Student borrowers had every reason for optimism heading into the summer as schools let out across the country. They went three years without worrying about their monthly obligations, thanks to pandemic-era repayment freezes, and President Biden was making widespread debt cancellation a hallmark of his first term in office.
But on June 30, the Supreme Court dashed those hopes when it ruled the president’s $400 billion student loan forgiveness program was unconstitutional.
Two months later, on Sept. 1, the COVID-19 student loan forbearance ended, interest started accruing once more, and the country’s 43.6 million college borrowers prepared to start making payments on their $1.65 trillion debt again in October.
In light of those developments, is there still a chance for widespread college loan forgiveness, and if so, is it even a good idea?
GOBankingRates asked the experts.
As a 15-year financial advisor and Wall Street veteran who held leadership positions at JP Morgan, Goldman Sachs and Citi, Andrew Lokenauth has both facilitated student loans and advised borrowers on managing them.
He sees several paths — unlikely as most of them are — to widespread student debt forgiveness like the kind President Biden attempted:
- Congress could pass broad debt cancellation legislation, but that would require a legislative miracle in today’s ferociously polarized and closely divided political environment.
- The president could attempt blanket forgiveness through an executive order, but that would face immediate legal challenges that would eventually make their way to an unsympathetic Supreme Court.
- The Department of Education could expand existing forgiveness programs.
- Private and nonprofit debt repayment assistance offerings could expand their reach.
- Borrowers could refuse payment en masse through widespread debt strikes that pressure policy changes but damage their credit.
Alternative avenues to widespread loan cancellation could offer borrowers opportunities to use their degrees as a path to debt remission.
“For instance, tying debt relief to public service or sectors where there’s a significant labor shortage could be a win-win for both the economy and borrowers,” said Dennis Shirshikov, professor of finance, economics and accounting at the City University of New York and the head of growth at real estate investment site Awning. “If you work five years as a teacher in underserved areas, a portion of your student loan gets forgiven.”
It wouldn’t be an entirely new proposition.
“We have examples like the Public Service Loan Forgiveness Program (PSLF), but it could be expanded and better advertised,” said Shirshikov. “Imagine combining this with apprenticeship programs in industries facing labor shortages. It’s killing two birds with one stone, really.”
Even If It’s Doable, Is Debt Cancellation Worthwhile?
Presuming the country could achieve widespread student debt forgiveness, the public debate that preceded the Supreme Court’s decision revealed a bitter partisan divide over the merits of even trying.
It’s understandably difficult to convince millions of non-college Americans that their tax dollars should be used to repay loans so other people’s children can earn degrees that they, themselves, couldn’t afford.
Others say loan forgiveness disproportionately benefits wealthier households, which tend to borrow more for college. Others argue it’s unfair to older borrowers, who already paid their debts, and to tomorrow’s borrowers who will eventually have to.
“Canceling student debt only benefits current borrowers,” said higher education expert Scott Winstead, founder and editor-in-chief of My eLearning World. “This is why canceling student debt is only a band-aid on the problem. If you cancel student debt, the next generation of students will find themselves in the exact same spot. Probably worse. The fact is, something needs to be done about the root of the issue.”
Winstead has also seen how federally backed borrowing can disincentivize colleges from keeping prices low to stay competitive.
“The federal government’s guarantee of student loans, more than anything else, has contributed to the rising cost of room and board at public colleges and universities by increasing demand for loans, reducing pressure on colleges to keep costs down, and providing a disincentive for colleges to provide affordable housing options,” he said.
On the flip side of the borrowed coin are the advocates who point out that, like it or not, America is competing against countries that produce skilled and educated innovators by investing in free or low-cost college.
“Research shows countries with free college have higher-skilled, more productive workforces,” said Lokenauth. “Better-educated citizens directly boost economic growth and tax revenues, and freer access attracts businesses in need of talent, thereby creating more taxable income.”
The absence of widespread student debt could also serve as an indirect economic stimulus program.
“There are economic benefits from freed-up consumer spending previously going to loan payments,” said Lokenauth. “Businesses gain when workers have income for innovation and entrepreneurship, and governments recoup the cost over time via alumni taxes and overall economic gains.”
Then, there are the personal benefits that tens of millions of borrowers would enjoy.
“Society is more equitable and poverty is reduced when fewer are chained to debt,” said Lokenauth. “Lower student debt enables faster milestones like buying homes and raising families.”
In the end, remission is still possible, but unlikely — and it won’t matter in the long term if the solution doesn’t address the root of the problem.
“So, student debt could end up being canceled,” said Winstead. “But then policymakers need to consider reforms to the student loan system that provide incentives for colleges and universities to keep costs down and provide more affordable housing options.”
Heather Taylor contributed to the reporting for this article.
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