Is Forgiving Student Loan Debt the Answer?
Are we just blowing more air into a leaking balloon?
Student loan forgiveness has been a hot topic recently. With a President-elect recommending to cancel $10,000 in federal loans, and leading Democratic Senators urging $50,000 in loan forgiveness, it seems inevitable.
I was all in favor of canceling debt for all. But the real solution to the student debt crisis isn’t as simple as we would think.
That said, the benefits of forgiving mountains of debt would be undeniable.
There are currently 45 million borrowers, collectively owing more than $1.7 trillion in student loan debt. Forgiving just $10,000 per person would mean complete debt cancellation for about a third of these borrowers.
If the government decided to go further, the upside is even more tempting.
A 2018 paper from the Levy Economic Institute concluded that a cancellation of the full $1.7 trillion translates to an average GDP increase of $86 billion to $108 billion a year.
Canceling student loan debt can be viewed as a long-overdue righting of the ship.
This graduating generation is slowly learning that college isn’t the promise originally sold to them. Students are enticed to take on thousands in debt for the promise of upward mobility offered by higher ed.
However, a Bachelor’s degree has become a minimum qualification for most-all entry-level jobs, and barely guarantees a livable wage.
I’d like to remind those Baby Boomers lecturing about how they worked part-time to pay for college in the 1980s, that their average in-state tuition at a four-year public college was just $909.
In past decades, it was perfectly possible to pay for an entire year of tuition with less than seven weeks of full-time, minimum-wage work.
A current student may have just fainted reading that sentence.
“Years of cuts in state funding for public colleges and universities have driven up tuition”
The skyrocket of Public University tuition isn’t caused by what you may think. When adjusted for inflation, the cost of public universities has increased just modestly.
The culprit is due in large part to reduced funding from states. Most states — after a grueling recession — continued the trend of making deep cuts to funding public colleges, leaving behind a huge gap to be filled.
The state of Washington, once one of the most affordable public universities in the nation, saw one of the more dramatic shifts. The state went from paying 70% of school costs in 1991, to 30% by 2013.
The benefits of forgiving debt make the problem seem more simplistic than the reality.
Despite what most think, student loan forgiveness would disproportionately benefit high-income earners.
Even limiting federal loan relief to salaries under $125,000 a year — following Senator Warren’s plan—would result in about 65% of the relief going to households with incomes in the top 40% of the nation.
Meanwhile, just 14% of the relief would go to households in the bottom 40%.
And those 45 million borrowers I mentioned earlier, only account for about one-third of all American adults.
True, forgiving just $10,000 would go a long way. But what about future grads currently taking classes and racking up debt? Or the scores of grade school students preparing to do the same thing?
One-time debt forgiveness would help, but it becomes a vicious cycle that bears repeating. And in the near future, there may not be a national will to do anything more about the college industrial complex.
We can do better.
“This debt jubilee would postpone the deserved reckoning of the higher-education system with its runaway inflation and predatory practices.”
If the goal is to help most Americans, we can’t stop at forgiving student loan debt.
To this end, President-elect Joe Biden has proposed two years of free community college; removing undergraduate tuition at Public Universities (for families earning less than $125,000), and subsidizing the cost of historically Black colleges.
Undergrads attending Public Universities account for less than a third of that $1.7 trillion in total student loan debt, with most of the dollars loaned going to pay for private nonprofit universities (think Ivy League Institutions), for-profit colleges, graduate schools, and professional schools (like medicine and law).
There is still more work to be done outside of creating free college education opportunities. But creating equitable accessibility to college is a leap in the right direction.
Higher education is too expensive for most Americans, yet degrees are rapidly becoming a basic requirement for a middle-class existence.
Forgiving student loan debt could serve to stimulate a lagging economy and go a long way to relieve the immediate suffering of millions.
But a real solution prevents the need for government to pardon loans at all. This means investing in free public education and crafting legislation that accounts for the highest debt generators (private nonprofit universities, for-profit colleges, graduate and professional schools).
Forgiving federal student loans is the easier option, by using the Executive Order to sidestep an ineffective Congress. But how much political will is left over for the heavy lift of pushing through more comprehensive legislation?
Given the choice, shouldn’t we push for what has the greatest impact?
Any citizen not prospering is bad for the whole of America. The real progressive push focuses on making the economy work for all. Not just those with a degree.
