Loan forgiveness is a poor solution to the US student debt crisis
Trillions of dollars have emerged from recent US stimulus packages and budget proposals, but student loan forgiveness has yet to be addressed. Still, the American people have not forgotten their new president’s campaign promises to solve the disaster of spiralling student debt.
Some small steps have already been taken in light of the pandemic and ensuing economic problems, which saw the federal government pause student loan repayments and interest accrual t h rough this Se ptember. This sticking plaster has happily resurfaced the debate on how to address the US’ $ 1.7 trillion (£ 1.2 trillion) in student loan debt, which has left millions unable to buy homes and start families.
President Biden has long campaigned for $10,000 in student loan forgiveness, while the more progressive wing of the Democratic Party has called for at least $50,000. Republicans are holding firm with no forgiveness or, at least, grandstanding to that effect during negotiations. But all these positions fail to address the root cause of the problem: that, each day, we issue thousands of new loans to students in response to rising higher education costs and decreased funding for a public post-secondary education.
That is why Covid-19 must be the catalyst for financing higher education in a way that is not just morally right but politically practical. After all, we have seemingly spent $5 trillion over the past year in stimulus; a previous package even included a provision that student loan forgiveness would be tax-free, signalling imminent executive action.
Yet while student loan forgiveness might be sexy, it’s not a sustainable solution. Don’t get me wrong, as a former tuition-paying student, I would love forgiveness personally plan. To incentivise continued parbut it’s bad public policy. A one-time ticipation, each person making onfix via executive order – which, thetime payments within a year could oretically, could be overturned by have 10 per cent of their balance the next administration – fails both forgiven. Ultimately, those making future students and taxpayers. 120 payments within a decade
There are three effective actions would have their debt relieved. that the federal government can This reconciles the narrative that take to begin to heal the catastrophe personal responsibility requires it created. people to pay back their loans with
First, freezing interest accumulaa recognition that higher education tion for current borrowers and serves a public purpose since evereducing rates for future underryone in society benefits from the graduates to 0.5 per cent (and 1 per presence of highly educated peocent for graduateple.students)would lower the compounded dollars over he final step to making debt easy time. This is significantly lower to repay is to make it easier to disthan our current rates, starting charge student loans in bankruptcy at 3.73 per cent. The government (like other types of debt). This not should aim to cover costs, not only moves the forgiveness limit book $1.2 trillion in student loan beyond amounts proposed by liberreceivables under assets. als to the total borrowed but also
That still leaves the problem of accounts for the consequences in a how graduates can repay the capiway that might favour well with fistal. The first step here is to comcal conservatives, as this would be pletely re-engineer Public Service etched in the borrower’s credit Loan Forgiveness ( PSLF), which report. allows federal, state or local govThese federal-level strategies are ernment employees to pay back only a start. States and schools must their student debt at a fraction of also work on creative solutions. For the actual cost within a decade. instance, let’s look at three- year
I balk at the current form of this degrees, frozen tuition models that programme, which is limited keep costs the same for each class, to less than 1 per cent of all borrowstudent-retention programmes to ers. We are all part of the public increase completion rates, lifelonggood. Those gaining higher educalearning interventions, and better tion experiences better engage in accountability measures for civic duties, understand climate schools. challenges and pay it forward. So, Using Covid-19 to enact endurplace everyone in a reformed ing change in our post-secondary Public ( Good) Loan Forgiveness system’s principal calamity is cruprogramme, starting with an cial. If President Biden and income-based 10-year repayment Congress continuously squabble over forgiveness limits, student debt will ceaselessly amass. There is a better way.
Avery M. D. Davis is a PhD student at the Johns Hopk in s University School
of Education.