President Joe Biden has fulfilled another one of his campaign pledges by ordering the U.S. Department of Education to cancel $10,000 of federal student loan debt for borrowers who make less than $125,000. Pell Grant recipients — who by definition come from poorer families — are eligible for an additional $10,000 in forgiveness.

While forgiving current debts has grabbed headlines, the Biden administration’s changes to income-based repayment plans could do more to help resolve the student loan crisis going forward.

Currently, a new college graduate with a median $31,100 in student loan debt must pay back at least $297 per month, whether or not they have found gainful employment. While assistance programs allowing deferment, forbearance, or income-based repayment are available, these options not only delay paying off debts but cause interest to increase the overall balance as well.

This would no longer happen under Biden’s new rules. Unpaid interest will instead be forgiven going forward, keeping balances from getting out of hand. Payments will also be capped at 5% of discretionary income, rather than the current 10%, further reducing the burden of college debt on those with the least ability to repay. The Biden administration has also promised a significant increase in Pell Grant funding, ensuring that the neediest students can graduate with less debt in the future.

Counter to criticism from opponents, this isn’t a big giveaway to the already successful. It is a limited but effective measure aimed at helping less affluent students get the same education available to those with more resources. A Penn-Wharton budget model found that 75% of the benefit would go to households earning $88,000 or less. By contrast, the mortgage interest deduction (which is arguably less criticized) sees 80% of its benefits go to the top 20% of households by income. Under current law, even second homes can earn the deduction.

Some of the criticism of loan forgiveness might make sense if Biden had bowed to the demand of Sen. Elizabeth Warren and Senate Majority Leader Chuck Schumer for a significantly larger debt forgiveness program, or Sen. Bernie Sanders’ proposal for total debt abolition. Instead, Biden resisted the urge to do too much — or too little.

His new student loan policy is a win not just for the president, who has been on somewhat of a roll recently. Nor is it solely a win for current borrowers. The spiraling cost of a college education and the fundamental unfairness of being charged compound interest by lenders has derailed the college aspirations of too many young people and saddled 81% of adults with so much debt that they have been forced to delay key milestones like getting married, having children, saving for retirement, or buying a home. The economic return of allowing millions of young people to move ahead with their life goals will be felt far beyond the specific beneficiaries of this forgiveness plan.

Like the bed Goldilocks finally found suitable enough to fall asleep in, Biden’s plan is just right.

Editorial by The Philadelphia Inquirer
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