A chance to reduce student-loan debt

No one seems capable of getting a handle on the miserable problem that is student debt. The $1.6 trillion owed—doubled from a mere decade ago—is a financial dead weight on both the lives of those who owe it and the greater economy, making everything from home ownership to saving for retirement harder for its holders.

Nor is the burden distributed fairly: Black people acquire more debt to attend college than white people and experience a harder time paying the money back. Women borrow more money to attend college than their male peers as well.

Little wonder progressives are cheering the news that Senate Minority Leader Chuck Schumer (D-N.Y.) believes President-elect Joe Biden will include forgiving a portion of it—most likely $10,000 per borrower—as part of his executive actions for his first 100 days in office.

But while this would be a welcome development, it is also far from a perfect solution. And it does little to address the main issue: the inability of many to afford a college education without resorting to borrowed money.

The good part first: Canceling at least some student loan debt (as opposed to all, like Vermont Sen. Bernie Sanders wants) acknowledges reality. Prior to the suspension without penalty of federal student debt payments incited by the covid-19 pandemic, about one in five holders of such loans were in active default. Income-based repayment plans are increasingly popular, but are leading to further financial losses for the federal government.

And $10,000 may sound like a small portion, but it can do a lot. A majority of student loan borrowers owe less than $20,000, and the people who default are not as a rule the largest debtors. That is in part because people who drop out of college are more likely to run into trouble paying back their loans than those who graduate, but also because the attention-getting high-five-figure and low-six-figure sums are frequently racked up by graduate students.

These are often upper-middle-class professionals who are capable of earning greater sums that allow them to pay the funds back more easily.

The covid-19 economy has only heightened the pressure to come up with a solution. First, temporary government moratoriums on federal loan repayment are expiring at the end of the year. At the same time, our economy desperately needs to be juiced, and this is a good way to do it.

One 2019 study by TD Bank found that student debt holders under the age of 40 spent on average 20 percent of their take-home pay on their student loans. Reducing or eliminating that amount is no small thing. Make fun of avocado toast all you want, but all that eating out keeps a lot of restaurants in business, or at least it did until the covid-19 pandemic shutdowns and recession.

While controversial, it’s likely within a president’s authority to forgive federally issued student debt. According to Mike Pierce, director of policy at the Student Borrower Protection Center, the Higher Education Act gives any president the option.

In this interpretation—one endorsed by, among others, Sen. Elizabeth Warren (D-Mass.)— President Donald Trump’s waiving of principal payments and interest via executive action past the original date set in the CARES Act proves the case.

How to do this in a way that is effective and doesn’t cause political blowback? Making everyone who holds debt eligible for some forgiveness would be good; Americans famously dislike benefits that are limited by income, which is why Social Security and Medicare are sacrosanct, while almost everything else is forever up for negotiation. Still, other issues creep in.

What about people who paid off all their loans, sometimes making great sacrifices in their personal life to do so? No one is talking about them. And what if Biden decides, as he proposed during his campaign, to not stop with $10,000 in forgiveness for all and also goes on to forgive undergraduate federal tuition debt for those who attended public universities or historic Black institutions of higher learning? It doesn’t take a lot of imagination to see how being more generous to some debt holders than others could also feed resentment in an already divided United States.

But there is a bigger issue overhanging the whole debate. Biden said during his successful campaign for president he would like to make community college tuition entirely free and public universities free for students who come from families with a household income of less than $125,000. That would almost certainly cut into the amount people borrow going forward, but it’s impossible to do by executive order alone.

So if this doesn’t happen—and it definitely won’t happen if Republicans continue to control the Senate—it’s all but certain that a new cohort of students will simply repeat the debt spiral.

We need to recognize that higher education is a public good, one that benefits us all as a society as much as it does the individuals receiving it. Until we do, we won’t be able to properly reckon with the burden of all this debt. Forgiveness alone takes us only so far.