The Student Debt Dilemma

By Anthony P. Carnevale and Emma Wenzinger

Our research has shown again and again that college pays off. People earn more, on average, with every additional level of education, and students’ financial returns over a career typically surpass their initial investment in college. At the same time, however, the cost of college and total student loan debt have been rising for decades. In the past 10 years, federal student loan debt grew by 102 percent, and aggregate outstanding student loan debt in the United States reached $1.7 trillion this year. This trend has been particularly hard on many millennials, who have faced difficulties establishing financial security and economic independence.

The student loan debt burden is a top priority in the political discourse. To address growing student debt, Sen. Charles Schumer has advocated for canceling $50,000 per borrower, while Sen. Bernie Sanders has supported canceling all outstanding student loan debt. The Biden-Harris administration has indicated its preference for Congress to forgive some amount of student loans, targeting $10,000 in student loan forgiveness across the board. Recently, however, the administration charged Education Secretary Miguel Cardona with exploring the president’s legal authority to cancel up to $50,000 per borrower.

Just as free college isn’t really free, forgiving student loan debt wouldn’t be free, either. It would benefit many college graduates whose degrees already enable them to pursue higher-earning careers and pay off their loans. And it would come at a cost to taxpayers, including those who haven’t earned a college credential.

The irony of the debate over student loan debt cancellation is that the degree itself puts most college graduates in a pretty good position to pay off their loans. For most adults with a bachelor’s degree, the student debt burden is relatively low — 70 percent owe less than $30,000, roughly the federal cap on undergraduate borrowing. And most graduates are well-equipped to shoulder that debt. Bachelor’s degree holders earn, on average, about $960,000 more over their careers than workers with no more than a high school diploma, while those with some college or an associate’s degree earn $200,000 to $328,000 more than high school graduates during their careers.

Workers with graduate degrees are especially likely to hold student loan debt, and they generally hold larger amounts of it. In 2019, graduate degree holders accounted for a quarter of all borrowers and about half of federal student loan debt. But they, too, typically benefit financially in the long run. Workers with graduate degrees earn, on average, about $1.8 million more over their careers than those with no more than a high school diploma and about $840,000 more than those with a bachelor’s degree. Probably because of these increased earnings, those with graduate degrees have the lowest default rates of all student borrowers.

Not all students are able to repay, however, and that’s where political action on student loan debt could make a difference. Some students earn degrees in fields with relatively low earnings that don’t enable them to make student loan payments. Worse, not all students graduate, and those who don’t may be left with debt but not the increased earnings that would help them pay it off.

The burden of student loan debt is not shared equally. Overall, low-income students who attend college are more likely to borrow — and borrow at a higher amount — to complete a degree. Students who attend for-profit colleges,which overwhelmingly enroll low-income students, also hold much higher levels of student loan debt. Nearly half of students who attend for-profit colleges hold more than $40,000 in student loan debt.

Race and gender also correlate with student loan debt. Black/African American college graduates owe an average of $25,000 more student debt than White college graduates, and four years after graduation, nearly half of Black/African American graduates owe 12.5 percent more than they borrowed, on average, because of interest. Women also hold a disproportionate amount of student loan debt, at 58 percent, in part because they outnumber men in higher education, including in graduate degree programs. Compared to their male peers, however, women graduate with 9.6 percent more student loan debt. Black/African American women in particular face a large student loan burden. Occupational choice explains some of the disparity in student loan debt by race and gender, but some of the disparity results from workplace discrimination.

Canceling some amount of student loan debt across the board would promote racial, gender, and economic equity among college graduates and aid adults who were unable to finish their degrees or earn enough to make loan payments. It would disproportionately help the groups that are likely to hold student debt and to hold it in greater amounts. However, under a broad student loan cancellation program, more of the funds would go to higher-income college graduates who are already in a good financial situation to pay off their loans.

Targeted student loan cancellation would be more complex, but it would have the potential to focus relief on the students who need it most. For example, to avoid disproportionately benefiting students with high-earning professional degrees, a student debt cancellation program could be limited to undergraduate student loans. Or Congress could create a program to provide all adults with a set educational benefit that they could use to pay off existing student loans or for future education or training. The cost of such a program would be higher, but the benefits would be spread equally — not just among those who previously pursued postsecondary education.

Student loan debt cancellation has increased in popularity in recent years, but it’s unclear whether it will be enacted or what form it would take. In the meantime, several other policy proposals could make a difference for those who face a significant burden from student loan debt.

• Improving transparency and accountability in higher education would help inform students and their families about the projected debt and earnings of programs they are considering.
• Providing career counseling to students as early as middle school would help them make informed decisions about the effect that various credentials could have on their earnings.
• Automatically enrolling students in income-based repayment plans would make payments more manageable for borrowers. While income-based repayment is already an option, it mostly benefits students with debt from graduate education.

If the economy continues to grow and support jobs that employ degree holders, workers will find it easier to pay off their student loans. College is worth the cost, but too many students end up with an unmanageable student debt burden. If policymakers focus on alleviating student loan debt for the people who most need relief, we can ensure that more students who pursue higher education will be able to reap its monetary rewards over their lifetimes.

Dr. Carnevale is the director and research professor and Emma Wenzinger is the strategic communications specialist at the Georgetown University Center on Education and the Workforce. CEW is an independent, nonprofit research and policy institute affiliated with the Georgetown McCourt School of Public Policy that studies the links among education, career qualifications, and workforce demands.

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