Time To Rethink Student Loans And Forgiveness

NEW YORK, NEW YORK – MAY 14: A student wearing a mask, gloves, graduation cap, and gown poses amid … [+] the coronavirus pandemic on May 14, 2020 in New York City. The New School University graduation scheduled for May 15th will now be held virtually. COVID-19 has spread to most countries around the world, claiming over 303,000 lives with over 4.5 million cases. (Photo by Alexi Rosenfeld/Getty Images)

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The news that the Biden administration has extended federal student loan deferment without additional interest charges until May 1 was welcomed by millions.

The move was more a recognition of political reality by Biden—pressure from Democrats—than a forward-looking plan to cancel student loan debt. The intent seems likely to keep others off his back while not giving in to a demand that is divisive. One opponent of the move, Sen. Tom Cottom (R-AR) puts it this way:

True, someone—known as taxpayers—cover the bill. But to frame it as getting stuck with a tab isn’t an accurate view. When students take loans out, the money is sent to post-secondary institutions. While the loans are still outstanding, the tab is largely already paid through taxes, including those paid by the borrowers themselves.

To better understand the current problem, it’s necessary to dig in and think rather than toss out a facile emotional response.

A college education on average leads to higher median earnings and lower unemployment rates. The difference in income between, say, a bachelor’s degree and a high school degree is $520 a week, or an average of $2,236 a month (as the average month has 4.3 weeks). In 2018, the “typical” monthly loan payment was between $200 and $299, according to the Federal Reserve. That would seem to strengthen the argument that most students don’t need loan forgiveness because it’s equivalent, or even a cheaper deal, than buying a new car.

However, this situation is in truth much more complex. As Forbes senior contributor Zack Friedman pointed out last year, while average student loan debt is $32,731 per person, the median is $17,000. There’s a heavy top weighting, including of the average monthly payment of $393.

There are millions who are under crushing burdens, but there are also millions who are not. Furthermore, some percentage of the heavily burdened have opted for graduate degrees that ran up bills.

The Texas Public Policy Foundation did a study in the fall of 2021, using newly available data from the Department of Education and analyzing median student debt by type of degree. The numbers were only for Texas, but still instructive. The median debt for a bachelor’s was $23,000. A doctorate, $73,500. It might make one wonder the figures for schools in other states, and then the breakout by field of study and the chance of making use of higher-level degrees.

It’s all loans on expensive education that may not pay off, given a particular field. In a sense, it seems unconscionable for numerous graduate departments to accept students without recognizing that the chance they have of going into academic or getting financial recognition in the commercial world for their degreed status, is low.

Not to liken college to a trade school, but if young people are signing loan documents, they should have a sense of how much they’ll pay and the difficulty in finding work that could make paying the debt possible. A common enough story you can hear from people is how they’ve been paying off student loans for years and have barely touched the principal. Why aren’t there specialized loan disclosures that present the case so they don’t make uninformed decisions?

Perhaps debt relief is needed, but for all? A recent poll suggested that 62% of Americans support some level of student loan forgiveness, but not even 20% say that all debt should be forgiven. Many think that help should be based on income levels. If not, there is the chance of moral peril. Certainly on the part of students who might assume that their challenges will be taken care of by society. Also on the part of the schools, which could see this as permission to charge as much as they’d like.

But then, the structure of how educational funding works has changed over the years and how different the financial aid dynamics are for students.

The Pell Institute reports that in the 1975-1976 academic year, the maximum federal Pell grant covered 68% of college costs. In 2018 to 2019, it covered only 25%. States have been cutting back their fiscal support of colleges for years. The result is a shift of responsibility onto students to a degree that someone who graduated college 15 or 20 years ago don’t understand.

All that said, this is a complex topic. The rapidity with which people in the country race for one absolute position or another is disturbing. Time to sit down and develop new approaches toward what society needs and how to reach it.