By Owen Daugherty, NASFAA Staff Reporter
As the coronavirus pandemic wanes and borrowers anticipate the return of student loan payments after more than a year, the question of whether widespread student loan forgiveness will occur still lingers.
The Brookings Institution aimed to tackle that question Monday with an event featuring a panel of experts that also addressed the disproportionate impact of growing student loan debt on lower income communities and borrowers of color.
Before the start of the panel discussion, Senate Majority Leader Chuck Schumer (D-N.Y.), a vocal and staunch proponent of student loan debt forgiveness, delivered a keynote address in which he reiterated the call for President Joe Biden to use his executive authority to cancel $50,000 in federal student loans “with the flick of a pen.”
“There's never been a better time to take action,” he said. “For generations, higher education has been a ladder up into the middle class, especially for Black, Latino and Asian Americans. But for too many today, student debt has become the anchor weighing them down, making it harder to start a family, buy a home and live with financial independence.”
He said that it is imperative to move forward with widespread student debt forgiveness with Biden in the White House and Democrats holding majorities in both chambers of Congress, also pointing to recent legislation that would ensure debt forgiveness between now and 2025 would be tax-free for borrowers.
While each panelist acknowledged that growing student loan debt is a problem and the current lending program and rising cost of higher education is unsustainable, there was debate over whether widespread forgiveness is the best targeted solution to the problem.
Beth Akers, a resident scholar at the American Enterprise Institute (AEI), said that more borrowers holding student loan debt is not necessarily a bad thing, noting that it's an indication of more people investing in their education. However, she also identified the problems in student loan lending that need to be fixed, ultimately arguing that student loan forgiveness is not the most efficient or targeted mechanism to address the racial wealth gap or provide an equitable solution for borrowers of color.
“This conversation is combining some of the more systemic problems in our economy,” she said. “I'm concerned that we're using student debt as a mechanism to solve some of the deeper issues that we face.”
Braxton Brewington, press secretary for the Debt Collective, said too often the conversation surrounding debt forgiveness centers on data and not the experience of individual borrowers.
“Student debtors are not this old image that we have of affluent white doctors who have these large sums of debt and they're rich, and if we cancel that debt, it'll just give them more money,” he said, pushing back on claims that debt forgiveness is a regressive policy. “Student debtors are not being able to start families, they're not being able to buy homes, folks are living in their cars.”
Further, he agreed with Akers' assertion that borrower protection measures — such as income-driven repayment (ID) plans and the Public Service Loan Forgiveness (PSLF) program — need to be fixed, but cautioned against looking at those policies as a solution to the problem.
In attempting to explain the underlying causes of the mounting student debt, Marshall Steinbaum, an assistant professor of economics at the University of Utah and a senior in higher education finance at the Jain Family Institute, pointed to decades of underfunding of public institutions, leading more and more borrowers to take out larger sums of student loans.
“The public higher education system has been defunded in such a way that institutions that are minority-serving have suffered the worst,” Steinbaum said. “At the same time, more and more people go to college and get higher degrees in order to get a job and that means more diverse people going to college, people who are less able to rely on their families to support themselves.”
The conversation shifted to what is an appropriate amount of student loan debt cancellation, with Biden initially pledging to forgive at least $10,000 for each borrower, but Schumer and Sen. Elizabeth Warren (D-Mass.) pushing for at least $50,000 in debt forgiveness.
“We make this false equivalency like $1 worth of cancellation is then $1 that comes from the taxpayer, when we know that that's not true,” Brewington said, arguing for cancelling all student loan debt, not just an arbitrary figure. “Mass cancellation would be an economic stimulus to everyone whether you have student debt or not.”
Akers said a more nuanced solution is necessary as opposed to massive amounts of forgiveness, pointing to allowing student loan debt to be discharged in bankruptcy as a needed reform.
Steinbaum then addressed a fundamental concern many have with debt forgiveness: if we forgive all the outstanding debt, what happens when the next set of borrowers takes out loans? Do they simply expect to not have to pay them back?
Steinbaum said it's important to remember that the debt forgiveness piece is paired with free tuition proposals that would transform the higher education system as we know it today.
“The federal government needs to shift the burden of paying for higher education off of individual student shoulders, but not in a way that basically denies access to higher education to a broad swath of the population,” he said.
Publication Date: 6/29/2021
Carlos P | 7/2/2021 7:13:42 PM
Comments about using low income earner tax funds to finance loan forgiveness are misguided. As is often pointed out, the bottom half o the population actually pay a relatively small amount of taxes. As a financial aid professional with 30 years of experience I can attest that the vast majority of students with high debt have it because they could not afford an education otherwise. Why do we think it is OK to subsidized automakers, oil companies, and airlines but not ordinary citizens? I don't know what the appropriate amount of loan forgiviness should be but I fully support reducing the burden of loan debt on the backs of so many struggling fellow Americans.
Susan C | 7/2/2021 11:40:03 AM
I am so glad to see that there are Financial Aid Professionals out there, like myself, who see the day-to-day of student borrowing and do not agree with blanket loan forgiveness. It IS a bad idea. There ARE other ways to help folks that are struggling to pay off their student debt. Cancellation is the "easy" and "short-sighted" way of providing what is being sold as a solution, but it is just a really bad band-aid. It's not fair to taxpayers, it's not fair to those who sacrificed to avoid student loan debt or sacrificed to pay it off. Increased tax credits for low income filers, cancellation of origination fees, lower interest rates, increased Pell amounts, utilization of IBR plans, incentives for businesses to assist with loan repayment (matching repayment funds the student pays), fixing of federal loan forgiveness plans, ....
Scott G | 6/29/2021 4:20:01 PM
Some students, including those who have high financial need, do everything possible to not borrow loans or borrow as little as possible; some students borrow without sacrifice; while other students blindly borrow and over borrow without care or concern (no matter the advice).
Please don’t consider a plan (such as forgiving all student loans, or reducing all loans by 10k or 50k) that blindly rewards the overborrowers and slaps in the face all those who toiled to minimize borrowing. It is unfair and unjust.
Give borrowers relief this way: be proportionate. Forgive some or all borrower accrued interest and/or loan origination fees. But leave the principal amount for the borrower to pay back.
Give borrowers a better chance to pay back what they agreed to borrow and pay back.
Ben R | 6/29/2021 12:48:31 PM
Sometimes loan forgiveness is framed as necessary because a higher education should be free just like K-12 is free (covered by taxpayers). If K-12 is free, so should higher education they say, as both are a public good with universally broad societal benefits, right? Besides the issue of whether every degree benefits society as a whole or not, and what portion of the benefit accrues to the individual vs. all of society, there is an important and large cost distinction there:
Under K-12 taxpayers are only covering the direct cost of instruction and facilities for students between the ages of 5-18, not their room and board, which is covered by their parents. However, under higher education, the total cost of attendance includes both the direct cost, plus indirect costs (room and board and everything else which accounts for about 2/3 of all borrowing) for students of any age from 18 on up. If you include students who are 100 percent or mostly online, or night only and living off campus, then much of that indirect cost has nothing to do with the education at all. Should all of that be free?
G. Susie E | 6/29/2021 10:28:25 AM
Forget loan forgiveness. Lower the interest rate to 1% and make all borrowers repay their loans. Unless you want to forgive $50,000 of my house loan. I repaid my student loans. The American Taxpayer did not sign the promissory note. The student did. Borrowers can get second jobs or whatever it takes to repay their loans. It is NOT the responsibility of the taxpayers to bail them out.
Tina R | 6/29/2021 9:21:48 AM
How does forgiving loan debt today help that same student tomorrow when he/she enrolls for their next year of school and still needs funding to pay? Wouldn't it be more prudent to increase Pell amounts and cut out origination fees all together? Then lower interest rates on the loans that students do need to take. Also, focus on Income Based Repayment and Public Service Loan Forgiveness. Across the board loan forgiveness is just an expensive band-aid that will not solve the problem.
Sheree T | 6/29/2021 8:48:49 AM
The highest income earners over their lifetimes are those with college degrees. Taking taxpayer funds from lower income earners to forgive the loans of higher income earners seems like backwards taxation.
James C | 6/29/2021 8:29:27 AM
What kind of message does this send to families who sacrificed and saved for college so their child didn't have to borrow or borrow that much and to the borrowers who sacrificed to pay off their loans? What about future borrowers? They will expect their loans to be forgiven and will likely borrow more with that in mind. I think we should address the interest rates. Allow borrowers to consolidate at very low rates (around 1.5%). I also think any loans taken out during covid (Jan 1 2020 to June 30 2021) should have an interest rate set to 0%.
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