For a long time he put off the decision, after a year and a half in office Joe Biden has now made his way: On Wednesday he announced that he would grant a haircut for student loans. He wants to waive up to US$ 20,000 for recipients of federal financial aid. Up to 27 million Americans could benefit from this at a maximum cost of $300 billion.
Shortly before the midterm elections, the US President is making good on a campaign promise with which he wants to strengthen his standing with two groups that are important to the Democrats: young people and, in particular, African Americans.
Most Americans agree that college has become far too expensive. Costs have tripled since the 1980s, and not just at posh private universities that charge more than $70,000 a year. The result is that many start their working life with a mountain of debt, some of which still weighs on them at retirement age.
Until recently, however, only the far left Democrats demanded that Washington respond to the problems with a haircut. Then came the Covid pandemic, 22 million Americans lost their jobs, many lacked the money for installment payments, President Donald Trump suspended interest and amortization on loans. Before the 2020 presidential election, the moderate Joe Biden then had to win over the left wing of the party. Rather reluctantly, he promised a haircut.
Inflation is falling, the midterm elections are approaching
Once in office, Biden was reluctant to follow through on his promise. In doing so, he frustrated young and African-American voters in particular, those who were not exactly enthusiastic about him, to say the least. In vain did they expect him to do more for left-wing concerns, such as electoral law reform. For Biden, the decision didn’t get any easier when inflation climbed to almost ten percent at times.
Things have calmed down a little now, and some of Biden’s advisers are pushing for accommodating the left wing of the party for the crucial phase of the campaign ahead of the midterm elections. Biden has now chosen a middle course: installment payments are starting again, but at a lower level. In return, anyone earning less than $125,000 a year will receive debt relief.
A stress test for the Democrats
Biden is also subjecting his party to a stress test. The question of racism resonates more or less openly with the haircut. The top federal grant, a program called the Pell Grant, takes up a third of white students, compared to just under half of Latinos and well over half of African Americans. Studies have shown that more than 90 percent of white people can pay off the loan, while 95 percent of African Americans cannot.
Leftists point out that members of minorities earn less, that their parents cannot support them with their savings, that they drop out of their studies more often because they work in several jobs and have to help finance relatives. Moderates and right-wingers, on the other hand, insist on personal responsibility and criticize that a haircut will punish those who have paid off their loans.
Democrat Tim Ryan, who is in a tight Senate race against Trump’s favorite JD Vance in Ohio, distanced himself from Biden’s plan – one of many moderate candidates who were critical on Wednesday. Biden “sends the wrong message to millions of Ohio undergraduates who work just as hard to make ends meet,” Ryan said.
The Republicans have announced that they will fight the haircut. They cannot vote on it because Biden bypasses Congress and argues that the Secretary of Education can decide on his own authority. Conservative groups will now seek legal action against it. However, it is uncertain whether they will find a legal basis for this.