On Student Debt
On the surface, this seems quite simple. But as a policy student, there is a bit more to think about. Let’s unpack.
The Background
It’s recently been reported that the administration will once again freeze student loan payments until August 31st.
“We are still recovering from the pandemic and the unprecedented economic disruption it caused. If loan payments were to resume on schedule in May, analysis of recent data from the Federal Reserve suggests that millions of student loan borrowers would face significant economic hardship, and delinquencies and defaults could threaten Americans' financial stability."
This freeze has been going on since March of 2020, and this new extension hasn’t sat well with GOP leadership, who say “the pause on interest and payments has cost the federal government at least $95 billion”.
And while there is disagreement on the left in regards to how much debt to cancel and for who, there are many who at least want to cancel something:
Biden made a campaign promise for canceling $10,000 in debt per borrower.
Senate Majority Leader Chuck Schumer asked for Biden to forgive the first $50,000 in loans owned by each borrower.
Members of the “Squad” or Progressive Caucus have been asking for a complete cancelation of student debt.
And a key mechanism that people claim Biden can do this by is his executive power. Biden has asked his administration to prepare a memo outlining if it could be legal given the power of the Department of Education…..and that memo has yet to be released publicly (although some activists leveraged FOIA to get a nearly 100% redacted memo).
The Policy
Who has student loans and how much debt do we have? There is about $ 1.7 trillion (both private and federal money) in student debt owed by people who:
went to undergrad and graduated (who might owe debt in the tens of thousands)
went to grad school and graduated (who might owe debt in the hundreds of thousands i.e law school or medical school)
went to school and didn’t finish (who might owe $5,000 in debt and really struggle to pay it off)
this debt is not just held by students but by parents or other networks who might be helping a student through college
A widespread policy can be difficult to materialize when the experiences are different among different people. It both impacts a lot of people and yet not very much at the same time: 40 or so million Americans over the age of 18 have this kind of debt and yet that is still only 16% of the over 18 population.
Many Americans don’t even have a college degree or the benefits that should come with having one. One blanket policy alone won’t get to the root of so much that is at stake.
Read more:Putting student loan forgiveness in perspective: How costly is it and who benefits? | Brookings Institute
Some College, No Degree | Inside Higher Ed
U.S. Census Bureau Releases New Educational Attainment Data | Census
There is also a racial equity component of this argument:
Many people argue that canceling student debt would help close the racial wealth gap between Black and white Americans.
The number of Americans who owe more than what they originally borrowed due to compounding interest is disproportionally higher for Black Americans
Whether or not you can take on debt is a matter of resources that Black Americans have been historically stripped of (i.e cash networks or intergenerational wealth)
There is a clear argument to be made that canceling student debt would be a big relief and a benefit to Black Americans.
But the argument that canceling student debt would help close the wealth gap has many people in disagreement:
White people have historically and continue to go to college at a higher rate than Black Americans— canceling student debt would not erase decades of history.
Wealth is not just about income— but assets, like being able to buy a home or start a business. Within this, credit lending discrimination and discrimination within job hiring processes, also stand as barriers to Black Americans gaining wealth. Erasing student debt doesn’t even begin to scratch the surface.
Forgiven debt is considered income and income is taxed at a higher and quicker rate than other forms of wealth.
Keep Reading:
Student loan forgiveness is regressive whether measured by income, education, or wealth | Brookings Institute
Biden Promised to Center Racial Justice. He Can Start by Canceling Student Debt | Truthout
Student loans, the racial wealth divide, and why we need full student debt cancellation | Brookings Institute
Student Debt: The Unique Circumstances of African American Students | American Council on Education
How Black Women Experience Student Debt | The Education Trust
How Canceling $15 Billion In Student Loans Impacts The Racial Wealth Gap? Forbes
Student Debt and the Disregard for the Black Middle Class | Bloomberg
The Politics
The culture and narrative around who attends college is interesting:
Given that only about a third of all Americans have a college degree, people have an easy time dismissing the debt cancellation proposal as elitist— these are people who choose to go to college and get higher wages. This is incredibly important as we look at the percentage of people who have advanced degrees and are a part of the Democratic party.
This makes sense given that we aren’t talking about canceling or regulating the kind of debt that might be more (hypothetically) equally felt across party lines and communities like medical debt or elder care/child care debt. Or other kitchen table issues for that matter.
But what gets left out of this discourse is that so many of us choose to go to college because we don’t actually have a choice. And this is particularly true for first-generation college students who are trying to break cycles of poverty and trauma in their families. And even then, that “choice” doesn’t always work. We also attend higher ed because we want a profession that impacts society— not something that just puts money in our pockets. This discourse also dismisses the fact that most high schools exclusively gear students to higher academia after graduation (instead of combining that with trade school prep, resume workshops, interview training, etc). So yes, college is a choice. But for many of us, it’s a choice made out of survival or truly wanting to make a difference.
We also dehumanize and demoralize people for what they choose to study: who needs a Women and Gender Studies degree? Why would you go to school for an MFA? Why should loans be forgiven for someone who decided to study History?
To this I would say: just because you don’t understand what a particular discipline is and what kind of net benefit it has on society doesn’t mean you get to downplay the work that goes into the achievement of getting a degree, of producing original research, and of having an impact on the way we live, think, or view the world. I am willing to bet that the majority of people who go to college aren’t purposefully choosing “useless” degrees. But that’s just my take.
Another common rebuttal and anti-cancel loan argument: I suffered through paying loans. So should you. This is such a slippery slope of an argument. And yet, I think it’s enough to alienate a significant number of voters who strongly believe that because they were able to pay off their loans, other people should do the same and that the only reason why they aren’t doing so, is because they are choosing not to work hard enough. Many people would simply see this cancelation as a handout.
There’s a litigation risk.
The Supreme Court (which is right-leaning at this point in time) could completely overturn or block this cancelation. This is probably why Biden is looking toward Congress to make a move.
But not canceling could also be politically detrimental.
The new freeze ends on August 31st. Next up? The midterms. Many of the voters Democrats are depending on, are those with college degrees, and Black voters who are disproportionally impacted by student loans. So I imagine that whatever options Biden is weighing at the moment, have the midterms weighing in the balance.
Another politically and economically charged rebuttal: We have record inflation, in part because many people don’t have loans to pay. Instead, they have extra income to buy more goods…..and this uber-consumption, when we don’t have the goods to meet the pace of demand, isn’t helping. Yet having people resume payments when expenses have gone up will not make many voters happy.
The Ethics
For those of us who keep graduating or have left school in the midst of a pandemic and in the midst of student loan freezes, many Americans have never had to make a loan payment.
This means that thousands of people have made decisions about where to move, what jobs to take, and how to balance their budgets, who would have to suddenly resume payments. All in the midst of historic inflation, where the cost of nearly everything from housing to gas has skyrocketed.
Resuming payments could mean that many Americans fall through the cracks. Student loan payments have always been difficult and confusing. These constant freezes have only exacerbated an already messy payment program. We have also been living through a deadly pandemic that has knocked people’s finances off of their axis.
For this reason alone, it makes sense that so many people favor canceling student debt.
But we actually need to do more. Canceling student debt snips at branches, but it doesn’t get at roots. And my fundamental belief about policy is that it is supposed to lay the groundwork: it designs solutions by capturing the full essence of the problem.
Canceling loans is only part of the problem. Because today that debt is gone. But for the class of 2023, the clock will simply start over again.
So What Should We Do?
We have an interest rate payment problem.
Why are interest rates for student loans so high? For most people, the day they pay back their student loan, they will have paid more than the amount they originally borrowed. In this way, student loans become a life sentence— keeping Americans from getting married, buying a home, and moving on to the next chapter of their lives.
For federal loans, in particular, the government imposes a fixed interest rate to offset the risk of losing money in case someone defaults on a loan. This interest rate is adjusted each Spring and is determined by the current yield on 10-year Treasury notes. Undergraduate and graduate students pay different interest rates.
There have been arguments for or against canceling interest rates, but in the long term, we must talk about the predatory nature of interest rates (especially for private loans), especially when it targets a specifically young age group (18-22).
Keep Reading:
Could 0% interest rates settle the student loan debate? | Fortune Education
Student Loans Could Get More Expensive With Higher Interest Rates | Forbes
When colleges defraud students, should the government go after school executives? | NPR
Student borrowers ‘preyed upon’ by loan servicers, but lawmakers want to change that | CNBC
Loans ‘Designed to Fail’: States Say Navient Preyed on Students | DealBook
We have a tuition problem.
The cost of going to college is disturbingly out of reach for far too many Americans. We are asking 18 years olds to place a bet on their future by taking on a cost of a product that mirrors the amount some people pay for a small home, or a new car off the lot, etc. The argument for why ranges from administrative bloat to lack of government public funding, student retention dropping across the country, or the lack of new colleges and universities being built. It could even be a combination of all four.
But what people can all agree on, is that the price students and families are paying isn’t sustainable and for many Americans, it doesn’t look worth it.
Keep Reading:
Who is to blame for rising tuition prices at public colleges? | The Washington Post
The Number of Colleges Continues to Shrink | Inside Higher Ed
A Guide to the Changing Number of U.S. Universities | U.S News
Bureaucrats And Buildings: The Case For Why College Is So Expensive | Forbes
The Real Reason College Tuition Costs So Much | NYT
We have terrible repayment programs.
Case in point: The public service loan forgiveness program with 10 years without a break, on its surface seems quite simple. But the rejection rate is high and the trickiness of trying to figure out these loans is time-consuming, infuriating, and further affirms the feeling that this debt is meant to trap people.
Currently, the administration is working to alleviate some of these issues: Department of Education Announces Actions to Fix Longstanding Failures in the Student Loan Programs | DOE
So….is it $10,000, is it $50,000, or is it all of it?
My answer? Cancel $10,000.
For one Biden made a campaign promise that he would. It also seems the most feasible and doable. And his argument makes sense since those who owe $10,000 or less often struggle the most by getting trapped in defaulting on their loans that can clip their wages and social security. In fact, conservatives understand this as well (albeit they want it capped at $5,000).
In a perfect world, I would ask for $50,000 because I feel like it would be a targeted approach to alleviating the disproportionate impact held by Black Americans.
But next? Tackle interest rates and the exorbitant cost of college tuition.
What are your thoughts? What should the DOE make a priority?
Some other helpful articles:
Who Really Benefits From Student-Loan Forgiveness? | The Atlantic
The future of the middle class depends on student loan forgiveness | Vox
cover image by https://unsplash.com/@nate_dumlao