Shifting Burdens: Public Policy and Student Debt
Jason Chura, NLC Capital District NY
This month, total student debt in the United States reached $1.5 trillion. This staggering figure has risen from $600 billion just 10 years ago — and the total continues to rise. Higher education remains vitally important to our collective growth, prosperity, and international standing, yet, for decades state and federal policymakers have failed to appropriately see higher education as the public good that it is.
Fundamentally, the student loan crisis is the result of a failure of public policy and students bear the full financial consequences. State cuts to public colleges and universities coupled with limited federal investment and effectively unencumbered federal loan programs have driven up tuition, particularly since the recession. This, at a time when college enrollment has steadily increased due, in part, to the same general economic conditions, exacerbating the extent of the issue and increasing total debt. Yet, failing to recognize the historically unique paradox of needing an expensive, debt-financed education to have a modest chance at financial security, many, including policymakers, blame borrowers themselves for the circumstances in which some 44.2 million Americans are now trapped.
For reasons that should by now be obvious, moralizing about borrowers’ financial acumen is not needed. What is needed is relief in all possible forms. While universities and students certainly have a role to play, as owners of 93% of total student debt and stewards of public finance and policy, the federal government is likely the best, if not only, actor that could decisively end the student loan crisis. If there is an answer on how to keep future students from enduring decades of debt while offering a life line to those already suffering, government has an outsized influence on the solution.
Here are a few possible solutions on which we might focus:
For Borrowers
Debt Forgiveness
Pretty much every student borrower has, at one time or another, fantasized that their debt would somehow disappear. Well, dream no longer. Earlier this year, a study by Bard College’s Levy Economics Institute analyzed the economic effects of a one-time cancellation of all student loan debt, and determined the results would be overall positive. According to the study, comprehensive student loan forgiveness would increase GDP by $86 to $108 billion annually over the next ten years and reduce the unemployment rate with only “modest” negative effects on the deficit and inflation.
The problem with such a scheme, however, is that while blanket loan forgiveness would be welcome relief for many borrowers, the overall effect would be largely regressive as many who are able to repay their student loans without issue, some carrying the highest debt loads, would receive a large and unnecessary financial windfall. With limited resources, it is difficult to justify budgeting for such an expenditure, especially when loan forgiveness alone would not prevent a similar situation in the future. That said, a one-time cancellation of student debt coupled with true tax reform could go a long way toward unleashing the economic potential of millions of debt-burdened Americans, thus restoring the tax-base that once helped to fund affordable public higher education.
If a tax scheme based on dubious claims about economic growth explicitly aimed at a small, well-off minority is worth blowing a $1.5 trillion-dollar hole in the federal deficit, surely a similar outlay to help 44 million current borrowers and future students with demonstrably positive economic effects is not out of the question. It’s a matter of priorities.
On a smaller scale, preservation and expansion of debt forgiveness programs, like the long-imperiled Public Service Loan Forgiveness (PSLF) program which forgives the debt of qualified public servants — including servicemembers — after 120 payments, would give borrowers some hope for a debt free future. The program is meant to provide an incentive for bright college graduates to enter vital public service roles which traditionally have a lower salary than analogous private sector work. PSLF has been an unsurprising target of the DeVos Department of Education under President Trump and has been attacked by many (but not all) congressional Republicans. In particular, House Education and Workforce Committee chair Representative Virginia Foxx (R-NC) attempted to include the elimination of PSLF in the PROSPER Act. Despite these attacks, PSLF appears to have survived this administration… for now.
Discontinuing PSLF would deepen the student loan crisis with the added tragedy of social workers, teachers, and public-sector workers being further priced out of their fields. Even the Pentagon has pushed back against the elimination of PSLF, citing the program as an important recruiting and retention tool for the armed forces, going so far as to call its elimination “a national security issue.” A better funded program might expand the definition of “public service” to a broader range of fields, adjust the income percentage for qualifying payments, or offer forgiveness after fewer payments. Non-PSLF Federal repayment plans, which currently offer loan forgiveness after 20–25 years of payment, could be similarly adjusted to offer relief earlier to private sector workers while preserving the incentive for public service.
Borrower-Friendly Repayment Remedies
As industry regulators, the government must also take steps to promote a borrower-friendly lending environment by ensuring that every borrower is able to opt into an affordable plan with a clear path out of debt and an escape hatch in the event of financial catastrophe. Obama-era reforms that sought to hold federal loan servicers accountable, as detailed in the Student Aid Bill of Rights, enhance customer service, enforce consumer protections, compensate borrowers who have been wrongly impacted by the system, and protect students from predatory for-profit colleges. All were a great first step, but we must do better.
It’s somewhat remarkable that, despite having eight federal repayment plan options, borrowers often have difficulty finding even one that suits their unique financial situation. Navigating the plans can be confusing, and with federally contracted private loan companies in the mix who have no real incentive to counsel, borrowers can easily end up ill-informed about their options with unmanageable payments, risking default. And, once in a plan, borrowers may face annual requalification and income recertification: unnecessary complications that increase borrower error. Simplifyingthese plans into one income-driven system with automatic enrollment in an Income-Driven Repayment plan and the option to repay faster would eliminate the complexity of the payment process and reduce the likelihood of default.
The loan system should also be structured to account for unique circumstances and ensure that students who don’t finish school or graduate into low-paying jobs, or who are non-traditional and returning students, are able to better manage their payments without being haunted by debt into retirement. Borrowers with high-interest loans may pay hundreds of dollars a month for years only to see their loan amount grow, ultimately paying far more than they borrowed in the first place. Senator Elizabeth Warren’s (D-MA)proposalto lower student loan interest rates to rates at which banks borrow (0.75% at the time) could save borrowers thousands of dollars over the life of their loans and potentially shave years off their repayment period. And, to protect borrowers in the event of extreme hardship, we must grant the ability to discharge student loans in bankruptcy. In short, we must reverse the trend in which students are treated as a commodity by the government, banks, and private investors.
Because, really, what does the country gain by collecting interest-only payments indefinitely that destroy the payer’s ability to participate in the economy?
Current and future students
Amplify and Simplify Aid Packages
Many potential vehicles for addressing the student loan crisis for existing students are already in place — but they are underfunded, outdated, misdirected, or some combination of the three. Overall, the aid determination system should be simplified because finance can be complicated, especially for low-income and first-generation students, and the price of mistakes is very high. To streamline this process, theone grant, one loan system is promising. There, funding for all grant programs — including the Federal Supplemental Educational Opportunity grant (SEOG) — is consolidated into a single Pell Grant program, and all loans are consolidated into a single Stafford loan. This also reminds us that reducing the federal loan program in the first place would dramatically simplify the system. Directly and sufficiently funding institutions, or providing grants directly to students to fully cover costs, would be much more efficient. Rather than so heavily relying on the federal loan program and the inevitable debt forgiveness that accompanies it, future federal education subsidies should primarily come in the form of need-based grants, full stop. There would be no need to forgive debt years after it is incurred using subsidies if those subsidies were instead targeted at preventing debt in the first place.
To accomplish this, we need to modernize the Pell Grant for low- and moderate-income students to enhance its buying power. The Pell Grant once covered half of tuition; today, it covers less than a third. Similar state programs, such as New York’s Tuition Assistance Program, should likewise be recalibrated for the modern college environment. To help cover living expenses, SNAP, Medicaid, and other low-income support benefits should automatically extended to Pell recipients while they are in school. The Federal work-study program should also be expanded and incorporated into debt-free education packages and could perhaps be utilized to staff necessary, but rare services, such as campus child care for students with children.
Tuition Free College, Debt Free College
Bernie Sanders’s free public college proposal was one of many policies that endeared him to struggling millennials during his 2016 Democratic Presidential primary run. Skeptics, of course, questioned the cost of the program. As it turns out, at 2014 levels, when considering the administration costs of related grant, aid, loan, and support programs, and assuming we were to cut off federal aid for private tuition, the additional cost of making all public colleges tuition free is at or near $0. Only three years after President Obama proposed making community college tuition free nationwide, 12 states have implemented programs with varying requirements to do just that with one, New York, nominally extending the program to the public four-year schools. New York’s program, though generally praised, is applied as “last-dollar” aid and covers the balance of tuition only after other awards are applied, meaning those awards are exhausted and can’t be applied to ancillary education costs. Despite its positive reception, the program amounts to a subsidy for families that make too much to qualify for Pell in a state where tuition is comparatively low to begin with.
Tuition is hardly the only cost associated with college, and, like New York’s program, tuition-free programs are largely wasted on wealthier families who could easily afford to pay for a public education for their children. Tiered tuition schedules based on family income may be one less regressive solution; as Senator Brian Schatz (D-HI) recognized in his “debt-free” college proposal. Schatz’s program works by encouraging states to increase their appropriations for state schools through federal matching grants. To receive federal money, schools must commit to working with students to ensure they pay the full cost of school without incurring debt. Schatz’s approach focuses on making college affordable for low-income students first through needs-based grants that take living expenses, such as housing and transportation, into account while ensuring there is aid for middle class families who need it. Best of all, it cuts student loan companies out completely. This approach appears promising, but it does not fully address the basic issue.
Symptoms of a Greater Disease
The fundamental issue is a conceptual one — policymakers have, over the past several decades, seen higher education loans as a business that should earn a profit on the backs of young Americans. This is not only heartless, it is self-defeating. Education must be a top priority for a prosperous nation — one that is due to a large, sustained public commitment. To achieve this, we need to shift our discussion of education from a transactional, individual services idiom to one that highlights collective benefits.
Education is not just about creating skilled workers- it’s about having a more informed, compassionate, and functional electorate; a more complete understanding of the universe and our place in it through science and art; and better relationships with ourselves and each other.
It’s about having more sound minds questioning our world, our reality, and ourselves.
In truth, there are probably thousands of different permutations of programs and policies that could blunt the edges of the student debt crisis. But until we, as a country, take the steps necessary to fund higher education at a level commensurate with its importance, the burden will remain on the shoulders of our scholars.
Jason Chura is a project manager for the New York State Medicaid Program. He is the Recruitment Chair for the NLC Capital District New York Chapter and can be reached at jay.chura@gmail.com.
