Navigating the Student Loan Forgiveness Debate: Understanding the Arguments and Exploring Alternatives

Student loan debt has become a significant topic of discussion, as politicians and policymakers grapple with the rising costs of college and the subsequent financial strain on graduates. As of August, Americans owed a collective $1.8 trillion in student loan debt, with $1.66 trillion of that being federal student loans held by approximately 42.5 million borrowers. The debate surrounding student loan forgiveness involves complex economic, social, and ethical considerations. This article aims to explore the various facets of this debate, examining the reasons for and against student loan forgiveness, and considering alternative solutions to address the underlying issues.

The Burden of Student Loan Debt

The increasing cost of higher education has led to a situation where many young adults are burdened with substantial student loan debt. This debt can have far-reaching consequences, impacting their ability to achieve financial milestones such as getting married, buying a house, and saving for retirement. Student loan debt has prevented about 400,000 people from buying homes between 2005 and 2014, which accounted for 25 percent of the decrease in home ownership. Every $1,000 increase in student loan debt lowered the home ownership rate by 1.5 percent for those who attended four-year colleges.

Arguments in Favor of Student Loan Forgiveness

Proponents of student loan forgiveness argue that it can stimulate the economy, address racial inequity, and provide individuals with greater opportunities to achieve their financial goals.

Economic Stimulus

Student loan debt can hinder new business growth and consumer spending. A Federal Reserve Bank of Philadelphia study found “a significant and economically meaningful negative correlation” between student loan debt and the falling rate of new small businesses. Student loan forgiveness would boost the economy, benefiting everyone. President Biden, when announcing his loan cancellation program, stated, I ran for office to grow the economy from the bottom up and the middle out because when we do that, everyone does better, everybody does well. The wealthy do very well, the poor have a way up, and the middle class can have breathing room. And that’s going to help America win the economic competition of the 21st century….That’s what today’s announcement is about. It’s about opportunity. It’s about giving people a fair shot. It’s about the one word America can be defined by: possibilities. When everyone can’t participate in the economy, the whole economy suffers.

Forgiving student debt could provide a moderate boost to the economy. CRFB’s analysis finds that $10,000 in student loan forgiveness would only boost gross domestic product (GDP) by $31 billion over three years, while $50,000 in forgiveness would boost GDP by $91 billion over the same period.

Addressing Racial Inequity

Student loan debt disproportionately affects Black students. According to Judith Scott-Clayton, senior research scholar with the Community College Research Center at Columbia University, interest rates and graduate school loans leave Black graduates with twice as much debt as white graduates, almost $53,000 four years after graduation. Scott-Clayton also notes that Black graduates default on student loans at a rate of 21 percent, while white graduates default at 4 percent. Ashley Harrington, federal advocacy director and senior counsel at the Center for Responsible Lending, explained the catch-22 in which students of color often find themselves: The student debt crisis is absolutely a racial justice issue. For brown and Black folks, they often need to get more education to get the same salaries and positions that white folks can get with less education and that means how do they do that? They have to take on more debt.…[The debt is then] preventing wealth building. The Roosevelt Institute study concluded, While individual white borrowers at the median stand to gain the most in absolute dollars from student debt cancellation, the relative gains for Black borrowers are much larger, and the greater proportion of Black borrowers means that Black wealth overall would experience more growth as a result.

Providing Opportunities

Student loan debt can prevent individuals from achieving milestones such as getting married, buying a house, and saving for retirement. Student loan debt prevented about 400,000 people from buying homes between 2005 and 2014, which accounted for 25 percent of the decrease in home ownership. Every $1,000 increase in student loan debt lowered the home ownership rate by 1.5 percent for those who attended four-year colleges. A Roosevelt Institute study explained, The positive effects of an evidence-based student debt cancellation policy for individuals and households extend far beyond the immediate need of removing burdensome debt. The ramifications for financial and personal well-being, credit, job stability and satisfaction, homeownership earlier in the life course, capacity to build wealth for emergencies, human capital investments, family stability, and accumulating wealth can multiply throughout a person’s life.

Fairness and Bankruptcy

Denying student loan debtors the benefits of bankruptcy-benefits that other debtors have access to-is unfair. Car loans, credit card charges, medical bills, and even gambling debts can be discharged in bankruptcy; not allowing educational debt to be discharged is unfair.

Arguments Against Student Loan Forgiveness

Critics of student loan forgiveness argue that it is an abuse of the loan system, disproportionately benefits higher-income individuals, and fails to address the root causes of rising college costs.

Personal Responsibility

Taking out a loan is a choice, and personal responsibility shouldn’t be supplanted by taxpayer bailouts. ‘Canceling’ student loans means penalizing people like me for honoring my word and repaying the debt I chose to accept.” Noyes stated that the forgiveness debate is steeped in the idea that, people are entitled to a college education and other peoples’ hard work. It codifies in policy the idea that adults are not responsible for their own actions (i.e., taking on debt). Furthermore, fewer than 20 percent of American adults have student loan debt.

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Disproportionate Benefits for Higher-Income Individuals

Student loan debt forgiveness would disproportionately help rich or more financially secure college graduates. Students from families earning more than $114,000 a year borrow at the same rate as the lowest-income students-and they take out loans nearly twice as large. People with advanced degrees-lawyers, doctors and others-account for 40 percent of all student debt [according to estimates by American Progress]. Moreover, as Adam Looney, nonresident senior fellow at the Brookings Institute, pointed out, student loan forgiveness benefits only people who went to college: More than 90 percent of children from the highest-income families have attended college by age 22 versus 35 percent from the lowest-income families. Workers with bachelor’s degrees earn about $500,000 more over the course of their careers than individuals with high school diplomas That’s why about 34 percent of all student debt is owed by borrowers in the top quartile of the income distribution and only 12 percent owed by the bottom 25 percent. People who borrowed for master’s degrees and PhDs hold 56 percent of student loan debt, according to Brookings Institute estimates. Holding a masters or doctorate degree is also correlated to higher incomes. People with master’s degrees earn about $2.7 million over a lifetime, more than twice what those with high school diplomas earn ($1.3 million). Ph.D. Inez Stepman, senior policy analyst at Independent Women’s Forum for Prager University, argued, “The people who staff government bureaucracies, corporate HR departments, and school administrations-the people chiefly responsible for the woke mini-revolutions upending institution after institution [will benefit].

The beneficiaries of student loan forgiveness would be higher income, better educated, and whiter than beneficiaries of other transfer programs. In contrast, the median income of households with student loans is $76,400, and 7 percent are below the poverty line. Among those making payment on their loans (and who would have an immediate cash flow benefit from forgiveness), the median income is $86,500, and 4 percent are in poverty.

Failure to Address Rising College Costs

Discharging student loan debt would be only a temporary bandage for the much larger problem of inflated college costs. already has several student loan forgiveness programs, and yet Americans are still in a student loan debt crisis. As Betsy Mayotte, president and founder of the Institute of Student Loan Advisors, noted, To me the free or debt-free college proposals hold more weight [than loan forgiveness], as they address the illness itself rather than just the symptoms. needs a solution to outsized college costs that cause students to take out loans in the first place, rather than a temporary solution that does nothing to prevent the next generation from accruing similar debt.

Abuse of the Loan System

Student loan discharge via bankruptcy would allow borrowers to abuse the loan system and encourage colleges to increase tuition. Making it easier to discharge loans would give people an incentive to take out loans with no intention of paying them back, or to borrow more than they need. Student debt elimination through bankruptcy would encourage increased borrowing, and more borrowing leads to higher tuition. Abigail Hall Blanco, assistant professor of economics at the University of Tampa, said, Loan forgiveness would be one giant subsidy, creating perverse incentives for both schools and students.

Alternative Solutions

Given the complexities and potential drawbacks of widespread student loan forgiveness, alternative solutions should be considered to address the student loan crisis.

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Targeted Relief Programs

Student loan relief could be designed to aid those in greater need, advance economic opportunity, and reduce social inequities, but only if it is targeted to borrowers based on family income and post-college earnings. Prioritizing spending on targeted programs would therefore be a more effective way to achieve progressive goals.

Utilizing Borrower's Financial Aid Application

Every student with a federal student loan has already filled out an application for financial aid (and that application remains on record at the Department of Education). That information could be used to target aid based on students’ economic circumstances at the time of application. For example, the Pell Grant is available only to undergraduate students from low- and middle-income families. Biden has proposed to double the Pell Grant prospectively. If future students got additional grant money, you could argue that prior students should have had that opportunity too-and we could reduce borrowers’ undergraduate loan balances by the amount they should have gotten in Pell (plus interest).

Income-Driven Repayment Plans

Income-driven repayment plans (like Pay As You Earn, or PAYE) remain an excellent way to target debt relief and forgiveness to students whose post-enrollment incomes are too low to be able to make student debt payments. Getting income-driven plans to work effectively is necessary because student lending isn’t going away. Even the most ambitious “free college” proposals would only modestly reduce the volume of new student debt because they only cover tuition and fees at public institutions. Graduate students, students at private colleges, and students who borrow to cover living expenses would still be reliant on loans to finance their education. Those costs represent the majority of loan dollars students borrow each year.

Addressing the Root Causes of Rising College Costs

Real reforms will shift from ballooning subsidies that benefit colleges and instead place accountability on colleges to rein in costs and deliver better value for students and taxpayers. The college-for-all model has not delivered on its promise. We need policymakers focused on addressing the flaws of the student loan system. But how they solve this problem matters. A unilateral decision to wipe away billions in debt without doing anything to rein in the cost of college will exacerbate the problem. An influx of taxpayer dollars only incentivizes schools to keep costs high. The result is costs will continue to rise and students will increasingly borrow more to cover that cost. These approaches fund the problem instead of fixing it.

Alternative Education Pathways and Financing Models

Emerging postsecondary education finance models align the incentives for students, funders, and education providers to mitigate the risk of bad outcomes. For example, income share agreements (ISAs) enable students to borrow for education based on their future income. Though the full amount of a traditional loan is expected to be paid off by a certain time and monthly payments are static, under an ISA students may pay less or more than the amount financed, and the monthly payments fluctuate based on changes to their income. Better Future Forward (BFF), a Stand Together Trust partner, created the Opportunity ISA to provide access to high quality educational pathways to everyone, especially historically marginalized students. Tying education funding to income levels isn’t limited by government regulations, though. Merit America, a Stand Together community partner, offers learners education tracks that will prepare them for a career in IT support, Java development, data analytics, and UX design. There are no upfront costs for the learner, and for some courses, they are only required to make payments toward the cost of the program once they secure a job making $40,000 or more. The value proposition is apparent-they’re so confident a student who completes their program will land a higher paying job that they don’t charge a student until they do. To make this funding alternative possible, Merit America is leveraging models like Google Career Certificates Fund.

Existing Federal Student Loan Forgiveness Programs

Although federal student loan forgiveness programs have faced ongoing legal challenges, there are still several ways for federal borrowers to qualify for student loan forgiveness. Depending on factors such as your occupation, loan type, and income level, you may be eligible to have your federal student loan debt fully or partially forgiven through one or more government programs.

Public Service Loan Forgiveness (PSLF)

Public sector professionals - such as doctors, nurses, first responders, and teachers -employed by qualifying nonprofit organizations and government entities are eligible for PSLF.

Income-Driven Repayment (IDR) Plans

Unlike PSLF, IDR plans are not prohibitive based on your employer and are available to borrowers working in the private sector. Your monthly payment amount under the various IDR plans is calculated by taking a number of factors into account, including your family size and discretionary income.

Nurse Corps Loan Repayment Program (Nurse Corps LRP)

Nurses might consider the Nurse Corps Loan Repayment Program (Nurse Corps LRP). This program, available through a branch of government separate from the Department of Education called the Health Services and Resources Administration (HRSA), offers different percentages of forgiveness for nurses based on length of employment.

Teacher Loan Forgiveness Program

If you’re a teacher with federal student loans, you may qualify for the Teacher Loan Forgiveness Program. The program provides up to $17,500 in student loan forgiveness for highly qualified teachers who teach full-time at a low-income school or educational service agency for five consecutive academic years and meet other qualifications.

Perkins Loan Cancellation

If you have Perkins Loans, then Perkins Loan Cancellation may be available to you if you do eligible public service or volunteer work. These programs provide partial or full cancellation of Perkins loans if you perform certain kinds of service such as teaching at a Title I school or working in a law enforcement profession.

Loan Discharge

Under uncommon circumstances, your federal loans may be discharged - meaning that you’re no longer obligated to pay back your loan. Conditions that may lead to discharge include bankruptcy, disability, and school closure.

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