The Effect of Unpaid Student Loans on the Economy

Education Policy Brief #92 | By: Arvind Salem | June 06, 2024

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In March 2020, President Trump signed the CARES Act (Coronavirus Aid Relief and Economic Security). This froze student loan interest, suspended collection efforts for defaulted loans, and paused student loan payment requirements for millions of Americans. The pause was originally designed to end in September 2020.

The repayment pause would be extended twice more by President Trump and another four times by President Biden. Both President Trump and President Biden knew that restarting student loan payments would throw a wet blanket on the sluggish economic recovery from the Covid-19 pandemic. For almost three years, Americans with student loan debt lived in a state of limbo.

Progressives on Biden’s left advocated for broad student loan forgiveness during the 2020 presidential campaign. Senator Elizabeth Warren urged President Biden to cancel $50,000 of student loan debt for each borrower via executive action. Representative Alexandria Ocasio-Cortez advocated for higher amounts. For students with six figures of student loan debt, $10,000-$50,000 would not make much of an impact once student loan payments were restarted.

In August 2022, President Biden announced that he was canceling $10,000 of federal student loan debt for households with combined incomes of $250,000 or less, and $20,000 for Pell Grant recipients. Biden announced this measure to coincide with what was to be a final extension of the repayment pause through December 2022. This action was announced under the same authority that granted the Department of Education to alter student loan repayment plans due to the emergency declared as a result of the Covid-19 pandemic.

There was general bipartisan support for using emergency authorization to pause student loan repayments. Both President Trump and President Biden did that multiple times. However, outright forgiveness was a different story, especially in the summer of 2022. By that point, the country was weary of restrictions such as mask mandates and social distancing. With unemployment surging above 10% in many regions, and businesses closing their doors, pausing student loan repayments in 2020 and 2021 made sense. More than two years after the first repayment pause, with the economy recovering, it was harder to justify.

Conservatives seized on Biden’s move and roundly condemned the measure as elitist and extravagant. Why should plumbers and farmers with high school diplomas be asked to pay the bills of wealthy liberals with art history degrees? Moderate Democrats also spoke out against the measure. Joe Manchin, a Democratic senator from West Virginia, called the plan reckless and noted that it was projected to add $400 billion to the U.S. federal debt.

President Biden and his allies in Congress tried to paint Republicans as hypocrites for accepting federal debt relief for their businesses due to the Covid-19 pandemic, while simultaneously criticizing students for accepting much lower amounts of loan forgiveness. $10,000 was a drop in the bucket next to the hundreds of thousands of relief that Republicans such as Marjorie Taylor-Greene and Mike Kelly received.

While this allowed Biden to score some political points, his legal arguments were much weaker.  Biden declared an end to the Covid-19 public health emergency in April 2023. Shortly thereafter, in a 6-3 ruling in the Biden v Nebraska case, the Supreme Court struck down Biden’s student loan forgiveness proposal. Chief Justice Roberts, writing for the majority, noted that President Biden overstepped his authority in using emergency powers to permanently cancel student loan debt. This was especially evident after President Biden declared an end to the public health emergency he was using as justification for the proposal.


I am the head coach of a high school debate team. Through a random draw, we received the assignment of arguing against federal student loan forgiveness. We won that round handily.

The opposition argument is the better argument. As Senator Manchin noted, there are numerous existing pathways to federal student loan forgiveness. The Public Service Loan Forgiveness (PSLF) program forgives student loans after ten years of working for a federal, state, or local non-profit organization. Graduates with advanced degrees can often earn high salaries in the private sector. The PSLF program provides incentive for these graduates to pledge a decade of their lives in service to their communities. The country needs high-quality teachers, police officers, and nurses. The PSLF program, combined with income-based repayment plans that cap payments at a low percentage of take-home pay, provides affordable pathways for graduates to escape crippling debt.

President Biden and Senator Warren are absolutely right to note that student loan debt places a heavy burden on millions of Americans. I am one of them. I had $138,000 in student loan debt when I graduated from the University of Pittsburgh with my doctorate.

I am well on my way to student loan forgiveness through the PSLF program and have knocked over $50,000 off of my loan totals. My ten years will be up before my loans are repaid. I believe a decade of public service is a much more convincing rationale for loan forgiveness than the mass loan cancellation plan originally proposed by President Biden.

It seems that President Biden has also come to this realization. A month ago, the Biden Administration issued a press release detailing plans for expanding student loan forgiveness through PSLF and keeping monthly payments low through income-based repayment plans. The Biden Administration has also been active in canceling or reducing the debt of graduates from predatory for-profit institutions which took students’ money and then either closed outright or issued degrees which were not worth the paper they were printed on.

These arguments are much more potent than blanket student loan forgiveness. The Democratic Party built its brand as a defender of working Americans in the face of corporate greed. President Clinton forged a coalition of nurses and teachers that helped him achieve victory in the 1992 and 1996 elections. Giving wealthy college graduates loan forgiveness and asking all taxpayers to pay for it goes against every principle that built the modern Democratic Party. It provides free fuel to the silly argument of the MAGA movement which aims to portray Democrats as elitists and President Trump, with his golden toilets and multiple bankruptcies, as a champion of the working man.

Proposing broad student loan forgiveness was a political blunder. President Biden should continue to hammer Republicans for accepting loan relief from the federal government while refusing graduates the right to accept similar debt forgiveness. However, public servants present a much better contrast to those Republicans than wealthy college graduates getting a free $10,000 check.

President Biden’s 2024 campaign should look to President Clinton’s 1992 campaign for inspiration. American voters have much more respect for nurses, teachers, firefighters, and police officers than the entitled students who demanded food delivery after vandalizing and occupying campus buildings.

PSLF is good for the country and for graduates seeking relief. The path to victory runs through the political center. If President Biden attempts to appease the political left at the expense of the traditional Clinton coalition of nurses and teachers, he will soon join President Carter as a one-term President.

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