Is Canceling Student Debt the Right Approach?

Three Tuesdays ago, in a building on New York University’s campus, Robert Shireman, director of higher education excellence and senior fellow at the Century Foundation, a progressive think tank, was supposed to be part of a debate over whether the government should cancel student debt.

Shireman, a skeptic of the idea, was supposed to go up against one of the leading advocates of the idea, Alexis Goldstein, senior policy analyst at the advocacy group Americans for Financial Reform, as part of series of debates sponsored by NYU's Robert F. Wagner Graduate School of Public Service.

It was a simpler time, before social distancing and hospitals overflowing with coronavirus patients. In just the three weeks since, the world has changed. The subject of that night’s purely academic debate would reach the halls of Congress, with stakes much bigger than the bragging rights after a debate.

Dozens of left-of-center advocates and higher education policy experts privately engaged in their own debate over debt cancellation, divided by such questions as whether a policy, in which wealthy college graduates would be among those who’d benefit, was a high priority right now.

In a mood those participating in the conversations described as complex, the issue would also include such questions as the racial disparity in being able to go to college.

The conversations occurred in the rush of a nation trying to deal with the coronavirus crisis socially and politically.

The NYU debate, March 10, ended up being canceled “due to the evolving health and travel concerns around COVID-19,” the organizers said.

Three days later, on March 13, President Donald Trump declared a state of emergency as fears of the coronavirus crisis sent the stock market into a dive.

Four days after that, as Congress was finishing up a second stimulus bill that provided for more paid family leave, and starting work on what would be the $2 trillion package signed into law Friday -- and though it would be no easy sell in the Republican-controlled Senate -- advocates hurriedly began trying to figure out among themselves to what extent they thought debt cancellation should be a priority.

By that time, all were working from home, and in a series of conference calls and emails, with pets and infants in the background, it was clear that even among progressives, there’s a wide range of opinions about the idea of the government simply canceling student debt.

“We met by phone because we’re all on lockdown,” said Ashley Harrington, federal advocacy director at the Center for Responsible Lending, a consumer group supportive of large-scale debt cancellation, who was involved in the conversation.

Shireman and others interviewed said they wouldn’t describe the discussions as heated. “Nobody’s been fighting -- it was more an acknowledgment that there’s a range of views among progressive organizations about how far to go in terms of student loan relief,” he said.

Still, there are strong feelings on both sides.

Some progressives, like Shireman, said they remain concerned that widespread debt cancellation, which some groups are urging, doesn’t target those most in need.

One participant who was involved in the conversation noted that proposals by House and Senate Democrats would involve the federal government making monthly student loan payments for those with federal loans and would guarantee their balances would be reduced by at least $10,000.

Those getting the relief would also get the $1,200 payment in the stimulus package, or a lesser amount based on a sliding scale if they make more than $75,000 annually, that participant noted.

“We’re talking about an additional $10,000 for people who had the good fortune to go to college. People who didn’t have that opportunity, and may have been laid off, only get $1,200,” said the person. Like some involved in the discussions, they agreed to be interviewed on the condition they not be named because of the sensitivities around discussing conversations between the groups.

“There’s a little bit of a tension on the left over whether we should push cancellation,” another said. “For some, debt cancellation is a big policy priority of theirs, and [the stimulus package] is a way to push that viewpoint.”

“Other nerdy wonk folks actually want to have an impact on putting money back into people’s pockets,” the second person said.

“My family doesn’t need loan relief,” Shireman said. “It should be more narrowly targeted to those based on need,” he said, citing those who are in debt after being misled by a for-profit institution about the chances of getting a well-paying job after graduation.

“It’s not a high priority to provide loan relief to lawyers and doctors who are continuing their jobs at the same salaries,” he said.

But Goldstein argued that even if cancellation helped some with higher incomes, the $10,000 of relief would mean the most to lower-income borrowers, freeing those who owe less than that from having to keep making payments. Trying to target cancellation based on income would be complicated to design and administer. Congress could always make adjustments to make the policy less regressive in the future by adjusting the tax code.

“Honestly, what I think,” Harrington said, “is that the complaints about cancellation being regressive doesn’t acknowledge there are very big differences in terms of income and wealth. I get a little frustrated because the argument doesn’t acknowledge that making an income of $80,000 goes a lot further for one person than another.”

Some making a higher income might be helping support their parents. Some African Americans with graduate degrees believe they needed the additional education just to be able to compete for jobs with white people with only bachelor's degrees. And others, despite making higher incomes, had to take on more debt than others because their parents didn’t make enough to help pay for college.

Even skeptics of broad loan cancellation, like Matthew Chingos, the Urban Institute’s vice president for education data and policy, said racial disparity in being able to afford college is a legitimate point. There’s an argument to be made to base loan cancellation on race, but it would likely run into legal and political problems, he said.

Progressives differ on how much canceling student debt would stimulate an economy buckling from business closures and layoffs during the pandemic.

Chingos, in a blog post last week, argued that those who’d get more money, either through cancellation or the six-month, interest-free suspension of most borrowers having to make payments in the stimulus bill Congress ultimately passed last week, are those well-off enough to have signed up to make the highest payments each month.

Only two-thirds of those with student loan debt in 2016, according to the most recent data available, were making payments on their loans and would have extra cash during a pause, the analysis said Thursday.

Ninety percent of the highest-income households were paying down their loans, while only 30 percent of the lowest-income households were making payments and would have extra money by not having to make loan payments.

“It’s hard to make the argument that loan cancellation would help put money in the pockets of the people struggling with debt,” he said in an interview.

But others, like Kyle Southern, policy and advocacy director for higher education and workforce for the advocacy group Young Invincibles, argue that other studies have shown loan cancellation would increase the nation’s GDP and create jobs. A 2018 paper from the Levy Economics Institute at Bard College called for the federal government to wipe away all $1.5 trillion in federal student loan debt, arguing it would stimulate the overall economy. That paper acknowledged that the largest loan balances are held by the highest earners but said that the degree to which student debt is held by high earners has diminished.

Particularly for young people, knowing that their balances are decreasing even if they don’t have to make payments would give them the peace of mind to spend money, including their stimulus checks, now. Otherwise, Southern said, they’d hold on to the money for when they would have to make payments again, particularly because it might take time to find jobs as the economy slowly gears back up after the crisis.

Ultimately, most of the groups, including Goldstein’s Americans for Financial Reform and Young Invincibles, ended up backing proposals by Democrats in the House and the Senate, guaranteeing at least $10,000 of relief.

The House Democrats’ proposal would have also made payments each month of those with private student loans, guaranteeing up to $10,000 of relief.

An aide on the Democrat-controlled House Education and Labor Committee disputed the $10,000 of relief was a “compromise” figure. Rather, Democrats in both houses chose it, the aide said, because the majority of borrowers who are so struggling with their loans that they go into default have just under $10,000 worth of debt.

“By setting the number at $10,000, we are alleviating borrowers who are most in need,” the aide said.

But several people involved in the discussion between progressive groups viewed the $10,000 figure as a compromise. Some groups who wanted more cancellation were willing to accept it, while others with reservations could live with it as well.

Young Invincibles has backed Democratic Massachusetts senator and former Democratic presidential candidate Elizabeth Warren’s plan, which would go much further than the Democratic proposals -- forgiving $50,000 of debt for those making less than $100,000. Those making between $100,000 to $200,000 would have had less debt forgiven, based on a sliding scale. But they too backed the $10,000 cancellation, as an improvement over Republican plans to put in law the Trump administration’s executive order deferring payments without interest.

A representative of one group said they preferred Congress take a more nuanced approach that targeted people of color and low-income borrowers instead of "the blunt instrument." But given the hurry to put a stimulus bill together, and the fact that some low-income borrowers and people of color would no doubt benefit, they were willing to go along with it.

Some other groups, like Education Reform Now, though, decided to stay neutral on the debt cancellation provisions of the bill, also favoring a more targeted approach. “We'd like to see 100 percent forgiveness of those ripped off by for-profits and bad-actor, high-priced colleges with unconscionably high dropout rates,” emailed Michael Dannenberg, the group’s director of strategic initiatives for policy.

Ultimately, no debt relief was included in the bill. Advocates like Goldstein say the differing views among progressives were less a factor than strong Republican objection to the idea. Republican senators had voiced some of the same misgivings as some progressives.

“Democrats are trying to reduce student loans by $10,000. What the hell has that got to do with the virus?” Senator Lindsey Graham, a Republican from South Carolina, told Fox News on March 22, as the $2 trillion package was being negotiated.

Instead the bill excuses most borrowers from making payments for six months, interest-free, and bars collection agencies from garnishing wages, tax refunds and Social Security benefits.

Southern said he believes there is broad consensus, though, that the bill doesn’t go far enough and most groups support canceling debt in some form. “That's why I said after the Senate’s passage that Congress had met its absolute base responsibility of doing no immediate harm. That's all pushing loan payments down the road will do,” he said.

It’s unclear where the conversation between the groups goes from here. With the Senate and House on recess until at least April 20, Chingos said it buys time to come up with a more targeted approach to canceling loans.

But one who was involved in the discussions said, “It seems like people have gone to their separate camps.”

Shireman, though, said groups are just now starting to talk about how to move forward after last week’s debate over the $2 trillion bill. “I think we’re all just coming up for air after the craziness of last week. It was just insane. I never needed a weekend more in my life,” he said.