President Biden doesn’t want to do it. But political reality has compelled him to make the biggest move so far to relieve student borrowers of onerous debt.

After months of deliberation, Biden has signed an executive order that will forgive up to $10,000 of student debt for borrowers earning less than $125,000 per year. Those 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.

As a presidential candidate in 2020, Biden supported limited debt relief, in contrast with other Democrats who wanted to write off much or all of the $1.6 trillion in student debt Americans hold. Biden also opposed debt relief by executive order, saying Congress should do it by passing a law that leaves no doubt about the legality of the move.

The votes aren’t there for Congress to pass a debt-relief law, and Democrats need every advantage they can get heading into this year’s midterm elections. So Biden is holding his nose while signing a debt-relief executive order likely to face legal challenges. Biden has also extended a moratorium on student-debt repayment for the eighth time since March 2020, when Congress first enacted a repayment pause as part of the COVID-relief CARES Act. That pause now extends to Dec. 31.

The White House undoubtedly conducted detailed analysis to figure out how to provide some debt forgiveness, which is popular among Democrats, while triggering the least blowback from nanny-state critics. The $10,000 limit may be the optimal move. Polling shows 55% of Americans favor $10,000 in student debt relief. Support declines as the dollar amount gets larger, with only 41% supporting the elimination of all student debt, which is what uber-liberal Sen. Bernie Sanders of Vermont wants to do. Not surprisingly, support for debt relief is much higher among people who actually hold student debt.

Legitimate fairness questions

Any debt relief at all, however, is a questionable use of taxpayer dollars. Forgiving $10,000 of debt will wipe out all money owed for about 12 million borrowers and reduce the balance for about 30 million others. But it will cost the government about $300 billion in foregone revenue, according to the Penn Wharton Budget Model. That will add to budget deficits and more or less zero out the $275 billion in deficit reduction included in the so-called Inflation Reduction Act that President Biden signed less than two weeks ago.

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It might make sense for the government to spend $300 billion on a social benefit. Congress approves such spending on a regular basis. But policymakers starting from scratch with $300 billion at their disposal would probably never opt for student debt relief. As Penn Wharton points out, the majority of the benefit will accrue to borrowers in the top 60% of the income distribution. The $125,000 income ceiling underscores the problem. Median household income is only about $68,000, which means some beneficiaries of the debt cancellation will earn nearly twice as much as the typical family.

Social programs that do the most good are typically targeted at lower-income people who need the most help. The best economic return, in terms of reducing poverty, would probably come from expanding the child tax credit, helping lower-income workers with child care costs or providing paid leave for workers whose employers don’t provide it. But Democrats in Congress don’t have the votes to enact such programs and Biden can’t do it through executive order.

Student-debt cancellation also raises legitimate fairness questions. It does nothing to help Americans without any college education, who typically earn less than those who attended college. There’s no benefit for college grads who worked their way through school or took out loans and repaid them.

Some taxpayers will strenuously object to debt relief for borrowers who could have made other choices, such as borrowing less and working part-time during school, attending a cheaper community college or even opting for a trade school with a direct pathway to a well-paying job. What about some relief for people struggling with credit-card debt at a 30% interest rate? If the government bails out college grads, why doesn’t it pay off my mortgage? Or my small-business loan? Why doesn’t Uncle Sam just buy everybody a BMW? They’re not wrong.

Easy money and unintended consequences

None of this is meant to dismiss the legitimate difficulty millions of student borrowers have paying off loans that have mushroomed far beyond what their incomes can manage. The federal student-lending program has morphed from a helpful stepping stone to education into a monstrosity rife with unintended consequences. The government offers easy money with essentially no evaluation of borrowers’ creditworthiness or ability to repay the money. There’s no metric for calculating return-on-investment. Young borrowers with no financial experience basically indenture themselves with little or no awareness of what they’re committing to. Vast federal subsidies, meanwhile, have helped push college tuition to unimaginable levels, making the whole problem even worse.

Prudent reform might pair debt forgiveness with structural changes such as providing better financial education to borrowers, holding college responsible for job placement or other outcomes, and doing something to bring college tuition down. Some would sharply curtail the federal student-aid program and return it to the private sector, where lenders would do proper underwriting and only lend money they think borrowers can reasonably pay back.

None of that is in Biden’s executive order, and Democrats may drop the whole issue once the midterms are past. Biden himself probably hopes he’s doing just enough to win a few votes for his fellow Democrats in November, and not quite enough to trigger a voter revolt.

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