What’s Fair About Student Debt…or Student Debt Forgiveness.?

It seems that everyone in the debate over student debt agrees on one thing: fairness.  Of course, what’s fair depends on one’s perspective and, as with everything else these days, political ideology.

The left says it is unfair to burden so many young Americans with debt for doing what they were encouraged to do, attend college. The right says it’s not fair to ask taxpayers to forgive the debts of borrowers, many of whom are high earners, at the expense of the 80% of Americans who don’t have student debt, either because they paid it off, didn’t need government loans or didn’t go to college.

The scale of the issue adds to the quandary. There is about $1.6 trillion in outstanding government-issued student loans. Even proposals for partial forgiveness are massively expensive. Proposals by Sen. Elizabeth Warren and others to forgive up to $50,000 cost about $1 trillion. President Joe Biden’s plan to forgive up to $10,000 costs $373 billion.

To put that in context, consider this: Even forgiving up to $50,000 costs more than the entire amount spent between 2000 and 2019 – two decades – for direct housing assistance or welfare (Temporary Assistance to Needy Families). Yet, loan forgiveness would deliver up to five times the taxpayer-subsidized benefit to households with up to twice the median income of either one of those low-income programs.

For now, policymakers have decided to just kick the can down the road. The Biden Administration, following the lead of the Trump Administration, recently announced the sixth pandemic-era pause in repaying the debts. Government-issued student loans will be frozen until Aug. 31.

That, of course, is not a solution. And, framing the debate as a bilateral choice – should fairness prevail for this group or that? – is not a serious policy debate. It’s a political ploy to satisfy one voting base over another.

What’s needed is a broader discussion on how to fix post-secondary education. That won’t happen, though, until agreement is reached on student debt. One sensible idea is to automatically enroll all student loans in the income-based federal loan program, REPAYE (Revised Pay As You Earn). Borrowers pay what they can afford, leaving space for buying a home or starting a family while reducing the likelihood of loan defaults.

However, even small loan payments can be an excessive burden on the lowest-wage earners. A modest compromise might be to forgive all or most of the outstanding student debt of those with incomes less than $52,000 per year, the bottom 40% of earners (2020 data, Tax Policy Center).  It would be great if loan forgiveness came with a community service commitment, but only so much can be asked.

Easing the immediate debt pressure creates without fixing the long-term challenges of the cost of higher education is absurd. That only sets up the next classes of students to face the same crisis. Four big areas for focus are these:

The right post-high school path for every student. The U.S. has invested a lot in promoting the value of four-year baccalaureate institutions, while individual colleges tout their special (and often expensive) attributes. The reality is that not every kid needs a four-year degree when trades are offering well-paying, in-demand jobs. Even those planning a four-year degree could cut costs by starting at a high-quality, lower-cost community college for their prerequisites. In addition, students and families shouldn’t be going deep into debt to experience expensive on-campus living they can’t afford but for the loans or to attend “prestige” colleges that return little in earning power.

None of this comes without some additional investment. Changing attitudes about preparing for life after high school requires an investment in more high school counselors, better financial education for parents and students and outreach by professional and business groups to inform students and their own employees (the parents of soon-to-be high school grads) on what is needed to succeed in a career.

The cost of college. It’s too high, and often for unnecessary reasons. Public funding of higher education, especially from states, has waned and that should be reversed. There is an enormous value to everyone to have a well-educated population. But more public dollars shouldn’t let colleges off the hook to reduce costs.

Schools need to respond to today’s realities, including declining enrollments. Undergraduate enrollment has dropped 6.6% since the pre-pandemic year of 2019. Public two-year schools have seen a 13.2% decline. Certainly, some of that is due to Covid and to the availability of employment at higher wages, but a good share is long-term demographic changes. Colleges and policymakers need to adapt. In all likelihood, some public schools will need to close and campuses consolidated.

Schools also need to figure out how to streamline academic programs, reducing the time needed to complete a program and cutting the attrition of students leaving before they earn a degree. Tinkering around the edges won’t do. These are tough choices in an environment of tight public resources. Public four-year and two-year schools should be better funded by states. In return, they need to be better stewards of the money.

Better outcomes from high schools. A high school diploma should mean competency in core subjects. Too often, it doesn’t. Research from the Center for American Progress shows that between 40% and 60% of first-year college students need remedial classes in English, math or both. These are students spending college tuition dollars to learn what they should have learned in high school, adding to the cost of a degree and the time it takes to graduate. Here’s a proposal: states should pay the full cost of a remedial classes required of any public high school graduate.

Accountability of both borrowers and lenders. The government is an easy mark. Loans are given with little scrutiny or accountability. Adam Looney, an economist and nonresident fellow at Brookings, rightly says, “It is an outrage that our lending programs encourage schools like USC to charge $107,484 (and students to blithely enroll) for a master’s degree in social work (220% more than the equivalent course at UCLA) in a field where the median wage is $47,980.” The government needs to be a better partner to students and parents by holding schools accountable for “truth in education” and for delivering on their promises. A program that costs twice the median annual income of the intended profession should not be funded by government.

None of this is easy. All of it is necessary for the country’s future. It’s the fair thing to do.