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Outside the Box: Biden’s plan to target student-debt cancellation could backfire, hurting the most vulnerable. Here’s why.


It was reported that the Biden administration is considering competing plans for how much student debt to cancel and who will get it.

Among the plans are versions that exclude anyone who made over $125,000 or $150,000 as individuals (or $250,000 or $300,000 as a couple) in 2021. In theory, nearly everyone should qualify since only roughly 3% of student debtors make more than these limits. Biden’s goal seems to be to prevent people with high incomes from getting their debts canceled, but in practice it will be millions of the most economically vulnerable who get excluded.

Here is why.

The Department of Education has no way of checking to see what a student debtor’s income was last year. Only the IRS has this data, and to access it, they need explicit consent to adhere to privacy rules.

In practice what these efforts to “target” cancellation means is that everyone will have to verify their incomes, either by attaching your 2021 taxes yourself, or at least filling out an application that grants permission to the Department of Education to communicate with the IRS. That will lead to a complicated administrative process where the most vulnerable end up getting nothing.

Real people’s lives are messy, especially poor people who cobble together many odd jobs. The poorest don’t file taxes at all, creating even more difficult burdens to verifying income like submitting pay stubs. Those who are unemployed or have no income at all will find it difficult to prove a negative.

In an effort to exclude 3% of student debtors, the Biden administration is going to make 45 million navigate a complex obstacle course. Most of them may, but many won’t. Those excluded will be precisely the most vulnerable, the poorest, those with the least access to the internet, those who need to book time at the library to access a printer, and those who simply don’t have time to navigate byzantine bureaucracies while working three jobs.

If that is the path the Biden administration chooses, many millions of the poorest will not get a penny of cancellation.

What will happen to students who never file an application at all? The most likely result is that they will get no cancellation. This is troubling since the Department of Education lacks accurate up-to-date contact information for a significant number of student debtors, including roughly half of all student debtors in default. These are the people who most need cancellation and are the least likely to receive it unless it is universal and automatic.

Past attempts at “targeted student debt relief” have all been spectacular failures. The Public Service Loan Forgiveness (PSLF) created a bureaucratic nightmare that resulted in 99% of people getting denied. After Congress passed an attempted temporary fix, 99% got denied again.

Biden is again trying to fix PSLF, this time with a temporary waiver. Again, we are seeing just about everyone who qualifies, in theory, for this PSLF waiver get notifications that incorrectly tell them they do not.

Income-Driven Repayment (IDR) is another spectacular failure at means-testing student-debt cancellation. IDR has many of the same problems of having to annually verify incomes. The result is that, of the 4.4 million people who should have, in theory, gotten full cancellation after making over 20 years of payments, only 157 actually did. That is not a typo.

The Biden administration risks learning zero lessons from past failures as they are about to make the same mistake again. Student-debt cancellation should be a layup, an easy victory headed into a midterms when democracy itself is at stake. Instead, Biden risks turning this into another political liability.

Now is the time to go big and bold, not small and complicated. It is not too late for the Democrats to prevent themselves from being their own worst enemies. Just last month, the White House issued a memo saying they would eliminate administrative burdens and unnecessary complicated forms that prevent people from receiving government services. The president should keep this promise and make cancellation automatic, simple and bold.

Thomas Gokey is co-founder and organizer with the Debt Collective.

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