The NPR Politics Podcast - Need To Claim Student Debt Relief? Here's What We Know

Starting point is 00:00:00 Hi, this is Amanda from Atlanta, Georgia, getting in some last-minute cuddles with my senior foster dog, Penny. This podcast was recorded at 1 16 p.m. Eastern Daylight Time on Thursday, August 25, 2022. Things may have changed by the time you hear this, including Penny, who has been adopted and will be living out her golden years in her forever home after far too long in the shelter. Happy tails, Penny. Okay, here's the show. That was so cute. Wow.

Starting point is 00:00:34 Made my day. Yeah, good story. All right. Hey there. It's the NPR Politics Podcast. I'm Deepa Shibaram. I cover politics. And we've got two special guests on the show today. Chief Economics Correspondent Scott Horsley. Hey, Scott.

Starting point is 00:00:46 Great to be with you. And Sequoia Carrillo from NPR's education team. Hi. Hi. Thanks for having me. And as you've probably guessed, they're here to talk about student loan relief, an issue that impacts more than 40 million people. Yesterday, President Biden announced that the government would forgive up to $20,000 of federal student loan debt for Pell Grant recipients and up to $10,000 for other folks. So, Sequoia, let's dive in here. What does Biden's plan say and who is eligible for this relief? So there are about 45 million student loan borrowers in the U.S. right now. And President Biden's announcement yesterday has the potential to impact about 43 million of them.

Starting point is 00:01:25 So a lot of people are eligible for this relief. And the education department says that their plan will completely erase the student debt of about 20 million borrowers. So this sounds huge, right? Like it will cut the number of borrowers almost in half. But it's also structured in an interesting way because it is very targeted relief. The Biden administration says that about 90% of relief dollars will go to borrowers that make less than $75,000 a year. And that's because of the way that they're delivering the money. So individuals who make under $125,000 a year can have up to $10,000 in debt canceled. And we say up to because there will most likely be a sliding scale. So if you're closer to that top number, you'll get less than $10,000, but we don't know exactly

Starting point is 00:02:10 how that breakdown will go yet. And the reason you're hearing this 20,000 number thrown around is because if a borrower received a Pell Grant for their undergraduate degree, they can now qualify for up to $20,000 in relief. And it's a really interesting way of targeting borrowers with the most need. Most students who receive Pell Grants come from households that make less than $60,000 a year. And this also targets Black borrowers who are twice as likely to receive Pell Grants as compared to their white peers. And they also shoulder a disproportionate amount of student debt and then take longer to pay it off. Education Secretary Miguel Cardona spoke to NPR yesterday

Starting point is 00:02:49 about how this plan specifically targets Black borrowers who shoulder a huge amount of the debt in disproportionate numbers. Black Americans are two times more likely to be Pell recipients. So, you know, they're more eligible now for the $20,000 versus the $10,000. And we know that one out of every four Black Americans will receive total debt cancellation after today's announcement. But that's not good enough because we have a broken system. And Sequoia, there's also some changes here with the income-driven repayment plan. Can you walk me through that? Yes, that's the last big piece of the puzzle here. This is a type of plan that borrowers enroll in and you make payments based on your level of

Starting point is 00:03:30 income. And the changes to this plan would cut payments for borrowers in half, which would be huge, and also increase the amount of income that's protected from these plans, making the payments smaller. And it is great in theory, but IDR has long been a source of trouble for the Ed Department. So we'll have to wait and see how that one plays out. Interesting. And just to note here also, Biden has also extended the freeze on federal student loan payments through the end of this year, which includes a pause on interest as well. So that's something that started during the pandemic, and this is the last time that it'll get extended. So, Scott, on a personal finance front, what does this mean for people who get some or all of their debt forgiven?

Starting point is 00:04:10 Well, it kind of depends on what you compare it to. As you mentioned, student loan payments have been on pause throughout the pandemic. People have been paying nothing. So starting next year, most folks will have to start paying something, but the amount their balances will be reduced by up to $20,000. So they'll be paying less than they were paying back before the pandemic. So people will have less money to spend on everything else than they've had during the pandemic, but they'll have more money to spend than they had before the pandemic. Right. And zooming out a little bit, there are estimates that this will cost the government about $300 billion. That's not a small sum. What impact does this have on the economy and specifically with inflation? Yeah. Now, the White House is highlighting those payments that will restart and suggesting that that reduction in spending power

Starting point is 00:05:01 will basically offset the increase in spending power that comes from the debt forgiveness. Again, it sort of depends on what you use as your starting line. Critics say this is hundreds of billions of dollars in extra gasoline that's going to go on the inflationary fire as people have all that extra spending power. We should say, though, these are payments that people would have been making over the course of years or decades. So that extra spending power is stretched out over a long period of time. Its inflationary impact may be muted. Other economic arguments really speak to the equity of how this program works. People who might be perfectly happy to see the government subsidizing a newly minted social worker making $25,000 a year might be

Starting point is 00:05:41 less happy about having the government forgive debt for a new MBA graduate who's soon to be making six figures. So, Koya, let's just break this down a little bit and do some news you can use. If you are one of the folks with student debt, how can you start this process of getting your debt forgiven? This is the big question, right? Everyone wants to know this. Almost every borrower I spoke with yesterday after the announcement asked me this right away. They were like, when? When can I see this? How do I do this? And the answer right now is we just don't know. We know for about 8 million borrowers, the debt relief will be automatic since the education department already has their info on file. But for the rest, which is millions of people, tons of people, they're going to have

Starting point is 00:06:25 to verify their income in some way, which could be a huge hurdle for the education department. All right, we're going to take a quick break and we'll be back in a second. And we're back. Let's get into the politics of this a little bit. This is something progressives have been calling for for a while now. Many of them, including Senator Elizabeth Warren, applauded the move. But, Scott, we're hearing some criticism from people on the right, including Senate Minority Leader Mitch McConnell. He called this move a slap in the face for people who saved to go to college or already paid their debt or chose not to go to college because they couldn't afford it in the first place. He called it, quote, astonishingly unfair. Now, Biden has said that he's not going to apologize for helping working and middle class Americans. But this is a pretty interesting

Starting point is 00:07:14 dynamic here, especially when you factor in that college educated voters now tend to skew more towards the Democratic Party, right? Yes, and that was not always the case. But we increasingly have a partisan polarization along educational lines, where the Democrats have increasingly become the party of college-educated voters. The GOP has increasingly become the party of non-college-educated voters. And obviously, this policy, which shifts the cost of some college education from the college students and graduates to the general taxpayer, is going to fall into that partisan chasm. And we've also been hearing some criticism about how this plan doesn't necessarily tackle some of the structural issues here, that college education is still extremely high in the U.S.

Starting point is 00:08:01 Do we have any indication, Sequoia, that Biden's plans here will also address that? So if we're talking about the cost of higher education to the borrower, there is a huge thing in this plan that does have the potential to really change that for years to come. And that is the changes to the income driven repayment program. The one time drop of 10,000 or 20,000 is much more flashy, but the experts I spoke with said that the IDR changes have much more staying power in making college more affordable for decades. But a big criticism has always been that this plan does not address the rising cost of college itself. And right now, the Biden administration has not made a move on that front. Yeah, and long before inflation was making headlines in the newspapers, the cost of college education was rising year after year after year,

Starting point is 00:08:54 even when all other costs were more or less flat. College costs have been going through the roof. And economists argue that this does nothing to really address that. It puts more of the burden on the government, but it doesn't do anything to impose cost discipline on colleges. In fact, it makes it easier for, say, a high school student today to think, maybe I can borrow more money because who knows, down the road, there may be another forgiveness plan. One thing I will say is we are often thinking about college as a traditional four-year program, which the cost has risen dramatically. But when we as a traditional four-year program, which the cost has

Starting point is 00:09:26 risen dramatically. But when we're looking at two-year programs at community colleges, the Biden administration has had a lot of work on that front. For instance, they had a large increase to the highest that students could receive from a Pell Grant. And community college graduates are going to receive a lot of relief from this program specifically. I also wanted to ask, when it comes to folks on the progressive side of things who are a little bit more critical here, they're saying that this is a good first step. But a lot of progressive politicians are saying that more debt needs to be forgiven, and in some cases, all debt. What has been the reaction there that you guys have heard? From the advocacy side, the loudest speaker on this side is the NAACP and their president,

Starting point is 00:10:11 Derek Johnson. They gave kind of a lukewarm statement yesterday that this was a step in the right direction kind of thing, applauding the higher than $10,000 number that we saw for Pell Grant recipients. But this morning, they did hold a rally outside the White House. There was a big brass band about really trying to push the president towards higher forgiveness, because especially for black borrowers, four years out of college, the average amount of debt that a black borrower has is around $53,000. And those numbers are twice as much of their white peers. But there has been actually a good deal of support for this, at least as a first step from the progressive wing of the Democratic Party. And I'm sure that the administration is counting on

Starting point is 00:10:57 some of that support. Yeah. And not to be discounted is the reaction of borrowers themselves. I spoke with six borrowers before the announcement and I got four of them on the phone right as it dropped. And every single one was very, very happy. I think it's easy to say $10,000 isn't enough beforehand, but when you're really faced with that discount, I think that borrowers on the whole were more excited than we were expecting.

Starting point is 00:11:23 Yeah, it definitely changes things. All right, we're gonna have to leave it there for today. Scott Horsley, thank you. Sequoia Carrillo, thank you. Good to be with you. Thank you. I'm Deepa Shivaram. I cover politics. And thank you for listening to the NPR Politics Podcast.

The NPR Politics Podcast - Need To Claim Student Debt Relief? Here's What We Know

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.