Secretary of Education Miguel Cardona is uncomfortable.
I’m beginning an interview with him in the Glendora (New Jersey) Elementary School library and we’re seated on plush, giant, hand-shaped kiddie chairs when Cardona—himself a former fourth-grade teacher—calls an audible. “Wait,” he says. “Let’s stop the interview and change out these seats.”
Makes sense, Mr. Secretary. The chairs weren’t working. And with what he’s going through these days, the man needs all the comfort he can get.
In late August, President Biden signed an executive order that will forgive up to $10,000 of student debt for borrowers earning less than $125,000 per year. Borrowers with federal Pell grants, which go to those with exceptional financial need, will receive up to $20,000 in forgiveness, if they make less than $125,000.
The plan has become a political hot potato drawing fire mostly from the political right, but also from some constitutional scholars as well as education and personal finance experts who see it as problematic, incomplete, or both. On the other hand, the 40 million or so Americans who would see their student loan debt reduced or even eliminated—that’s more than 15% of the U.S. adult population—might be delighted with the president's determination to move forward with the plan despite its critics.
U.S. President Joe Biden, Vice President Kamala Harris and U.S. Secretary of Education Miguel Cardona attend a meeting of the Reproductive Healthcare Access Task Force in the State Dining Room at the White House in Washington, U.S., October 4, 2022. REUTERS/Elizabeth Frantz ·Elizabeth Frantz / reuters
I asked Cardona why the plan has become a lightning rod.
“If we're serious about America being the best and leading the world and producing the best thinkers, then we need to invest in education," he said. "It's almost hypocritical for folks to be complaining about this yet applauding what we did to keep businesses open during a pandemic, through our PPP [Paycheck Protection Program]."
“President Biden was responsive to the stories that we amplified, and his action is one that is historic and will change lives for the better,” fellow Squad member Massachusetts Rep. Ayanna Pressley told us. “There were those who considered this issue to be fringe and marginal. We worked with a coalition for two years to prove that it was not, and that canceling student debt would be transformative."
Pressley stressed that the Biden administration should continue supporting historically black colleges and universities; pushing for tuition-free college; and investing in Pell Grants. "But this is a bold, strong, necessary step in the right direction. It is a victory for everyone,” she said.
'Illegal and inflationary'
Now the objections: Opponents say debt forgiveness will stoke inflation, while others say the Biden administration doesn't have the Constitutional authority to wipe away so much debt. Some critics contend this isn't fair to people who never took on student loan debt, or that Biden went too far when he offered up to $20,000 in forgiveness for Pell Grant recipients.
UNITED STATES - JUNE 8: Ranking member Rep. Kevin Brady, R-Texas, is seen before Treasury Secretary Janet Yellen testified during the Ways and Means Committee hearing on the Proposed Fiscal Year 2023 Budget, in Longworth Building on Wednesday, June 8, 2022. (Tom Williams/CQ-Roll Call, Inc via Getty Images/) ·Tom Williams via Getty Images
“Student debt is crippling,” Texas Rep. Kevin Brady acknowledged to Yahoo Finance. “And when too much is taken on it can change your life. But this proposal by the president is illegal and inflationary. It is financially irresponsible. But most of all, it's just unfair. It's a kick in the teeth to all the blue collar workers and all the Americans who don't have student loans."
Brady spoke of a pending bi-partisan billcalled SECURE 2.0 as an alternative to the forgiveness plan, which he says would allow businesses to contribute to employees' retirement accounts when workers make student loan payments. Example: If you put $100 towards your student loan, your company could match it with up to $100 going into a retirement plan like a 401(k).
“So in effect while that worker is paying off their student debt, they will no longer miss out on putting matching funds into their retirement,” Brady said. “It brings a private sector approach to helping students with their debt while helping them save for the future and for their retirement.”
Sheila Bair, former FDIC chair and former president of Washington College, wrote for Yahoo Finance recently that while she supports some student loan forgiveness, the plan doesn't fix flaws in the larger student loan ecosystem. Those include complexity, opacity, high tuition, and poor outcomes.
As for Biden’s plan, she says: “It is too generous. I think $10,000 of relief to Pell eligible students would have been much more defensible,” Bair said. "If we slide into recession, I think federal spending should be prioritized on those who have lost jobs, not student debt borrowers. This may be a good political issue for Democrats in November, but will prolong uncertainty and hardship among borrowers.”
With the midterm election just a month away, Biden and the Democrats hope that they present voters with student loan forgiveness as a win.
That is by no means a certainty. Legal challenges aside, the administration is looking to thread a needle as it wants to get as many folks signed up before November so it can recalculate millions of dollars of loan payments in January. That's the same month the pandemic-tied pause on student loan payments ends.
Should these students be required to repay this debt? The debate between those who favor a free market and those who push for government intervention reflects a timeless American issue.
The free market camp argues that these young people made a choice to take on debt, so that’s their problem. To the extent this is an unappealing contract, free marketers would contend that the market's "invisible hand" will make the business of student loans unsustainable as borrowers shy away from taking on unattractive loans.
The problem with that outlook is that millions of people get hurt along the way—which is no way to run a society. We can’t let people sell Halloween candy with ground glass in it and wait for the marketplace to correct it. The government needs to protect people, and in some instances, make them whole if they've already been injured.
The question is: Is the government obligated to come to the aid of those who've already taken on too much debt? It’s a debate that will likely keep Secretary Cardona in the hot seat.
This article was featured in a Saturday edition of the Morning Brief on Saturday, Oct. 7. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe
Follow Andy Serwer, editor-in-chief of Yahoo Finance, on Twitter: @serwer
