Student debt should never have become a national crisis. No one wanted this, no one intended this.
The situation is likely to get worse. Given huge university budget shortfalls caused by the pandemic, institutions such as the University of California seem poised to raise tuition — which means students will have to borrow even more to pay the higher cost.
At the same time, the economic downturn and reduced job prospects for new graduates mean that millions of borrowers cannot afford to pay. While the 41 million people with federal loans have been given a temporary reprieve from payments until the end of January, with economic recovery very unclear, student loan debt has become a top cause of anxiety among millennials. So it’s not surprising that calls for reducing the repayment burden have grown loud indeed.
The 1965 Higher Education Act, which established the federal student loan program, enabled millions to get a college education.
But that great promise has become less and less viable. With debt becoming the dominant form of financing, getting a college education is more out of reach for poor students, who are disproportionately Black and Latino.
College debt imposes burdens on students who complete their degree, reshaping career possibilities and delaying life milestones like getting married, buying a home and having children. Students who do not get a degree face starker obstacles, since they won’t benefit from higher earning potential connected to a degree.
The bottom line is students and their families now shoulder a bigger share of the cost of college even as costs have risen. The effect is to make investing in higher education more risky for students who rely on loans. Students from less privileged backgrounds who enroll in college are less likely to complete a course of study. But they would still have to repay any loans. This dynamic may deter the risk-averse from pursuing higher education at all — a perverse outcome and the opposite of the lofty aim of the Higher Education Act.
Eliminating or reducing the loan burden would help millions of students, but particularly Black and Latino graduates, who make slower progress on repayment, because they tend to receive lower wages — another manifestation of structural racism. Reducing loan obligations would especially help students who don’t end up with a degree.
Most borrowers don’t owe the eye-popping amounts so often in the news; about one-third of borrowers owe less than $10,000, according to the Education Department, and close to half owe less than $20,000. And students who owe less than $5,000 are the most likely to default on loans, the Urban Institute has found. The federal Consumer Financial Protection Bureau has observed that these borrowers are also least likely to benefit from existing debt relief options.
At this point, the student debt crisis is no longer an individual problem, but a societal one. It needs to be addressed through the lens of social policy. Sens. Elizabeth Warren and Charles Schumer have proposed canceling up to $50,000 of each borrower’s debt through executive action, without legislation. President-elect Joe Biden proposed a more modest $10,000 of “immediate cancellation” and increasing Pell Grant amounts to correct that cost misallocation problem going forward so that paying for college is less risky.
Cancellation of debt would be a triple win for the incoming administration. Not only would it earn the gratitude of younger voters, it would also enable them to spend more money and bolster the economy. And who knows what good ideas they’ll be free to pursue to get us out of the mess we’re in.
Jonathan D. Glater is a professor of law at UCLA School of Law.