Forgiving Student Debt Alone Won't Fix the Crisis

Joe Biden says he supports canceling $10,000 in federal student debt through legislation, while congressional progressives like Rep. Pramila Jayapal (D-Wash.) say they want five times that amount wiped out right away, by executive order. The New York Times says the $10K-versus-$50K debate will be “one of the first tests of [Biden’s] relationship with the liberal wing of his party.”

If that’s the big question left to answer, it bodes poorly for solving the student-loan crisis, since wiping out a little or even a lot of debt won’t fix an inherently predatory system. This would be unsurprising, since political attention to this issue almost always involves one-time fixes that leave underlying causes untouched.

The 2019-20 Democratic primary season marked one of the first times student debt approached center stage in a national political debate. Discussion was driven by what Bernie Sanders called his “revolutionary proposal” to wipe out all $1.6 trillion of extant federal student debt, as well as more moderate plans by candidates like Elizabeth Warren, who offered to eliminate up to $50,000 per person, on a sliding, income-based scale.

The proposals came amid a seeming sea change in attitudes. By 2019, more than 50 percent of Americans said student debt was a “major problem,” and even a few scattered Republicans began arguing for forgiveness and/or allowing student debt to be discharged in bankruptcy. Fed chair Jerome Powell said he was “at a loss to explain” why the law disallowed bankruptcies for student borrowers.

As the primary season progressed, the debate took an odd turn. When Biden took control of the race in the spring, he unveiled a proposal that sounded positively Sandersian, offering to wipe out all debt for people with incomes under $125,000 who’d attended either a public college or a historically black college or university. But critics began appearing on both Biden’s left and right flanks. The finance sector argued that debt forgiveness was unfair to borrowers who’d paid their loans, while some Democratic pols argued that student debt is primarily an upper-class problem, making debt forgiveness a fetish issue for the advantaged class.

Talk to people whose lives have been ruined by student loans — I’ve interviewed the gamut, from people who’ve attempted suicide to people denied relief after crippling illnesses to
people who moved into drug dealing to avoid wage garnishment — and they nearly all speak about one central, unaddressed problem. Student debt, they say, is simply too available to too many young, inexperienced borrowers.

As the holders of student loans get older (a great many will reach Social Security age still owing, in some cases with their principal untouched), many learn to see themselves as victims in an elaborate con, in which the Department of Education finances an escalating subsidy first for private banks and loan services, but more particularly for colleges and universities. Combine a basically unlimited amount of available federal student debt with what has become a de facto societal requirement of a college degree for even the most menial professional work, and colleges can essentially charge whatever they want for tuition.

This is why, even though the rate of tuition growth has slowed somewhat in recent years, prices to attend school have far outpaced inflation for decades, while growing even faster when compared with other economic indicators (one study in 2018 suggested college tuition was growing nearly eight times faster than wages).

Preaching a gospel that more loans equals greater opportunity, especially for lower-income communities, politicians often argue for raised caps on federal loan programs like Pell Grants. One of the last acts of the late Sen. Edward Kennedy was to argue for the loan-expanding Higher Education Reconciliation Act (HERA) by saying lawmakers were “making college more affordable for young Americans.” As a New York Fed study from 2017 showed, the decision to raise so-called Title IV federal loans via HERA led directly to for-profit ed firms like the Apollo Education Group (which ran schools like the University of Phoenix) jacking up prices.

At an earnings call in early 2007, an Apollo executive was asked why they raised tuition 10 percent, and not, say, five percent: “The rationale . . . had to do with Title IV loan-limit increases,” Apollo’s then-President Brian Mueller said. “It definitely was done under the guise of what the student can afford to borrow.”

The cycle is consistent. Politicians want to show they care, so they expand “access” to education. Schools in turn expand tuition costs and keep doing it because they have a basically
captive customer pool that needs degrees to have any chance at professional salaries. This explanation is unpopular with some political liberals because it’s often seen as an argument for reducing access to higher education. As a result, it goes undiscussed by the only politicians likely to have any debate at all about the student-loan problem, i.e., Democrats.

The coming debate over whether to cancel $10,000 or $50,000 will of course be important to the 44 million-plus Americans who owe an average of $37,584 in student loans. No matter how it shakes out, though, it won’t stem the tide of new debt holders. So long as universities keep building palatial dorms and libraries and paying for them by getting the signatures of teenagers on mortgage-like notes, the problem will continue.

Forgiveness is a good idea, or at least one that suggests politicians are finally hearing the sounds of distress emanating from voters. But any real fix will require changing both how young people pay for higher education and reassessing just how much value colleges are providing for all that money. Are middle-class workers spending decades breaking their backs to pay off a few years of pretty landscaping and Olympic-pool access? Or did they just overpay a bit for an otherwise sound investment? We have to ask what those big bills were for — not just how many of them to forgive.

Source: Read Full Article