In the discourse about Biden’s student debt forgiveness announcement, one common talking point has been that many people recently benefited from the forgiving of Paycheck Protection Program (PPP) loans. This seems to be fairly effective rhetoric, but it’s a little bit misleading.
When COVID hit, Congress scrambled to pass a relief bill called the CARES Act. The bill had lots of moving parts in it, but the basic structure of it was to provide cash grants to (1) state and local governments, (2) households, and (3) small businesses, and to provide cheap credit to (4) large businesses.
Administering (1), (2), and (4) was fairly straightforward. State and local governments could be sent cash directly or have their share of state-federal programs picked up by the federal government. Households could be provided cash through the IRS (though this missed many of the very poor who are non-filers) and unemployment insurance. And large businesses could get cheap credit through the Treasury, the Federal Reserve, or the regular credit markets that were being effectively supported by Fed policies.
But the federal government had no real existing mechanism for quickly getting cash grants out to small businesses. So what they decided to do instead was have the Small Business Administration (SBA) and SBA-participating banks provide “forgivable loans” out to small businesses. If those businesses continued to operate normally, after a few months, the loans would be forgiven, and almost all of them were.
These were not really loans. The government never expected or wanted repayment. They were cash grants, similar to those received by state and local governments and households, that, for administrative reasons, had to be run through the small business loan system.