Biden Considers Income Limits for Student Debt — Here’s What That Could Mean

President Joe Biden appears to be making moves on one of his foundational campaign promises, that he would cancel $10,000 of federally-held student debt for every debt holder in the United States. But early reporting suggests that the $10,000 promise of cancellation for all borrowers might not come to pass, and that Biden is considering whether to use income to determine eligibility for any student loan forgiveness programs. During a White House press briefing, Press Secretary Jen Psaki answered questions related to the possibility of eliminating $10,000 in debt per student and if an income cap, which would exclude higher earners from debt forgiveness, would be introduced. Here’s what you need to know.

What’s been happening with student debt?

The Biden Administration has been pushing to have student debt forgiven, endorsing a program that would cancel at least $10,000 per borrower for those who attended public schools and those that historically serve Black and minority students.

There were some rumors the administration was looking into executive action that would eliminate more debts for students. However, last week Biden said any debt forgiveness would be below $50,000 for each borrower.

And now, it sounds like the administration is looking to put an income cap on who would be able to access any debt forgiveness for school. Press Secretary Jen Psaki was asked in the press briefing if those rumors were true. And it sounds like she’s saying yes without confirming at the same time.

Do we know what the income debt cancellation cap could look like?

“There are a number of schools … that have larger endowments than other schools, public universities, and others,” Psaki said. “What he’s referencing is making sure it’s targeted to those graduates who have the greatest need.”

She confirmed that an income cap potential was being explored but that the Biden administration hadn’t come to a clear decision on what that might look like, adding, “we’re not at the point where we have a final proposal or a final executive action or anything along those lines.”

Any student loan debt forgiveness would be a good idea. According to statistics, the average amount a person owes in student debt is $28,950 – totaling $1.75 trillion in student loan debt across the country, which includes both private and federal loans.

If the Biden Administration were to move forward with an income cap for those seeking student loan forgiveness debt, would that be a good idea?

While some economists, like the people at Liberty Street Economics, think that it makes sense to put income caps on student debt forgiveness, suggesting that with no income caps “the average federal student loan borrower living in a high-income neighborhood would receive $25,054 while the average borrower living in a low-income neighborhood would receive $22,512,” other experts believe that focusing on income caps alone is actually not an adequate picture of the average student loan borrower.

A February 2021 report out from the Brookings Institute instead noted that wealth, not income, could be a better way of considering student loan cancellation eligibility.

“If wages and wealth were growing at similar rates, the rise in the cost of education might not be a problem. But the rise in the cost of tuition has outpaced the rise in wages and overall inflation… the problem is especially pertinent in Black households, for whom a lack of generational wealth risks making student debt a long-term financial burden,” Brookings wrote.

Black Americans don’t build wealth as quickly as their non-Black peers, partly because of their lack of access to intergenerational wealth-building tools, and student debt “disproportionately harms the wealth-poor.” Brookings point to the fact that while earners with student loans do have higher incomes than those without, they do not have higher hourly wages — because student debt is eating away at their wages. In the meantime, Black families still can’t grow wealth and are therefore more harmed by student loans.

Many people who become doctors, for example, may have to take out hundreds of thousands of dollars to get through med school and may earn lots of money when they start working but will have to pay off all of that debt over time. If they didn’t have access to family wealth in the first place, their wages go right to those loans, and not toward building future wealth. Looking at income alone would “unfairly ignore” the reality that wealth has on making student loan debt easier to pay — and the power intergenerational wealth has in that problem, as well.

And while Brookings stops short of saying we should do a wealth-based means test on student loan cancellation, and many other people like Bernie Sanders and Elizabeth Warren would prefer to cancel tens of thousands of debt completely without means-testing, it’s important to note the differences the policy positions could have on our lives.