Student Loan Debt Crisis: Cancel Debt

Summary

• Comprehensive student loan relief corrects past policy errors.
• This is an economic issue.
• Education is a public good.
• Over the last 50 years, policy priorities reduced public funding for education.
• Reduced public funding put more cost burden on students.
• Public opinion and policy makers leaned on retrenchment to cut perceived “waste” and inefficiency in higher education.
• Retrenchment increased cost obligations already shifting toward students.
• Reduced public funding compromised our ability to offer higher education choices to more students while leaving many millions who did pursue a post-secondary degree holding the bag for those funding cuts. 
• Result has been higher costs, higher debt, and fewer choices.
• The education-by-debt experiment failed.

On Behalf of Americans Burdened by Student Debt

President Joe Biden and Democrats again talk about free education at public community colleges and universities.  And that is a good thing.  It is a smart recommendation.  Such a plan will expand the benefits of education while reducing the cost and debt burdens of students.  But that is only the one step toward reforming our higher education policy mistakes.  Comprehensive student debt relief must be step one.

Ultimately, education is a public good and we all benefit when more of us are educated, whether that education comes from a public or private institution, or, indeed, whether it is gained at a formal “school” at all.  What people learn in the trades and through experience adds to the overall value of an education, too.  Whatever the source or level, education is valuable and supporting it should be a priority for our future.  The benefits of making education accessible to all are well worth the investment.

But we must look back as well and clean up our blunders and misjudgments. For fifty years public policy moved away from public support for higher education and shifted more of the cost burden to students and families.  That proved to be a mistake, engulfing tens of millions of Americans with enormous debt, debt taken to cover the rising costs of education tied to the lack of public support to subsidize it, support that we wisely gave during our most flourishing decades but then pulled back and sheepishly wonder why deficits in higher education suddenly appeared.  In most colleges and universities – including many of our finest and oldest – we are doing less because we have less.  Fewer options, fewer resources, fewer benefits.

American success is no accident.  It rises from prudent planning and investment. We abandoned these responsibilities in education by mistakenly seeing education as a personal benefit with mostly personal responsibility rather than a social one as well.  Part of understanding proposed plans to restore public support for higher education need to stand on this; it is important that this is understood by the public.  But it is just as essential to understand that canceling student debt isn’t about a gift to students of the past, it is about repairing the harm done them and all of us by abandoning students and our public commitment to education in the first place.

The underlying problem that needs to be addressed is this enormous aggregate debt that serves no one other than some who stand to benefit from the interest and dividends that investments in this debt provides.  Furthermore, the costs of education – which are increasingly expected to be paid by the individual who is wary of the risks of borrowing to pay for education for good reason – reintroduces and reinforces an education divide in our country.  Proposals to offer more support to higher education address the latter concern.  The former needs to be dealt with directly, too.

Ideas have been floated to offer credit for public service to pay off debt.  But this is inefficient and mostly misses the point.  Many people with debt already work extra jobs or extra hours to pay bills, including their loan payments.  More basically, it would be inherently inefficient to create busy work for people to do to earn loan credits.  Otherwise, if these jobs are not just busy work, will indebted students be taking these jobs from people who want to find meaningful work in the public sector?  There is also the consideration that giving people credit for public service work might crowd out some private sector jobs, contracted jobs at public facilities, for example. 

Means testing is another idea suggestion for managing a loan cancelation program.  This seems reasonable at first glance, but it is another example of inefficiency, this time an inefficiency of assessment, perhaps.  Who knows how a person is burdened by debt and why?  By the very fact that someone is still paying the debt suggests that they are unable to free themselves entirely of that debt.  How many millions of Americans are beyond their prime earning years – or even retired Americans – and still paying these debts?

These solutions miss the point about student debt entirely.  Student debt is largely the outcome of policy decisions that put more of the cost of higher education on the shoulders of the student.  In the 40s, 50s, 60s, and 70s both financially secure students and those in other situations benefited from the common support the public gave to education.  In the 1970s, for example, state governments provided 75% of the cost of higher education funding.  Today it is less than 25%.  And there was no means testing on the published cost of a college credit. 

Furthermore, as institutions of higher education struggled with reduced public support, they were often obliged to pursue a policy of retrenchment to reach financial stability.  As a college degree was considered more essential for the job market, options declined and the costs increased. 

America’s problem with education debt correlates with the increased share of fees and tuition expected to be paid by students, and that is especially the case for students who would not have been able to afford college without the trap of loans, but not exclusively so.  If someone is paying off a loan, large or small, there is likely a simple reason why they are still paying off a loan:  They cannot afford otherwise. 

There is no objective way to uniformly assess the burden of millions upon millions of indebted students and sort out who deserves credit and how much.  Therefore, the best solution is blanket amnesty.  Cancel it all and start over. 

Let’s do and do it right.  The benefits will be immediate and broad.  Unlike ill-advised tax breaks that have again and again favored cash-rich tiers of taxpayers and corporations, breaks given to student debts will unleash funds that are being held hostage by month-to-month installment obligations to the past.  This is not a trickle-down scheme to spur economic activity, but one that will actually reset economic activity, putting funds into future economic growth through the increased means of millions. 

Canceling student debt also resets the mistaken policy choices of a previous generation that thought it wise (and responsible?) to ask students to pay more for the education that they receive and the benefits that they inevitably share with all of us.  This is about more than just having an educated workforce in careers that serve us all, it is about applying our wealth to fighting ignorance, it is about helping society rise above the status quo. In short, it is about investing in progress.

Making students take on more of the burden of higher education – an inherently expensive and inefficient system – was a selfish and short-sighted.  The Biden Administration looking forward to easing costs for future students is good, but the mistakes of the past cannot be left unaddressed.  One thing then the other.