since colleges and future borrowers may bank on the Government continuing to supplement tuition costs and (2) causing inflation to rise.
In fact, Maryland Governor Larry Hogan supported this analysis by calling the new policy 'reckless' claiming it will 'only cause more skyrocketing inflation.' With watchdogs like the Committee for a Responsible Federal Budget, a nonprofit public policy organization, already estimating that Biden's plan could add up to 15 basis points (0.15%) to our already historically high inflation rate “and create additional inflationary pressure over time.” When asked about his stance on the Biden's plan, Virginia Governor Glenn Youngkin said he wasn't prepared to take a stance on Biden's plan but said he's “focused on taming the cost of higher education and has pressured the state's public colleges and universities to keep tuition flat.”
DMV residents should know that even without the new policy, area tuition costs are already rising at historic rates. Per the Washington Post, “tuition and fees for state residents at the University of Virginia is up nearly 6% for the coming school year. [And] Howard University's sticker price has risen more than 7%, to about $31,050.