A Biden administration decision stands to forgive almost $110 million of Rhode Island student debt as a COVID-era payment freeze approaches its end.
The U.S. Department of Education announced on July 14 intentions to correct mismanagement of income driven repayment plans that could bring $39 billion in relief to 804,000 borrowers.
Nonetheless, the number of Rhode Island borrowers directly affected would be relatively small, according to the Economic Progress Institute.
“Because there have been historical failures in the student loan program,” said Nina Harrison, policy director at the Providence-based think tank. “Just fixing that will provide $109.75 million in debt relief.”
“That would be 2,580 Rhode Islanders and that’s just specific to the income driven repayment plan.”
An April analysis of student loan debt by LendingTree, an online lender, found that 153,200 Rhode Islanders hold about $5.2 billion in student debt. The average debt is $43,336, .5% below the national average.
There was a total $1.6 trillion in student loan debt nationally as of the fourth quarter of 2022.
Local economists said the move is an attempt to free up money that will enable increased spending and lending for generations affected by the recessions of 2001 and 2008. The hope is this will lead to more business and job creation and large purchases, such as homes and cars.
“What the Biden administration is trying to do is free up that student debt,” said Liam Malloy, an economics professor at the University of Rhode Island. “The first plan they had was overturned by the Supreme Court.”
A previous plan put forward by the Biden Administration to forgive about $430 million in debt for 40 million borrowers was struck down by the U.S. Supreme Court on June 30. Malloy said the latest move is a reaction to that decision as three years of payment forbearance is scheduled to end on Sept. 1.
“The difference between the new [forgiveness] plan and the original is that it’s much more gradual,” Malloy said.
Harrison pointed out that historically marginalized groups have the most to gain with any forgiveness scheme since most debt is held by them.
“Women hold close to two-thirds of student loan debt and Black women hold the largest amount of that,” she said.
According to the American Association of University Women, Black women had an average student loan debt load of $41,466. White women held an average of $33,852 in student debt while Asian women held the lowest amount at $27,606.
Harrison said she was hopeful the move would lead to more decisions that would lead to a reduction in student loan debt.
“I’m certainly hopeful that this will lead to action on how we can provide more relief to people who are struggling to pay student loans,” she said. “Loan forgiveness improves equity.”
Kevin G. Andrade is a staff writer for the Rhode Island Current.