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Biden Student Loan Plan Squarely Targets the Middle Class

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The New York Times writes, “the big winners from President Biden’s plan to forgive hundreds of billions of dollars in student loans are not rich graduates of Harvard and Yale, as many critics claim. In fact, the benefits of Mr. Biden’s proposals will fall squarely on the middle class. According to independent analyses, the people eligible for debt relief are disproportionately young and Black. And they are concentrated in the middle band of Americans by income, defined as households earning between $51,000 and $82,000 a year.”

The Times goes on to report that “In contrast, the Budget Model estimated that the nearly $2 trillion collection of tax cuts that Republicans passed in 2017 would spread less than a third of its benefits to that broad middle class — and more than two-thirds of its gains to the top fifth of earners.”

On Wednesday, the Biden-Harris Administration announced it will provide up to $20,000 in debt cancellation to borrowers who earn less than $125,000 per year or $250,000 per household and are Pell Grant recipients, and up to $10,000 in debt cancellation to non-Pell Grant borrowers who meet that income threshold. This provides relief to up to 43 million borrowers, including cancelling the full balances for roughly 20 million borrowers. President Biden also extended the federal student loan pause a final time through December 31, 2022 to provide borrowers a smooth transition back to repayment and announced provisions to make the student loan system more manageable—including by cutting monthly undergraduate loan payments in half and holding schools accountable when they jack up prices.

The big winners from President Biden’s plan to forgive hundreds of billions of dollars in student loans are not rich graduates of Harvard and Yale, as many critics claim.

In fact, the benefits of Mr. Biden’s proposals will fall squarely on the middle class. According to independent analyses, the people eligible for debt relief are disproportionately young and Black. And they are concentrated in the middle band of Americans by income, defined as households earning between $51,000 and $82,000 a year.

The debt relief program, which by some estimates will cost as much as a half-trillion dollars over the course of a decade, will impose a future burden on American taxpayers. It has fueled criticism on several fronts, including that it could encourage colleges to raise tuition costs even faster than they already are. Some conservative and Democratic economists say it could add significantly to what is already the highest inflation rate in four decades, though evidence suggests those claims are overstated.

But in choosing to extend more generous debt relief than even many of his allies had expected, Mr. Biden is offering what independent analyses suggest would be his most targeted assistance yet to middle-class workers, while attempting to repair what he casts as a broken bridge to the middle class for young people across the country.

The people who will benefit from Mr. Biden’s plans, announced on Wednesday, defy the caricatures that critics have painted — at least the ones based on class and pedigree.

The Congressional Leadership Fund, an outside group that seeks to elect Republicans in the House, called Mr. Biden’s plan a bailout for “Ivy Leaguers with six-figure salaries.” But the vast majority of the people who will be helped by the plan do not fit either half of that description.

Nearly 90 percent of affected borrowers earn $75,000 a year or less, the Education Department projects. Ivy League graduates make up less than 1 percent of federal student borrowers nationwide.

“Most of the benefits are going to go to the middle class,” said Constantine Yannelis, an economist at the University of Chicago’s Booth School of Business who co-authored a study on the distributional effects of student debt relief that will soon be published in the Journal of Financial Economics.

On one front, Mr. Biden’s critics are indisputably correct. That middle-class relief will only touch Americans who pursued higher education, not those who attempted to climb the income ladder with a high-school diploma alone.

“The very poorest Americans aren’t going to benefit very much,” Mr. Yannelis added. “Many of that group don’t go to college, so they don’t have the opportunity to take out student loans.”