5 Reasons to Support Student Debt Cancellation

As recently as last year, the idea of canceling student debt was seen as a radical proposal championed mostly by grassroots movements and progressive policy makers with presidential aspirations. Amid COVID-19, however, more groups and even elected officials from the middle of the political spectrum are calling for retiring at least some student debt for the sake of the country’s economic survival and recovery.

The impact of such a move would be widespread: student loans have shaped the lives of more than 40 million borrowers -- from every race, class and region of the country. Yet the student loan crisis, like the coronavirus pandemic, has disproportionately affected certain communities. Students who don’t complete college, Black students, students who attend for-profit colleges and universities, and low-income borrowers tend to struggle the most with debt repayment.

Recently, more than 40 Democratic members of Congress have called for the cancellation of $20,000 in each borrower’s student debt because Black and brown borrowers have higher default rates than their white peers. Likewise, 66 advocacy groups have urged Congress to cancel student debt in a way that would help all borrowers but bring the "greatest benefit to many struggling low-income borrowers who would likely see their debt extinguished." And the American Council on Education has suggested that debt-relief programs target “borrowers who are financially distressed and face the greatest difficulty repaying their loans.”

Notably, the common thread is a notion that student debt cancellation should advance equity. We agree and suggest five reasons why we believe equity advocates should support student debt cancellation.

No. 1: Students and families are not at fault for their student debt. One common misperception is that students and families created this crisis by overborrowing. That’s not true. Higher education prices have increased while financial support has stayed the same or, in some cases, decreased -- leaving students and families to make up the difference on their own. CLASP estimates that the average unmet financial need, or the amount a student owes after all grants and scholarships are taken into consideration, is nearly $5,000 a year at community colleges and nearly double that per year at four-year nonprofit colleges. It is even higher for the average low-income student and Black and Latino students.

At the same time, associate degree holders borrow about $13,000, on average, and bachelor’s degree holders borrow about $30,000. Students and families, therefore, are borrowing conservatively, using loans to cover only a bare minimum of what they need to attend college. That amount tends to be a bigger financial burden for students of color, who generally have fewer family assets to fall back on, thanks to long-standing discriminatory policies that have limited the ability of Black and Latino households to accumulate wealth. In several states, the average net price of a public four-year university made up as much as 40 percent or more of the median household income for a Latino or Black family, versus 23 percent of the median family household income nationally.

No. 2: Low-income and working-class families shouldn’t have to take on personal debt to finance what is now a prerequisite for participation in the U.S. labor market. Nearly all new jobs created since the last recession require a postsecondary degree or credential, so sitting out of college isn’t much of an option. In the last recession, students flocked to higher education institutions, especially community colleges, which are the most affordable option. Yet student debt has still more than doubled. Today, about one in 10 students default on their student loans -- a rate that’s higher than many other types of consumer debt -- which can have lasting negative effects on quality of life.

No. 3: Student loan debt cancellation would help boost college completion and student success. Unfortunately, the only way that many students can afford to go to college is by taking out loans. But going to college doesn’t mean one will graduate. In addition, outstanding debt, or the fear of taking it on, can be a strong disincentive for students who might otherwise wish to attend or return to college to earn their first or additional degrees, which are increasingly a must. That’s especially the case for people of color, who often need additional advanced degrees to boost their odds of getting a good job and earning as much as their white peers. Notably, some colleges have had success in using debt forgiveness on balances owed to the institution as a tool to re-engage underserved students and make education more affordable for them.

No. 4: Existing racial inequities in higher education play an underlying role in the student debt crisis. The disproportionate impact of student debt on Black and Latino students isn’t a random occurrence; it’s the result of existing racial inequities that student debt then compounds. For example, about half of all U.S. undergraduates are people of color, yet Black and Latino students are severely underenrolled in selective colleges and universities, which have a higher return on investment and more financial resources to support students. At the same time, a disproportionate share of Black students enroll in for-profit colleges, which produce worse outcomes for their students. And, in fact, three out of four Black students who attend for-profit colleges without graduating wind up in default.

No. 5: Targeting debt cancellation to those who struggle the most is possible. Policy makers and others have recommended ways to ensure that the borrowers who struggle the most are prioritized. Here are some existing proposals:

• The Center for Responsible Lending proposes canceling at least $10,000 of debt per student borrower, as statistics show that borrowers with balances of $10,000 or less tend to have the highest default rates and lowest incomes. The center’s plan would eliminate all student debt for 40 percent of the 29 million borrowers in repayment.
• Senator Elizabeth Warren has proposed forgiving up to $50,000 of debt for borrowers with incomes below $100,000. Borrowers with incomes between $100,000 and $250,000 would be eligible to cancel a lesser amount. This plan would eliminate debt for 95 percent of borrowers.
• The Education Trust has backed recent proposals to cancel $20,000 or more of debt because we believe that the amount forgiven should be large enough to make a difference in the lives of students of color and students from low-income backgrounds. The National Consumer Law Center seems to agree. It suggests that the more “debt canceled, the better off vulnerable student loan borrowers will be and the more they will be able to participate fully in our economy.”

The pandemic did not create this crisis, but it is highlighting the economic fragility that the current generation is experiencing, in part from the burden of student debt. It took just weeks for over 47 million people to file for unemployment, but it will take far longer for them to regain some modicum of economic stability, especially if a higher education remains out of reach and debt continues to stifle progress.

That is why any policy response to the COVID-19 crisis should include debt cancellation. We should think of it as an opportunity to rebuild the economy -- this time from the bottom up.