This article is co-authored by Veronica Goodman, Director of Social Policy, Progressive Policy Institute.
Many Americans are struggling with high levels of student debt, and the cost of a college education has soared beyond reason. But Nancy Pelosi was right when she recently questioned the wisdom (and legality) of the federal government to write off the $ 1.7 trillion in outstanding student debt.
For several years, progressives like Senator Elizabeth Warren and Representative Alexandria Ocasio-Cortez, and most recently Senate Majority Leader Chuck Schumer, have pushed for the cancellation of most (and in some cases all of) ) student debt. They point out that the student loan program has placed an unfair burden on Millennials and Zoomers, and that removing that debt burden would free up money for student loan borrowers to spend in the economy.
But such a plan has several flaws in addition to the legal question raised by President Pelosi.
First, there is the issue of fairness. The amount students borrowed to attend college is unreasonable, but should those who borrowed not be held responsible for at least part of the amount they owe? Moreover, isn’t it a better use of taxpayer resources to focus debt relief on those who really need it, and like the Speaker noted “where do we have something that offers an opportunity?” ”
On the other hand, the case for targeted relief is strong. Compared to those who pay out of pocket, people who borrow for degrees are more likely to be low income, black, and have less wealth. These factors make some borrowers particularly susceptible to default, which can lead to deepening poverty and the racial wealth gap. In reality, two thirds of borrowers that the default must relatively low average amount of $ 9,625.
While campaigning for the presidency last spring, President Biden unveiled a plan to forgive a minimum of $ 10,000 per borrower and later said he would submit the plan to Congress for consideration.
That amount could wipe out the debt of 15 million Americans and, together with setting an income threshold for education debt relief, would ensure that the benefits go to low-income households. Without better targeting, debt relief would mainly benefit high-income households, which hold a student third loans and have a greater ability to repay them.
Alternatively, if Congress does not write off the education debt, reforms to the current Income-Based Repayment (IDR) system could provide relief to those struggling to repay their loans. Colleges and universities, which have raised tuition fees beyond the means of most families, should also be asked to help pay down debt for their graduates.
Second, student debt relief is only part of the solution. Policymakers must simultaneously take concrete steps to contain the soaring costs of higher education, or the burden of those costs simply shift from students to taxpayers (70 percent who do not have a college degree to increase their income). Moreover, a massive debt cancellation would send the wrong signal to higher education institutions that would have an incentive to further increase the prices of tuition fees.
Colleges and universities need to come together and commit to lowering tuition fees in the coming years and giving students the opportunity to reduce the amount they have to borrow. This includes the guarantee of a credit of up to two semesters for the successful completion of the advanced internship, the international baccalaureate and college courses taken in high school; and transparent credit transfer from community colleges.
Student loans are a cornerstone around the necks of millions of young Americans, and a burden that must be alleviated. But wiping out all student debt would not only be unfair and costly to taxpayers, it would encourage colleges and universities to keep increasing tuition fees exponentially, avoid making tough decisions about how to cut costs. and, ultimately, weigh on future generations of students. Targeted relief for low-income Americans, coupled with reforms to our existing system and a focus on reducing the cost of higher education, would be a more sustainable and forward-looking approach.