College graduation: A time when some students have to face the reality of repaying student loans.
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A Debate on Student Loan Forgiveness

Should President Biden Forgive Student Loans? And What Are the Consequences?  


President Biden Should Immediately Cancel Student Debt Through Executive Action  

By Ashley Harrington – Former Federal Advocacy Director and Senior Policy Counsel at the Center for Responsible Lending (CRL)

Student debt cancellation is not only feasible for President Biden, but an essential first step in fixing our broken higher education financing system. It will transform the lives of millions of borrowers, particularly veterans, older adults, low- and moderate-income families, and those in communities of color hard hit by compounding crises over the past 15 years. Even before the COVID-19 pandemic, one in four borrowers was in default or serious delinquency, with many forced to decide between making a student loan payment or basic life necessities such as putting a meal on the table. Many other borrowers were just treading water, barely managing their debt, and unable to fully participate in the American economy.

The Economic Benefit

Across-the-board debt cancellation of $50,000 for all federal student loan borrowers, combined with other common-sense measures like clearing the books of bad debts, restoring limitations on collections, and making repayment truly affordable and budget conscious, would provide real relief to more than 44 million borrowers. 

Debt cancellation proposals to eliminate $10,000 in student debt are no longer enough to help millions of struggling borrowers. A recent Center for Responsible Lending (CRL) report with the National Consumer Law Center (NCLC)  showed that cancellation to $50,000 would render more than 75% of federal borrowers debt-free. It would wipe out loans for 36 million borrowers, according to new data from the Department of Education, including more than 3 million of the 4.5 million borrowers who have been in repayment for more than 20 years. It will also cancel the debt for 95% of the borrowers—almost 10 million individuals—who were in default or serious delinquency prior to the COVID-19 pandemic

Debt cancellation is the first step to providing real relief to heavily burdened student loan borrowers and their families, clearing the way for them to participate in the economy by purchasing homes, launching small businesses, saving for retirement, and boosting the economy by patronizing local businesses. Much of the outstanding debt will never be repaid and debt cancellation will put tens of billions of dollars back into the economy over the next decade. Meanwhile, failure to cancel student debt ensures that it will remain a burden, negatively impacting people’s balance sheets, credit reports, and even their mental health for decades. Simply put, student debt cancellation would help lift the $1.7 trillion drain on hardworking individuals and begin to repair the broken and inequitable higher education financing system. 

The Burden of the Student Loan Crisis is not Equally Shouldered

Student debt is further entrenching racial wealth disparities and perpetuating the inequities that result from systemic lack of access to resources, capital, and affordable credit. Families of color are thus more likely to borrow and to borrow more and in higher amounts to finance their education. Borrowers of color tend to have more difficulty in student loan repayment  

For many borrowers of color, student debt inhibits a borrower’s ability to build wealth despite “the college premium,” especially when coupled with labor market discrimination. In fact, instead of building wealth, a college education actually deepens the wealth gap due to the high costs and structural issues in our systems. Millions of borrowers, especially Black borrowers, see their balances grow despite regular payments. In fact, almost half of Black graduates owe more on their undergraduate student loans four years after graduation than they did when they received their degree, compared to 17% of white graduates. After 20 years in repayment, the typical Black borrower still owes 95% of the original balance. Meanwhile, the typical white borrower has paid off 96% of their original balance after the same number of years. Twelve years after starting college, white men have paid off 44% of their student loan balances, compared to 28% for white women. Black men saw their balances increase by 11%, and Black women saw their debt increase by an average of 13%. Black and Latino borrowers are also more likely to default on their student loans. 

The disparities in outcome by race for student loan borrowers starkly illustrate the ongoing effects of racial exclusion and discrimination and the vast difference between a person’s income and their wealth, especially for Black and Latinx borrowers. Because of historic and ongoing discrimination, people of color are less likely to have generational wealth to build additional wealth on or even navigate financial downturns and public health crises. The average Black child is born into a family with 10 times less wealth than the average white child and Black families at all income levels lag behind white families in wealth accumulation. These disparities persist as white college graduates are much more likely to receive large gift inheritances than their Black counterparts and Black college graduates are much more likely to provide economic support to their parents than their white counterparts.

A Solution is Within Arm’s Reach

President Biden already has the authority to cancel federal student loan debt through the Higher Education Act, which allows the administration to “enforce, pay, compromise, waive, or release” government-held federal student loans via the Secretary of Education. He should use this authority immediately. Under pressure from members of his own party, President Biden asked Miguel Cardona, education secretary, to prepare a memo on the president’s legal authority to cancel up to $50,000 in student loan debt. The findings have yet to be released. However, the Trump administration used the same executive authority to pause federal student loan repayment temporarily, set the interest rate to 0% during the pause, and prevented garnishment of wages for those in default during the pandemic. Biden followed suit and extended that payment pause. 

One-time debt cancellation should be immediately followed by additional reforms to ensure that we don’t end up here again in 10 or 20 years. The President, U.S. Secretary of Education, and Congress should work to create policies that will transform the system, such as a debt-free college system. Postsecondary education primarily financed through debt will never work in a society as inequitable as ours. The answer is not more or different types of loans but a real investment in higher education as a public good that benefits us all. This includes doubling the Pell grant, increasing investment in HBCUs and other MSIs, and streamlining and improving loan repayment for the remaining borrowers. For example, the Affordable Budget-Conscious (ABC) repayment plan proposed by CRL and NCLC would set monthly payments based on no more than 8% of discretionary income above 250% of the poverty line and forgive any remaining balance after 15 years. The administration also should crack down on predatory for-profit institutions that don’t provide reliable educational benefits. To further move the needle, strong Gainful Employment and Borrower Defense to Repayment rules should be promulgated after being rolled back by the Trump Administration. These commonsense rules created needed accountability by requiring predatory schools to ensure that graduates had some hope of being able to pay off their loans and allowing federal borrowers to seek cancellation on loans when a student was defrauded by their institution.  

While we can disagree about how or why we got here, there should be no doubt that 1 in 10 adults carrying $1.7 trillion in student loan debt with no end in sight is not sustainable or equitable. Students shouldn’t be forced to sign their life away to pursue their dreams, nor should they be saddled with debt that keeps them from fully participating in society. We must renew our commitment to affordable, accessible higher education and that means substantial re-investment in this critical public good. Just as the current pandemic and its fallout are unprecedented, so too is the student debt crisis; and the remedies to repair the broken system must be equally unprecedented. We need bold action to fix this government-created problem and balance the scales of higher education. We won’t be able to fix everything at once, but it starts with $50,000 in student debt cancellation through executive action.



Mass Student Debt Cancellation: The Rich Get Richer, The Root Problem Gets Worse

By Neal McCluskey – Director, Cato’s Center for Educational Freedom

The intention behind federal student loans is good: college access for all. But if it is good, why are we having a huge national debate – and this small one here – about massive student debt cancelation? It is because good intentions without clear thought are a recipe for pain.

A Profitable Exchange 

The idea behind federal student loans is simple. If the price of college is uncomfortably high for some people, the government should help them pay. And because the higher education payoff is generally substantial, loans will be a win-win; students will get an education that significantly increases their earnings, and taxpayers will have their money restored with interest.

In the main, this works for borrowers. The average four-year degree holder makes six to seven figures more during their life than someone who ended their formal education with a high school diploma. Meanwhile, in 2019 the average graduate of a four-year, non-profit college who took on loans left school with only about $29,000 in debt. That’s a profitable exchange, and a major reason why blanket cancellation is a bad idea. Student debt is not only often manageable, for many, it is quite profitable. 

The Price of Education is Soaring while its Value is Decreasing

Of course, just because many people benefit from federal loan programs does not mean federal loans are a good deal for all borrowers or for society. The most apparent problem is that easy credit has enabled colleges to raise their prices at breakneck speeds. Tuition, fees, room and board at the average private, non-profit, 4-year colleges rose 172 percent after adjusting for inflation between the early 1970s and today, hitting $50,770. They grew 147 percent at public, four-year institutions. Colleges have, essentially, captured student aid through higher prices.

That is just one aid-fueled problem. Another is that as aid has enabled greater credential acquisition – but not commensurate learning increases, as captured by declines in literacy among those with postsecondary schooling – it has fueled credential inflation. Employers increasingly demand degrees for jobs that previously did not require them. So people need more schooling just to stay in one place. 

The Impact on Graduate School Student Loans 

Given this, it is not surprising that debt for graduate education has grown especially fast. Unlike federal loans to undergrads, which are capped at between $5,500 and $12,500 per year depending on a student’s dependency status and year in school, graduate PLUS loans are capped at the price of attendance set by the schools.

Between the 1990-91 and 2019-20 school years, undergraduate federal borrowing rose from $15.3 billion to $50.3 billion or 229 percent. At the same time, graduate borrowing rose from $5.4 billion to $37.3 billion or 591 percent. In 2019-20, the average full-time-equivalent undergraduate took on $4,092 in federal loans. The average graduate received $17,466. Like bachelor’s degrees, graduate diplomas typically pay off, with the average graduate degree holder making $1.1 million to $1.5 million more over their lifetime than someone with just a high school diploma. 

It Pays to Stay in School 

Again, that makes mass cancellation impossible to justify. And while people with big debt would get the biggest windfalls, they struggle the least with repayment. It is disproportionately small debtors who feel the pain, folks who were often unprepared for college, or unable to balance schooling with families or jobs, and who did not finish the program that would have led to a debt-handling pay increase. A 2015 analysis found that 34 percent of borrowers who left school in 2009 with $1,000 to $5,000 in debt had defaulted by 2014. Only 18 percent of those with $100,000-plus had done so. 

A huge problem is that the feds perform essentially no assessment of prospective borrowers’ risk. They basically say “take whatever you need,” regardless of a potential borrower’s academic track record or proposed field of study.

The Logistics of Mass Forgiveness

Washington compounds all of this by suggesting that a lot of debt will not really have to be repaid. Federal income-driven repayment programs promise forgiveness after 20 or 25 years, depending on the plan. Public Service Loan Forgiveness (PSLF) dangles forgiveness after ten years. No wonder a 2017 LendEDU survey indicated that half of college students thought they would get their loans forgiven

But forgiveness is not that easy to obtain. PSLF requires 120 on-time payments while working in a qualifying job, with much employment not qualifying. 20-year-plus timeframes for income-driven repayment are pretty lengthy.

With all These Problems, Why not go with Mass Forgiveness?

First and foremost, because most borrowers will get big payoffs from their loans, and there is no justification for sticking taxpayers with the bill for their profit. Even without mass forgiveness, a June 2021 federal assessment estimated that long-term taxpayer losses from federal loans would be $68 billion. And that is low-end; in 2020, an estimate conducted for the U.S. Department of Education projected a $435 billion loss.

Mass forgiveness would also worsen over-borrowing, perhaps by huge magnitudes. Why not borrow twice as much, or three times, what you otherwise would have, if you think it will be forgiven? How could the feds justify giving one generation forgiveness and not others?

The good news is current debtors can get relief, especially via repayment plans that adjust payments to income to keep them manageable. The government could perhaps do more to advertise them.

Federal Student Loans can be Beneficial to Everyone

In the long run, the solution is to phase out price-inflating, credential-ballooning, debt-driving federal student loans. The fear, of course, is that low-income people would miss out on education. But it is almost certainly unfounded for students with good academic backgrounds who want to study in-demand fields. Because of the generally big college payoff, private lenders would have strong incentives to work with even very low-income students. Both borrower and lender would profit. 

Indeed, private lending would be a boon for people who do not get loans. Because lenders would risk their own money, they would have strong incentives to objectively assess potential borrowers. If a borrower were unlikely to succeed because they are academically unprepared, or the price is too high, or the field of study is not in demand, the lender will tell him, sparing both parties future pain.

Barring the phasing out of all federal student loans, the government should eliminate — or at least capPLUS loans, which come in a parent as well as grad variety and which give colleges near carte blanche to charge whatever they want. The feds could also start assessing prospective borrowers’ academic preparation and intended fields of study. There is reason to worry about giving the government that sort of power, but it would likely be better than the status quo.

Mass student debt forgiveness, like student lending itself, is no doubt well intended. But we do not need more painful consequences driven by good feelings. We need to eliminate the problem: federal student loans.



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Ashley Harrington
Former Federal Advocacy Director at the Center for Responsible Lending at | + posts

Ashley Harrington is the former federal advocacy director and senior policy counsel at the Center for Responsible Lending (CRL). Ashley leads CRL’s federal advocacy efforts, helping to shape fair lending and consumer protection reforms to address racial wealth disparities. Her portfolio includes a range of consumer lending issues, with a focus on student debt reform.  Ashley has previously worked at UNCF (the United Negro College Fund) and in the New York Governor’s Office.  She is the author of articles and reports on student debt, particularly as it affects Black borrowers; a frequent media contributor; and she has provided testimony before the U.S. House of Representatives' Financial Services Committee and Small Business Committee. Ashley received her B.A. in Public Policy Analysis from UNC-Chapel Hill and her J.D. from New York University School of Law. She is admitted to practice law in New York.

Neal McCluskey
Director, Cato’s Center for Educational Freedom at | Website | + posts

Neal McCluskey is the director of Cato’s Center for Educational Freedom. He is the author of the book Feds in the Classroom: How Big Government Corrupts, Cripples, and Compromises American Education. McCluskey also maintains Cato’s Public Schooling Battle Map, an interactive database of values and identity-based conflicts in public schools. His writings have appeared in such publications as the Wall Street Journal, the Washington Post, and Forbes, and he has appeared on numerous television and radio programs. McCluskey holds an undergraduate degree from Georgetown University, a master’s degree in political science from Rutgers University, Newark, and a Ph.D. in public policy from George Mason University.

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