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Is it fair to forgive student loans? Examining 3 of the arguments of a heated debate

Scott Horsley

Student loan borrowers stage a rally in front of The White House on Aug. 25 to celebrate President Biden cancelling student debt. The plan has sparked heated debate, including about its economic fairness. Paul Morigi/Getty Images for We the 45m hide caption

Student loan borrowers stage a rally in front of The White House on Aug. 25 to celebrate President Biden cancelling student debt. The plan has sparked heated debate, including about its economic fairness.

President Biden's plan to forgive hundreds of billions of dollars in student debt is sparking heated debate.

Biden last week announced plans to forgive up to $20,000 in federal student loan debt for Pell Grant recipients and up to $10,000 for others who qualify.

The news will provide relief for borrowers at a time when the cost of higher education has surged.

Student loan forgiveness is politically popular. But not all Democrats are on board

But critics are questioning the fairness of the plan and warn about the potential impact on inflation should the students with the forgiven loans increase their spending.

Here are three key arguments – for and against the wisdom of Biden's decision.

Raising living standards or adding fuel to inflation?

Undoubtedly, student debt is a big burden for a lot of people.

Under Biden's plan, 43 million people stand to have their loan payments reduced, while 20 million would have their debt forgiven altogether.

People whose payments are cut or eliminated should have more money to spend elsewhere – maybe to buy a car, put a down payment on a house or even put money aside for their own kids' college savings plan. So the debt forgiveness has the potential to raise the living standard for tens of millions of people.

Critics, however, say that additional spending power would just pour more gasoline on the inflationary fire in an economy where businesses are already struggling to keep up with consumer demand.

Inflation remains near its highest rate in 40 years and the Federal Reserve is moving to aggressively raise interest rates in hopes of bringing prices back under control.

Not all economists believe the debt forgiveness will do much to fuel inflation.

Debt forgiveness is not like the $1200 relief checks the government sent out last year, which some experts say added to inflationary pressure. Borrowers won't suddenly have $20,000 deposited in their bank accounts. Instead, they'll be relieved of making loan payments over many years.

President Biden announces student loan relief in the Roosevelt Room of the White House in Washington, D.C. on Aug. 24. Olivier Douliery/AFP via Getty Images hide caption

President Biden announces student loan relief in the Roosevelt Room of the White House in Washington, D.C. on Aug. 24.

Because the relief is dribbled out slowly, Ali Bustamante, who's with left-leaning Roosevelt Institute says Biden's move won't move the needle on inflation very much.

"It's just really a drop in the bucket when it come to just the massive level of consumer spending in our very service- and consumer-driven economy," he says.

The White House also notes that borrowers who still have outstanding student debt will have to start making payments again next year. Those payments have been on hold throughout the pandemic.

Restarting them will take money out of borrower's pockets, offsetting some of the additional spending power that comes from loan forgiveness.

Helping lower income Americans or a sop to the rich?

Another big point of contention has to do with fairness.

Forgiving loans would would effectively transfer hundreds of billions of dollars in debt from individuals and families to the federal government, and ultimately, the taxpayers.

Some believe that transfer effectively penalizes people who scrimped and saved to pay for college, as well as the majority of Americans who don't go to college.

They might not mind subsidizing a newly minted social worker, making $25,000 a year. But they might bristle at underwriting debt relief for a business school graduate who's about to go to Wall Street and earn six figures.

Students from George Washington University wear their graduation gowns outside of the White House in Washington, D.C, on May 18. Economists worry President Biden's plan to forgive student loans could encourage more people to take on debt in the hopes of also being forgiven. Stefani Reynolds/AFP via Getty Images hide caption

Students from George Washington University wear their graduation gowns outside of the White House in Washington, D.C, on May 18. Economists worry President Biden's plan to forgive student loans could encourage more people to take on debt in the hopes of also being forgiven.

The White House estimates 90% of the debt relief would go to people making under $75,000 a year. Lower-income borrowers who qualified for Pell Grants in college are eligible for twice as much debt forgiveness as other borrowers.

But individuals making as much as $125,000 and couples making up to $250,000 are eligible for some debt forgiveness. Subsidizing college for those upper-income borrowers might rub people the wrong way.

"I still think a lot of this benefit is going to go to doctors, lawyers, MBAs, other graduates that have very high earnings potential and may even have very high earnings this year already," says Marc Goldwein senior policy director at the Committee for a Responsible Federal Budget.

Helping those in need or making college tuition worse?

Goldwein also complains that the loan forgiveness doesn't address the larger problem of soaring college tuition costs.

In fact, he suggests, it might make that problem worse — like a Band-Aid that masks a more serious infection underneath.

For years, the cost of college education has risen much faster than inflation, which is one reason student debt has exploded.

And now what? The question that follows Biden's student loan forgiveness plan

By forgiving some of that debt, the government will provide relief to current and former students.

But Goldwein says the government might encourage future students to take on even more debt, while doing little to instill cost discipline at schools.

"People are going to assume there's a likelihood that debt is canceled again and again," Goldwein says. "And if you assume there's a likelihood it's canceled, you're going to be more likely to take out more debt up front. That's going to give colleges more pricing power to raise tuition without pressure and to offer more low-value degrees."

The old rule in economics is when the government subsidizes something, you tend to get more of it. And that includes high tuition and college debt.

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What Will It Take to Solve the Student Loan Crisis?

• Daniel M. Johnson

Reform needs to come from outside of higher ed.

The history, size, and complexity of the student loan crisis, combined with the interlocking, interdependent higher education networks — universities, lending institutions, and government agencies — defy simplistic reforms and have largely immunized the student loan industry from having to make significant changes. These institutions and agencies have erected a financing superstructure that meets the immediate needs of students and universities for cash, but dramatically fails the test for long-term cost effectiveness and economic sustainability. We are long overdue for genuine, transformative reform. But one thing has become increasingly clear: solutions to the high cost of higher education and the student loan crisis will not come from the higher education establishment. Our colleges and universities, their presidents, boards of trustees, state higher education systems, and the dozen or more higher education associations in Washington, D.C., have serious conflicts of interest on this issue and will not be the source of cost-cutting reforms.

Every day, there are news stories about the college tuition crisis. But what is the crisis we are seeking to solve? Is it the staggering amount of student debt? The rapidly rising cost of higher education? The interest being collected on student loans? The high default rate on student loans? Or all of the above?

• DJ Daniel M. Johnson is President Emeritus & Distinguished University Professor of Public Policy and Economic Development at the University of Toledo and is author of The Uncertain Future of American Public Higher Education .

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The “fairness” debate over student loan forgiveness, explained

Why economists are fighting over whether canceling debt is a good idea.

by Libby Nelson

For many of the 43 million Americans with federal student loan debt, President Joe Biden’s plan to forgive up to $20,000 in debt is unequivocally good news.

But in the days since the policy was announced, it has also led to pushback, debate, and controversy — arguments that are likely to be studied for months and adjudicated by researchers for years, if not decades.

There are two leading — and overlapping — criticisms of the loan forgiveness plan. One question is whether debt forgiveness is the right thing to do. It asks whether forgiving student loans is the best way to spend an estimated $500 billion , given that some, though not all, of those who benefit have college degrees and relatively high household incomes.

The other is about whether debt forgiveness is the right thing to do right now. If households freed from the burdens of their debts spend more money, it could drive inflation higher — meaning that the consequences of loan forgiveness would be borne by everyone, and soon. To dampen inflation, the Federal Reserve is actively trying to get consumers to spend less.

It’s unsurprising that Biden’s political opponents have raised these concerns. But the criticism has also extended to some economists who have served in previous Democratic administrations or consider themselves sympathetic to Biden’s goals. “Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless,” Jason Furman, President Barack Obama’s chief economist, tweeted when Biden’s plan was announced.

Not all economists agree with Furman’s view . But the fact that the inflation debate is happening at all is a sign of how broader economic trends have shifted.

The push for student debt forgiveness was born a decade ago in the depths of the Great Recession, when even college graduates struggled to find work. Inflation was low and falling. It’s become reality under very different economic circumstances, and that shift is part of what’s fueling the current debate.

The first debate: Is loan forgiveness the right thing to do?

The Biden administration crafted its student debt forgiveness proposal in an attempt to avoid benefiting the wealthiest families. To be eligible for $10,000 in loan forgiveness, student debtors must have earned less than $125,000 (or $250,000 for a married couple) in the 2020 or 2021 tax years.

Students who receive Pell Grants to attend college — meaning they came from low-income families, overwhelmingly earning less than the median household income in the United States — are eligible for an additional $10,000 in debt relief. This is an extra boost for those who started higher education without the safety net of intergenerational wealth.

The proposal would entirely wipe out student debt for 20 million people — nearly half of the 43 million Americans who borrowed to pay for college and are still paying the loans back. An analysis from the Education Department found that almost 90 percent of the benefits would go to people earning less than $75,000 per year, though because any loans taken out before July 2022 are eligible for forgiveness, that figure includes current students and very recent graduates whose salaries could rise in the near future.

The reaction from Biden’s opponents has been to call forgiveness unfair, both to those who didn’t attend college and to those who already paid off their loans.

Senate Minority Leader Mitch McConnell, who would have perhaps the most to gain from a political backlash to the program, called the idea “a slap in the face to every family who sacrificed to save for college, every graduate who paid their debt, and every American who chose a certain career path or volunteered to serve in our Armed Forces in order to avoid taking on debt.”

This attitude is in line with how policymakers in the United States have typically viewed higher education. The federal government helps some students from poor families by offering Pell Grants that don’t have to be paid back, although the grant, which tops out at just under $7,000, means the majority of recipients still need loans . But the bulk of federal financial aid to students comes in the form of loans.

The American system of higher education finance is based on the idea that a college degree primarily benefits the individual who earns it. The federal government issues a small leg up by offering loans at a cheaper rate than a private bank would offer to an 18-year-old with no credit history or a young adult trying to support a family while earning a degree. (The current rate on an undergraduate student loan is just under 5 percent , compared to up to 14 percent from a private lender.)

A few assumptions underlie all of this: that most student loan borrowers are young people working toward bachelor’s degrees, that they will graduate, and that the degree will help them earn back more than enough to pay their debts. Hence the pushback against loan forgiveness: Why help out a 20-something who majored in philosophy at an expensive private college, instead of the 50-year-old next door with no degree at all?

But those assumptions are no longer always true. Biden’s plan is intended to fit the reality of the student loan program as it exists today. The lines between those who will benefit from debt forgiveness and those who are left on the sidelines are blurrier than blue-collar versus white-collar, working-class versus middle-class, old versus young.

One in five people with outstanding student loans is over age 50 , some of whom likely borrowed on their own behalf (including those who pursued graduate degrees) and some of whom took out loans to pay for their children’s education. Many student debtors are no longer young adults starting at a four-year college; they’re older and more likely to attend a community college or for-profit program. An analysis by Mark Huelsman, director of policy and advocacy at the Hope Center for College, Community and Justice at Temple University, found that almost 40 percent of those who entered college in the 2011-12 school year and took on student debt never earned a credential.

Forgiveness will be especially helpful to those in default — the terrifying Upside Down of the financial aid system, where, after at least 9 months of missed payments, the Education Department can garnish wages and even Social Security checks in order to get its money back. The typical defaulter did not graduate and owes just under $10,000 .

There are other versions of the fairness argument circulating. One holds that forgiveness is unfair to those who borrowed but paid off their debts — an argument that could be raised against any social program on behalf of those who were born too early to benefit from it.

The counterpoint to these critiques is that critics are holding student debt forgiveness to a fairness standard applied to few other government programs or benefits. Forgiveness could be life-changing for millions of people, especially those struggling with default, the argument goes, while hurting no one.

Which is where the other part of the critiques come in.

Is it the right thing to do right now?

The student debt forgiveness movement emerged about a decade ago from the crucible of the Great Recession. Students were borrowing more than ever to pay for college and, amid the cratering economy, were struggling to find jobs that would help them pay their loans back.

In 2012, the unemployment rate for bachelor’s degree holders was around 4.5 percent, and nearly 8 percent for college dropouts and those with two-year degrees. Interest rates were low. A prominent argument against student debt for the next eight years was that it was slowing down the economy: Young adults burdened by debt were being held back from buying homes, starting businesses, and spending money.

Few could foresee that by the time forgiveness became a reality, unemployment for bachelor’s degree recipients would have halved, interest rates would have more than doubled, and inflation would be the overriding economic concern. Even in 2019, when loan forgiveness became a serious issue in a Democratic primary campaign for the first time, inflation was rarely mentioned; by the 2020 election, with the economy contracting from the shock of the coronavirus pandemic, student debt forgiveness seemed to have a plausible path to becoming reality as a form of stimulus.

In the past year, though, things have changed. With consumer prices up 8.5 percent over a year ago, some economists now argue that debt cancellation is too big a risk. The concern is that, freed from loan debt or facing reduced payments, student borrowers will spend more at a time when the Federal Reserve is trying its best to get Americans to spend less and cool down the economy.

How much of an effect this will have — if it has one at all — is the subject of further debate.

The federal government paused repayment on most student loans during the pandemic, so millions of borrowers have not had to make a payment on their student loans in two years. The majority of student loan debtors will need to return to making some kind of payment in January, when the pause expires, even if it’s less than they would have had to pay before forgiveness.

The student loan pause was always supposed to end eventually, and it will in January. But for the past two years, the moratorium was extended multiple times, leading to an unusual situation: tens of millions of people owed student debt but didn’t have to make any payments.

Now, this situation is at the heart of the debate over inflation. When economists warn that student debt will drive up prices for everyone, what are they comparing it to? The current situation, where no one is making payments at all?

An analysis by Goldman Sachs economists found that the impact of forgiveness on inflation is likely to be offset by most borrowers resuming payments when the student loan pause ends in January. People who have had their loans forgiven will continue to pay what they’ve been paying for the past two years (nothing), meaning that their household spending should be unaffected. But people who owed more than Biden could forgive, or who earned too much to qualify for forgiveness, will have to resume making payments after two years of not doing so, meaning they’ll actually have less money to spend on everything else.

Or is the proper comparison an alternate path, where Biden allowed payments to resume for all loans, meaning that more people would owe more money per month than they will under the new plan?

Furman estimated that the loan forgiveness plan, even with the resumption of payments for most borrowers in January, could drive up inflation by 0.2 to 0.3 percentage points, compared to the alternative of resuming payments for everyone at their existing debt loads. If inflation continues to rise, prices will become more expensive for all households, meaning that American consumers broadly would pay for the consequences of debt forgiveness.

Ultimately, this argument about inflation is also tied up with the concerns about fairness. If student debt forgiveness drives inflation slightly higher, is that worth it?

Critics argue that it is not: “Student loan debt relief is spending that raises demand and increases inflation,” former Treasury Secretary Larry Summers tweeted last week. “It consumes resources that could be better used helping those who did not, for whatever reason, have the chance to attend college. It will also tend to be inflationary by raising tuitions.”

But that position is not universal. “I am not in favor of framing student-loan policy as a lever for managing inflation,” Sue Dynarski, a Harvard professor, an expert on higher education finance, and a former forgiveness skeptic, wrote in the New York Times on Tuesday. “Eliminating food subsidies for poor families — SNAP, as the food stamp program is known today — would definitely slow the economy, but that doesn’t mean we should do it.”

Where do we go from here?

One thing virtually all sides of the debate agree on is that one-time forgiveness is not enough. It is, by design, a one-off — siblings from the same family who graduate from college a few years apart, having borrowed the same amount to pay for it, could end up with debt loads that differ by thousands of dollars.

The Biden administration is hoping to make income-based student loan repayment more generous, outlining changes that would require borrowers to pay 5 percent of discretionary income per month (down from 10 percent in the current program).

But there is currently no federal plan to actually make college cheaper for students, to reduce borrowing, or to hold colleges accountable for whether students can pay off their loans. That’s not for lack of ideas or for lack of trying. The Obama administration proposed rating colleges based on the “value” they provide to students, an attempt that ultimately went nowhere.

In 2016, both Bernie Sanders and Hillary Clinton called for the federal government to partner with states to make college tuition cheaper. It inspired many of the same debates that loan forgiveness has provoked — should college be subsidized for everyone, and if so, by how much? But the “free college” program was ultimately one of the first things dropped from Democrats’ legislative agenda.

The scope of Biden’s student debt forgiveness plan might seem radical. But by leaving the ultimate structure of how American higher education is paid for unchanged, it’s actually a less dramatic departure than any of the alternatives.

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A smarter way to solve the student debt problem

Blanket loan forgiveness less effective than helping those who need it most, research suggests.

Editor’s Note: This piece was written by Constantine Yannelis, an assistant professor of finance at the University of Chicago Booth School of Business, and shared by Chicago Booth Review . The essay is based on testimony Yannelis submitted to the U.S. Senate Committee on Banking, Housing, and Urban Affairs’ Subcommittee on Economic Policy in April 2021.

Education is the single highest-return investment most Americans will make, so getting our system of higher-education finance right is fundamentally important for U.S. households and the economy.

A key point in the student-loan debate is that the outcomes of borrowers vary widely. Undeniably, a significant number of borrowers are struggling, and are sympathetic candidates for some kind of relief. Student-loan balances have surged over the past decades. According to the New York Fed, last year student loans had the highest delinquency rate of any form of household debt.

Most student borrowers end up as higher earners who do not have difficulties repaying their loans. A college education is, in the vast majority of cases in America, a ticket to success and a high-paying job. Of those who struggle to repay their loans, a large portion attended a relatively small number of institutions—predominantly for-profit colleges.

The core of the problem in the student-loan market lies in a misalignment of incentives for students, schools, and the government. This misalignment comes from the fact that borrowers use government loans to pay tuition to schools. If borrowers end up getting poor jobs, and they default on their loans, schools are not on the hook—taxpayers pay the costs. How do we address this incentive problem? There are many options, but one of the most commonly proposed solutions is universal loan forgiveness.

Various forms of blanket student-loan cancellation have been suggested, but all are extremely regressive, helping higher-income borrowers more than lower-income ones. This is primarily because people who go to college tend to earn more than those who do not go to college, and people who spend more on their college education—such as those who attend medical and law schools—tend to earn more than those who spend less on their college education, such as dropouts or associate’s degree holders.

My own research with Sylvain Catherine of the University of Pennsylvania demonstrates that most of the benefits of a universal-loan-cancellation policy in the United States would accrue to high-income individuals, those in the top 20 percent of the earnings distribution, who would receive six to eight times as much debt relief as individuals in the bottom 20 percent of the earnings distribution. These basic patterns are true for capped forgiveness policies that limit forgiveness up to $10,000 or $50,000 as well.

Another problem with capped student-loan forgiveness is that many struggling borrowers will still face difficulties. A small number of borrowers have large balances and low incomes. Policies forgiving $10,000 or $50,000 in debt will leave their significant problems unaddressed.

While income phaseouts—policies that limit or cut off relief for people above a certain income threshold—make forgiveness less regressive, they are blunt instruments and lead to many individuals who earn large amounts over their lives, such as medical residents and judicial clerks, receiving substantial loan forgiveness.

A fact that is often missed in the policy debate is that we already have a progressive student-loan forgiveness program, and that is income-driven repayment.

If policy makers want to make sure that funds get into the hands of borrowers at the bottom of the income distribution in a progressive way, blanket student-loan forgiveness does not accomplish this goal. Rather, the policy primarily benefits high earners.

While I am convinced from my own research that student-loan forgiveness is regressive, this is also the consensus of economists. The Initiative on Global Markets at Chicago Booth asked a panel of prominent economists to weigh in on this statement: “Having the government issue additional debt to pay off current outstanding loans would be net regressive.” The panel included economists from leading institutions from both the left and the right. The results of the survey were telling. Not a single economist disagreed with the idea that student-loan forgiveness is regressive. This is because the facts are clear—to borrow a phrase commonly used, “The science is settled”—student-loan forgiveness is a regressive policy that mostly benefits upper-income and upper-middle-class individuals.

Another facet of this policy issue is the effect of student-loan forgiveness on racial inequality. One of the most distressing failures of the federal loan program is the high default rates and significant loan burdens on Black borrowers. And student debt has been implicated as a contributor to the Black-white wealth gap. However, the data show that student debt is not a primary driver of the wealth gap, and student-loan forgiveness would make little progress closing the gap but at great expense. The average wealth of a white family is $171,000, while the average wealth of a Black family is $17,150. The racial wealth gap is thus approximately $153,850. According to our paper, which uses data from the Survey of Consumer Finances, and not taking into account the present value of the loan, the average white family holds $6,157 in student debt, while the average Black family holds $10,630. These numbers are unconditional on holding any student debt.

Thus, if all student loans were forgiven, the racial wealth gap would shrink from $153,850 to $149,377. The loan-cancellation policy would cost about $1.7 trillion and only shrink the racial wealth gap by about 3 percent. Surely there are much more effective ways to invest $1.7 trillion if the goal of policy makers is to close the racial wealth gap. For example, targeted, means-tested social-insurance programs are far more likely to benefit Black Americans relative to student-loan forgiveness. For most American families, their largest asset is their home, so increasing property values and homeownership among Black Americans would also likely do much more to close the racial wealth gap. Still, the racial income gap is the primary driver of the wealth gap; wealth is ultimately driven by earnings and workers’ skills—what economists call human capital. In sum, forgiving student-loan debt is a costly way to close a very small portion of the Black-white wealth gap.

How can we provide relief to borrowers who need it, while avoiding making large payments to well-off individuals? There are a number of policy options for legislators to consider. One is to bring back bankruptcy protection for student-loan borrowers.

Another option is expanding the use of income-driven repayment. A fact that is often missed in the policy debate is that we already have a progressive student-loan forgiveness program, and that is income-driven repayment (IDR). IDR plans link payments to income: borrowers typically pay 10–15 percent of their income above 150 percent of the federal poverty line. Depending on the plan, after 20 or 25 years, remaining balances are forgiven. Thus, if borrowers earn below 150 percent of the poverty line, as low-income individuals, they never pay anything, and the debt is forgiven. If borrowers earn low amounts above 150 percent of the poverty line, they make some payments and receive partial forgiveness. If borrowers earn a high income, they fully repay their loan. Put simply, higher-income people pay more and lower-income people pay less. IDR is thus a progressive policy.

IDR plans provide relief to struggling borrowers who face adverse life events or are otherwise unable to earn high incomes. There have been problems with the implementation of IDR plans in the U.S., but these are fixable, including through recent legislation. Many countries such as the United Kingdom and Australia successfully operate IDR programs that are administered through their respective tax authorities.

Beyond providing relief to borrowers, which is important, we could do more to fix technical problems and incentives. We could give servicers more tools to contact borrowers and inform them of repayment options such as IDR, and we could also incentivize servicers to sign more people up for an IDR plan. But while we may be able to make some technical fixes, servicers are not the root of the problem in the student-loan market: a small number of schools and programs account for a large portion of adverse outcomes.

To fix this, policy makers can also directly align the incentives for schools and borrowers. For example, Brazil, which has had similar problems with its student-loan program, recently gave schools skin in the game by requiring them to pay a fee based on dropout and default rates. This helped align the incentives of the schools and the student borrowers. Making revenues go directly to schools from IDR plans, or implementing income-share agreements in which individuals pay an uncapped portion of their income, could also help align the incentives of schools, students, and taxpayers.

Federal student loans are an important part of college financing and intergenerational mobility. The root of our student-loan crisis is a misalignment of incentives. Since the problem has been so slow moving and continuous, I like the analogy of a frog slowly boiling in a pot of water over a flame. Policies such as student-debt cancellation are not extinguishing the flame—they aren’t fixing the incentive problem. All they do is move the frog into a slightly cooler pot of water. And if we don’t fix the core of the problem, even if we forgive $50,000 of debt for current borrowers, balances will continue to grow, and we will be facing a similar crisis in 10 or 20 years.

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Student Debt Is Crushing. Canceling It for Everyone Is Still a Bad Idea.

By The Editorial Board

The editorial board is a group of Opinion journalists whose views are informed by expertise, research, debate and certain longstanding values . It is separate from the newsroom.

The astronomical level of student debt accrued in the United States is inflicting lasting, generational damage on the lives of millions of Americans. More than 45 million people are now carrying more than $1.7 trillion in debt, most of it owed to the federal government.

The burden of that debt is crushing and follows borrowers throughout their lives: It is delaying marriage and home buying and the birth of children. It leaves some students broke on the day after graduation. Others labor for years only to find their balances larger than when they graduated. Lower-income students who must borrow heavily to obtain that degree can end up earning middle-class incomes without being able to lead middle-class lives. Around 40 percent of borrowers never graduate from school in the first place. And a third of the debt will never be paid off, according to the Department of Education.

The Biden administration should spend its finite resources and political capital on fixing the higher education system to make it more affordable while helping those borrowers in the most distress. There are already ways to do this, although they have not gotten nearly enough attention or resources.

Canceling student debt across the board is not one of them. Trying to fix such a shattered system with the flick of a pen on an executive order could even make it worse. Canceling this debt, even in the limited amounts that the White House is considering, would set a bad precedent and do nothing to change the fact that future students will graduate with yet more debt — along with the blind hope of another, future amnesty. Such a move is legally dubious , economically unsound , politically fraught and educationally problematic .

As a candidate, Mr. Biden said he supported congressional action to tackle student debt. Legal experts disagree about whether the president has the authority to cancel student loan debt through an executive order, as the White House is now considering. That raises the possibility that this issue could be dragged out in the courts for years.

All told, 79 million American adults have had student loans at some point. Nearly half have paid them off entirely. Waiving $10,000 in student debt, the amount Mr. Biden proposed during his presidential campaign, could clear the books of as many as 15 million of the more than 45 million Americans who still owe borrowed money for school. Proponents of debt cancellation argue that Democrats need to deliver on a campaign promise to a key constituency, and it may well be politically advantageous for them to do so before the midterm elections, when turnout of the Democratic base will be critical to the party’s success. But if the Biden administration puts forward a plan that voters do not regard as fair, the party could face a backlash at the polls.

Since Mr. Biden took office his Department of Education has taken several important steps to alleviate some of the burden of loans for borrowers who are unable to pay and forgiven the debts of some students defrauded by for-profit schools. Throughout the pandemic, borrowers have been forgiven the interest that accrued on their loans each month in addition to not having to pay down the principal of the loan. The Biden administration has extended the pause several times, and it is now set to expire on Aug. 31.

The moratorium on payment of federal loans, which make up more than 90 percent of all student debt, has already cost $100 billion and has canceled the equivalent of $5,500 in debt per borrower.

The White House is considering various proposals for debt cancellation, possibly with income-based limits for eligibility. Such limits are crucial, because they direct the help to those most in need. An across-the-board cancellation would be tremendously regressive , according to an analysis by the Brookings Institution. Most debt is held by higher-income households, and so any amount of universal forgiveness will benefit them disproportionately. In fact, the growth of student debt for graduate school — held by students whose degrees will offer them the greatest future earning potential — is a major driver of overall student debt. Graduate students account for some 37 percent of all federal student debt, and there is a lucrative return on investment for getting certain advanced degrees.

Federal repayment plans adjust monthly payments based on income and family size and extend repayment periods. Debts are eligible for forgiveness after 10, 20 or 25 years of payments. Around 30 percent of all borrowers with federal loans are in such a program, and more borrowers could benefit from participating in one.

But the repayment programs have a poor track record. Not long ago, fully 98 percent of people who applied to have their debts waived had their claims rejected . A report from the Government Accountability Office in March found that millions of dollars in student debt could already have been forgiven if the programs had been administered properly. Richard Cordray, the chief operating officer at Federal Student Aid, an Education Department agency, called the failure “ really inexcusable .”

The Education Department has been working to fix these programs by retroactively giving qualified borrowers more credit for time spent in public service and hoeing through a backlog of paperwork, but it could do more. Additional changes to income-based repayment programs — such as reducing interest payments, lowering eligibility standards and exempting forgiven student loan debts from taxation — could have big impacts over time, according to a report from Pew. Congress and the Education Department should look to such changes as part of a more sustainable solution to the debt problem.

Lawmakers should also consider making it easier to discharge student loans through bankruptcy , a measure of relief that is available for credit card and mortgage debt. Changes to bankruptcy law in 2005 have also made those protections less accessible.

The Education Department has started a long overdue crackdown on predatory schools, another significant source of student debt defaults. The Obama administration tightened the rules on for-profit schools, but the Trump administration’s Education Department, under Betsy DeVos , relaxed those rules and let repayment and forgiveness programs atrophy. Last month the department discharged $238 million in debt held by 28,000 people who attended the Marinello Schools of Beauty, which closed in 2016. The school engaged in “pervasive and widespread misconduct,” a department investigation found.

Since 2021 the Biden administration has approved more than $18.5 billion in loan discharges for more than 750,000 borrowers, including $6.8 billion for 113,000 people in the Public Service Loan Forgiveness Program and $8.5 billion for more than 400,000 borrowers with total and permanent disabilities. The administration is also pushing to double the maximum Pell Grant and restore a rule that holds schools accountable for the gainful employment of their graduates — a measure aimed at for-profit colleges.

Those moves are all to the good, addressing the student debt crisis with policies that are both compassionate and fair.

They will not, however, solve structural inequalities like the racial wealth gap. Supporters of debt forgiveness argue that targeted relief is inadequate and that broader relief would help to close the gap. Black college graduates, on average, owe $25,000 more than their white peers. More than half of Black borrowers report that their net worth is less than the balance of their student loans. And Black borrowers are more likely than their white peers to drop out of school before receiving a degree.

But across-the-board debt forgiveness will not help. As a recent report from the Brookings Institution concluded, only targeted policies based on race or socioeconomic status “can address the inequities caused by federal student lending programs.”

While inflated college tuitions are part of the reason for the rise in student debt — average student debt is now up to $36,800 from $24,700 a decade ago — it bears noting that the number of students receiving loans to attend college has also increased. In other words, American students keep borrowing to attend college because a degree still offers the promise of prosperity. The Biden administration should focus on confronting the problems with college affordability and loan repayment so more students and graduates have a better chance at that prosperity.

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Experts debate whether student loans are a crisis for students and the economy

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Brown Center Fellow Beth Akers recently participated in a lively debate over the controversial motion, “student loans are a crisis for students and the economy,” at the National Association of Student Financial Aid Administrators (NASFAA) annual conference. Akers was joined by Andrew Kelly, director of the Center on Higher Education Reform at the American Enterprise Institute (AEI), in arguing against the motion, while Kevin Fudge, manager of Government Relations and Community Affairs at American Student Assistance, and Mark Huelsman, senior policy analyst at Demos, argued in favor. In the words of moderator John Donovan, the faceoff was “a battle of persuasion,” with the objective being to sway as many audience votes as possible.

In the course of one hour, both sides were given opportunities to make arguments, to react to one another, and to respond to audience questions, and in that time all four participants made many compelling points.

Huelsman argued succinctly that “The most important reason we face a crisis in the system is that a degree is far from guaranteed.” He went on to explain that four in ten low-income borrowers and four in ten black borrowers drop out of school, with the vast majority citing student loan debt as the number one reason for dropping out. Most concerning of all is the fact that drop-outs are four times more likely to default on their loans.

Huelsman’s teammate Kevin Fudge pointed to the impact of student loan debt on other lifetime outcomes as evidence of a crisis, stating that borrowers he worked with “consistently expressed concern about how their loans affected their ability to pay for housing and basic goods and services, let alone save for retirement.” This was one area of discussion that received a direct challenge from an opponent, with Andrew Kelly claiming that many arguments about the effect of student debt on home ownership mistake correlation for causation.

In responding to her opponents, Akers argued repeatedly that the conclusion that there is a student debt crisis is the result of consistently making mistakes in logic, such as comparing a stock of lifetime debt to a flow of annual income. For more on this common error, see Akers and Chingos’s 2014 report on the topic.

For his part, Andrew Kelly focused largely on the consequences of referring to a student debt crisis, arguing that, “If we define this as a debt problem it leads us to a place where our object is to lower debt loads, which leads to all sorts of bad policy like proposals to refinance loans that deliver large subsidies to people who are having no trouble paying loans back.”

Akers touched on another potential consequence of the “crisis” rhetoric in saying, “It’s critically important that low-income students continue to have access to the benefits afforded by higher education. It makes me very scared to think that we’re going to continue to talk about debt in this way and potentially reduce the opportunities that low-income students have.”

While the exchange between sides was at times heated, several areas of consensus emerged throughout the conversation as well. All four participants agreed that undeniably, some student loan borrowers are struggling tremendously. While Huelsman and Fudge pointed to this fact as evidence of a crisis—a crisis that exists among a certain, vulnerable group of borrowers—that demands addressing, Akers and Kelly argued that these individual crises should not be confused for a macro crisis. Both sides also concurred that a crisis of information exists in the higher education and student loan markets. This is a problem that Akers has specifically investigated in prior research and argues is in dire need of fixing.

Despite some degree of consensus, these two sides were ultimately arguing against one another. So, who won? Based on the number of votes that were swayed between an initial vote before the debate and a final vote after the closing statements, the Akers/Kelly team was declared victorious. Not only did they convince 16 percent of the audience to change its vote, they also swayed the majority, with 57 percent of the audience ultimately agreeing that “student loans are not a crisis for students and the economy.”

How would you have voted? Watch the debate here to decide. 

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The Student Loan Debt Crisis: A Narrative Review

• Published: 02 December 2023
• Volume 9 , pages 3–9, ( 2024 )

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• April C. Bowie-Viverette   ORCID: orcid.org/0000-0001-7269-8987 1 &
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Education is one undeniable pathway from poverty. Research has consistently shown the positive effects of higher education level on lifetime earnings. Financing to achieve this can lead to student loan debt, which has become a crisis affecting financial and health wellbeing among some borrowers and disparities in higher education access further exacerbated by the COVID-19 pandemic. Despite the fact that access to higher education has been deemed a right in Article 26 of the Universal Declaration of Human Rights, the student loan crisis threatens access for some. Lack of ratification of the document by the U.S. further pushes the need for critical discussion. Therefore, the purpose of this narrative review was to examine the state of the student loan debt crisis and raise implications for policy. WorldCat, SocINDEX, and Academic Search Complete databases were searched utilizing a combination of key words associated with college student loans and debt, economic justice. Findings showed student loan debt, repayment challenges, and inequities in higher education access remain widespread. There is a need for more social work–based empirical research on student loan debt and social work engagement that promotes critical conversations utilizing an economic justice perspective. Implications for social work practice, policy, and research are discussed.

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Home — Essay Samples — Education — Student Loan Debt — Student Loan Debt: Challenges and Solutions

Student Loan Debt: Challenges and Solutions

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• Adams, R., & Moore, D. (2019). The Impact of Student Loan Debt on College Students. Journal of Higher Education, 45(2), 123-136.
• Education Data Initiative. (2020). Student Loan Debt Statistics. Retrieved from https://www.educationdata.org/student-loan-debt-statistics
• U.S. Department of Education. (2021). Federal Student Aid. Retrieved from https://studentaid.gov/
• Williams, J. (2018). Understanding the Legal and Regulatory Framework of Student Loans. Journal of Law and Public Policy , 35(4), 289-302.

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