Student Loan Debt Forgiveness as a Progressive or Conservative Concept

Introduction and Background

The student debt crisis has never been more pertinent than at this moment. Student loans, currently at a whopping $1.6 trillion, have surpassed credit card and auto loans to be the largest source of household debt after mortgages (Walker, 2019). This level of debt hurts the economy in a multitude of ways, creating obstacles for small business formation to new home buying, and even marriage and reproduction. In the past, various proposals and legislations have been passed such as Public Service Loan Forgiveness Plans and Income-based Repayment Plans, yet none have been able to curb this spiraling situation. One of the most radical proposals that have been making the rounds in the news circuit is that of complete debt cancellation. While this idea does present itself to be outlandish and too-good-to-be-true, student debt cancellation, backed by a full-proof execution strategy, has the potential to curb this mounting debt and, perhaps, pave the way to an educated workforce sans the burden of debt.

The student debt crisis, is undoubtedly, a complex one. The numbers alone are staggering. “According to the Congressional Research Service, nearly 43 million U.S. adults — one in six of U.S. adults — have federal student debt, totaling about $1.4 trillion. That includes not only students but also parents who took out loans to help their kids. About $150 billion of those loans are in arrears or default, and untold millions of borrowers are struggling to keep up their payments” (Sloan, 2019). However, not all borrowers are created equally, and surprisingly, those with lower debts find it harder to repay their loans when compared to graduates with debts exceeding $100,000 (Zinshteyn, 2016). The reason for this scenario is attributed to the high probability of students dropping out of the course leaving him/her with the worst of the worst – debt with no degree. Further analysis of federal data reveals that people attending for-profit colleges have the lowest student-loan repayment rates, which is even more acute in historically black institutions (Carey, 2015). The social consequences of this crisis are even more terrifying. Millennials are putting off important milestones like “getting married, starting a family or buying their first home—homeownership for Millennials stands at 37%, compared to 45% of Boomers and Gen-Xers when they were the same age” (Girouard, 2019). While some attribute this crisis to the assumption that Millennials favor renting, or that their job-changing patterns mean they do not want to settle down in any one place, the fact is that 53% of them have not purchased a home because they cannot afford a down payment (Girouard, 2019). Girouard also stated that “with every 1% increase in student loan debt, the likelihood of owning a house decreases by 15%.” Many commentators have downplayed concerns over rising student debt by pointing out that college degrees are associated with higher earnings and that, on the net, a college education is still well worth the cost. However, progressive economists have recently begun to challenge this view. A 2018 Roosevelt Institute paper, for instance, contends that researchers need to account for the across-the-board wage stagnation that’s happened since the 1970s, “to the extent that individuals see an income boost based on college attainment, it is only relative to falling wages for high school graduates.” So while student debt was once largely confined to those who pursued graduate and professional programs to lock down careers with high earnings potential, rising tuition and changes in the labor market have made it difficult for many to obtain a credential without resorting to borrowing.

Strategies taken Combat the Problem of Student Loan Debt

There are many past strategies and plans that were undertaken to combat this problem of student debt. Proposed policy agendas have involved cutbacks in interest rates, the vindication of student debt, more compliant repayment plans and expanded regulation of college prices. In June 2014, President Obama signed “an executive order expanding eligibility for the Pay As You Earn (PAYE) program, which offers reduced payments to borrowers in financial distress” (Dynarski, 2015). The income-based repayment options, however, are rarely taken up by borrowers due to the administrative barriers and limited time window for repayment. Among those who do subscribe to this plan, it was found that young borrowers were most likely to default due to the mismatch between the timing of the costs and benefits of education (Dynarski,2015). Public Service Loan Forgiveness (PSLF), created by Congress in 2007, requires borrowers to jump through several hoops to qualify for forgiveness - they must work for a government entity or non-profit, hold a certain type of loan, enroll in one of several specific repayment plans and make 120 full and on-time monthly payments under a qualifying repayment plan while working full-time for a qualifying employer with 501(c)(3) status (Notareschi and Ulbrich 2017). Defaulting on any of these requirements would lead to disqualification. Recent data from the Journal of the American College of Radiology shows that 99 percent of applications for loan forgiveness have been declined (Bassuner, Umer, and Morel-Ovalle 2019). Critics have also pointed that while most work their way through these complicated requirements, some affluent borrowers continue to maintain big sums simply because the government’s interpretation of public service broadens to higher-paid professors at non-profit universities and doctors at non-profit hospitals (Hackman, 2019). In conclusion, most of the past refinancing and debt forgiveness programs failed the borrowers through their inefficiency.

Student Debt Cancellation as the Solution

Subsequently, in light of the failure of past proposals, student debt cancellation presents itself as a very appealing option. A report, compiled by the Levy Economics Institute of Bard College, suggests that “student debt cancellation results in positive macroeconomic feedback effects as average households’ net worth and disposable income increase, driving new consumption and investment spending,” which in turn, “lifts GDP, decreases the average unemployment rate, and results in little inflationary pressure, while interest rates increase only modestly” (Fullwiler et al. 2018). Higher education is, undeniably, a valuable social investment that yields returns throughout one’s lifetime, however, current findings show that student loan debt inflicts a tellingly greater handicap on household finances than ever before, “as stagnant real incomes and higher average balances combine to divert a larger portion of household resources toward debt service and away from consumption and investment” (Fullwiler et al. 2018).

This report, also, highlights the socioeconomic benefits of debt cancellation like the increases in business formation, college attainment, household formation, and credit scores, to reduced economic vulnerability for some households, all backed up with suitable statistics. Excessive student debt as a share of total debt curtails a person’s capability to approach other forms of credit for business establishment. “Small business formation declines 14.4 percent with an increase of one standard deviation of relative student debt” (Fullwiler et al. 2018). Grant funding boosts college attendance and scales down college dropout rates. “A $1,000 increase in Pell Grants is associated with a 1.2 percent to 8.6 percent decrease in students leaving college; $1000 in non-need-based grant aid increases college attendance by 3.6 percent' (Fullwiler et al. 2018). “A $1,000 increase in student debt is associated with a 2 percent decline in the likelihood of first marriage among female degree-holders” (Fullwiler et al. 2018). “Student loan borrowers have lower credit scores, potentially leading to household credit constraints and reduced consumption” (Fullwiler et al. 2018). “Households with student debt experienced greater reductions in net worth than households with no student debt during the most recent recession. A $1 increase in student loan debt in 2007 was associated with $0.87 less in net worth in 2009” (Fullwiler et al. 2018). The study concludes that debt cancellation is an achievable agenda that would develop economic activity in the short run with moderate effects on the federal deficit. These consequences should be fair against the valuable social benefits possible from greater contribution in higher education and the alleviation of debt as educators, advocates, borrowers, and policymakers proceed to discuss the path ahead for US higher education. For the most part, the objections for such proposals have been fierce and intense.

The most common argument of opposition is that this premise is simply unprejudiced and would, in turn, be disruptive (Sloan, 2019). Loan debt cancellation would enrage those who made conscious decisions to avoid large debts like attending cheaper college programs or living frugally. They fear that hitting the reset button on student debt “would create a generation of student loan lottery winners, with losers on each side” (Carey, 2019). Controlling the cost of public undergraduate education by setting tuition to zero would cause universities to lose all pricing power as there would be no prices. But graduate programs would be unrestricted to charge whatever they like and may be enticed to charge even more since students never have to pay back the loans (Carey, 2019). Therefore, debt cancellation would be unable to accommodate the large umbrella of many different kinds of borrowers and many different academic programs, that compose the outstanding student loan. Another point of contention is that erasing student debt would largely benefit the wealthy middle-class portion of the population as most of the student loans are taken out by those attending private institutions or graduate schools. Such borrowers generally end up landing jobs that help them pay off their respective loans thereby diminishing its urgency as a social priority. Many people feel that canceling student debt does not solve the root problem which is the high cost of college. They fear that the promise of canceling the debt and free college tuition negates the American value of hard work and subscribes to the notion of “free handouts,” which in turn could lower the quality of education (Qintana, 2019). All of these opposition points are valid arguments with appropriate rationale.

Yet, with the advancement in technologies and all of its implications, it is of utmost importance that the future generations are well-educated as there is no room for ignorance. It is perceivable that most of the objections to the premise of debt cancellation are related to the execution of the policy or with the moral implications of the government bailing out the upper class since college graduates will earn about exponentially more than high school graduates. Indeed, that demur is an important consideration, but my rationalization lies more with the journey towards the degree and education itself. Education is beyond a commodity (Rawlings, 2015). There is too much value put on the result, in terms of potential salaries and returns on investment.

However, different from other ‘commodities’, the buyer needs to apply effort to obtain the true value. This journey, in itself, is a priceless lesson in life. A college education is an intense commitment in which both parties have to take an active and daring role if its potential value is to be recognized. Everybody, heedless of their social or financial status, is entitled to this opportunity.

Arguably, the optics of such an undertaking are, daunting and mammoth in scale. However, free tuition is something that America should work towards and canceling student debt is a step in that direction. When it comes to people’s fear of deterioration in the quality of education due to free tuition, there is a multitude of ways for universities to generate income other than tuition costs which include funding from private organizations, donations from alumni, among few. Also, the argument of student debt being a middle-class or wealthy people issue confounds me. Lots of studies show that it is people from lower-income families that are getting crippled by this debt. Research among prospective UK undergraduates in 2002 found that some students, especially from low social classes, were deterred from applying to university because of fear of debt. This article investigates whether this consequence is still the case today in England despite the changing higher education landscape since 2002. The article describes findings from a 2015 survey of prospective undergraduates and compares them with those from the 2002 study. The study finds that students’ attitudes toward taking on student loan debt are more favorable in 2015 than in 2002. Debt-averse attitudes remain much stronger among lower-class students than among upper-class students, and more so than in 2002. However, lower-class students in 2015 do not have stronger debt-averse attitudes than do middle-class students. Finally, debt-averse attitudes seem more likely to deter planning for higher education among lower-class students in 2015 than in 2002 (Callender and Mason 2017). It is people from lower- income families that are second-guessing their decision to pursue college or are dropping out of college when they stand the most to benefit from it. Higher education is, undoubtedly, a ticket to better income and personal development. So, the idea that the truly needy will not benefit from such a policy simply because it could benefit middle-class or wealthy people is a bit ridiculous. Lastly, easing the burden of college costs has the potential to increase schooling investment in job sectors with high social returns (Field, 2009).

Reflection and Conclusion

I believe in going all in as opposed to a diluted and safer approach to entice those on the other side of the issue, whilst, ignoring the ultimate goal of making college affordable for all. Even middle-class families find it hard to afford the costs of college, which includes not only tuition but boarding and book expenses, among others. The consensus, usually, is that there is no easy solution for the whole of the country because communities are different, states are different, politics are different and the money is different. No one should have to be denied the opportunity to pursue higher education simply through means of their social standing or any other circumstance. Also, nobody deserves punishment for pursuing a college education by slapping an exorbitant amount of financial debt that one would end up paying back throughout their most productive years. The government certainly has the funds or the means to generate it by taxing big corporations or cutting their spending in areas like defense and military. A Gallop Poll Briefing from 2007 found that “the public's view that the federal government is spending too much on the military has increased substantially this year, to its highest level in more than 15 years” (Carroll, 2007).

Ignorance can no longer be considered bliss. Education is an investment and its benefits are reaped by both the individual and the society. Therefore, it hardly seems fair that only a fortunate few stand to reap the benefits from such an opportunity while others crumble under the weight of a loan. Student debt forgiveness would also help stimulate economic growth by giving borrowers the ability to buy homes and improve their credit, while contributing to racial minorities, according to Steinbaum and researchers at the Levy Institute (Stein, 2019). The optics and logistics associated with the premise of debt cancellation have a long way to go before it is ready for implementation. Yet the scale of the operation or the fact that it benefits everyone as opposed to only those who desperately need it is not worth stopping this train. If there was ever a time for such a revolution, it is now. In the words of Democratic Representative Alexandria Ocasio-Cortez with regards to Senator Sanders proposal of debt cancellation, “In a generation hard hit by the Wall Street crash of 2008, it (the proposal) forgives all student debt and ends the absurdity of sentencing an entire generation to a lifetime of debt for the ‘crime’ of getting a college education” (Stein, 2019). Surely a first world superpower like America can grant all of its citizens the equal opportunity of pursuing a college education without being handed a financial albatross that will impede any personal, professional or financial aspirations that were, ironically, promised to be facilitated through higher education.