With only a few weeks left until Joe Biden takes up residence in the White House, there’s plenty of speculation about what he’ll prioritize in the early days of his presidency. In a recent interview with Anand Giridharadas, Senate Minority Leader Chuck Schumer suggested that Biden should enact major student loan forgiveness by issuing an executive order. Schumer’s proposal, with former presidential candidate and Massachusetts Sen. Elizabeth Warren, envisions an FDR-style agenda during Biden’s first 100 days.
The Inquirer turned to two experts and scholars to debate: Should Biden cancel student loan debt?
By Jalil Mustaffa Bishop
Student debt cancellation is morally required for racial justice and urgently necessary to fix a massive policy failure.
Since the beginning of the pandemic, I have co-led one of the largest studies of Black people’s student loan experiences. Every week, our team interviews Black borrowers and reviews responses from our national survey. We have cried, listening to how education was more a debt trap than an opportunity. We have debriefed the ways student debt is traumatizing Black lives across generations. The stories have been devastating.
When centering Black voices rather than big data, it is clear that debt-contingent education is immoral and racist. Student debt is injustice at the intersection of historical racism, a racially stratified higher education system, and an underpaying, underemploying discriminatory labor market.
Black people, along with Latinx students, borrow more student loans to attend institutions with the lowest funding levels, endowments, and graduation rates. The groups then navigate labor markets that refuse to hire them with living wages. The result: Black and Latinx borrowers have the worst repayment and default rates across every degree level from no degree to graduate degrees. In Philadelphia, student loan borrowers in majority-minority neighborhoods are four times more likely to be delinquent. The promise of higher education simply cannot be real if student loans have become the requirement for Black and Latinx communities.
In addition to student loans being a racial justice issue, they also are a policy failure.
While many think student debt cancellation is a new idea, it has been in student loan policy for nearly 30 years. Since the 1990s, policymakers have continuously developed income-driven repayment (IDR) plans as a solution to policy failure. The plans allow payments to be lowered for those who cannot afford them and debt to be canceled after a set timeline of payments (usually 20 or 25 years). While IDR plans offer short-term relief on monthly payments, they allow for long-term negative consequences. The majority of student loans borrowed each year from 2009 to 2018 are now higher than their original balances. Borrowers cannot afford payments that will lead to full loan repayment. Moreover, those who should qualify for cancellation have not received it. For example, only 206 borrowers in 2018 were approved for public service loan forgiveness, and one investigation found over five million mistakes made in the servicing of student loans that hindered cancellation eligibility.
To address the policy failure and racial injustice, the Biden administration already has the power to cancel student debt via executive order. Critics of cancellation insist that it is a policy for the rich and that expanded IDR is a better solution. For their evidence, many critics use income instead of wealth, monthly payments instead of debt-to-income ratios, and colorblind myths instead of race-conscious arguments. First, opponents ignore that the rich do not hold student loan debt — those with little wealth do. Next, cancellation is not about monthly payments but providing relief for those with more debt relative to their income. Lastly, expanded IDR is not solving the debt crisis, but instead forcing people to experience the trauma of a lifetime student debt sentence. The insidious part is that critics agree that student loans and the promise of higher education have failed Black and Latinx people. Yet, IDR solutions effectively tell those most harmed to simply “wait” for racial justice, when cancellation can happen now.
Jalil Mustaffa Bishop is the vice-provost postdoctoral scholar in the higher education division at the University of Pennsylvania’s Graduate School of Education.
By Mary Clare Amselem
Having our burdens wiped away sounds pretty nice. Wouldn’t we all love for someone else to pay our mortgage or perhaps our Christmastime credit card bill? But at the end of the day, any scheme to make total strangers pay my bills doesn’t seem remotely fair.
The same could be said for student loan debt. Student loan debt has been mounting due in part to federal policies and universities eager to gobble-up federal subsidies. But no one makes someone take out a student loan, and loan forgiveness makes innocent bystanders pay the price. Forcing others to pay for someone’s college education is inequitable and unjust. Moreover, it would merely provide a Band-Aid to the problem of hemorrhaging education costs.
The vast majority of Americans do not currently hold bachelor’s degrees. Many of those Americans chose to pursue a different path, deciding to pass on higher education altogether. Whatever the reason may be, those two-thirds of Americans have nothing to do with the student loan debt of those who did complete their degrees (and are presumably higher-earners). Yet, some are suggesting that they, as American taxpayers, should pay off student loans taken out by others.
For this reason, student loan debt forgiveness may be the most regressive policy ever proposed by progressive policymakers.
A new working paper from Wharton economist Sylvian Catherine and the University of Chicago’s Constantine Yannelis finds that full cancellation of student loans would distribute $192 billion to the top 20% of income earners, while the bottom 20% would receive only $29 billion. As Catherine put it, “Outstanding student debt is inversely correlated with economic hardship, so it is difficult to design a forgiveness policy that does not accentuate inequality.”
Ultimately, student loan forgiveness would disproportionately benefit higher-income individuals as well as colleges and universities. Institutions of higher education currently have no incentive to keep costs low, due to the easy availability of loans through the federal student loan program. This likely explains why college tuition has skyrocketed in recent decades.
It would also create a moral hazard. If lawmakers force taxpayers to pay off the student loans of current borrowers, it would (absent a zeroing out of the federal student loan program) only encourage future students to borrow more, with the expectation that they, too, can ride another wave of forgiveness. Inflationary pressure on tuition prices would explode.
And yet, one sympathizes with students who are struggling to pay off their student loans, particularly during the COVID-19-era economy. The solution, however, would be to turn to the real culprits here: profligate universities and bad federal policies.
As for the universities, it is reasonable to assume that — if a student graduates with a bachelor’s degree, yet is unable to find a job adequate to pay off his or her student loans — the university has failed that student. It has not delivered value equal to the tuition dollar.
Some in Congress are interested in requiring universities to pay a portion of student loan defaults. This policy means that schools would have some skin in the game and would be held accountable for the quality of the product they produce.
When it comes to federal policy, it remains clear that the federal student loan program must be eliminated — or at the very least significantly capped — in order to drive down college costs. “Skin in the game” proposals, as well as returning student loans to the private lending market, is a far better solution than giving large-scale student loan forgiveness to what are generally well-off graduates.
Mary Clare Amselem is a policy analyst in the Center for Education Policy at the Heritage Foundation.