Student debt "feels like quicksand." Is loan forgiveness the answer?
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By 2015, Lauren Quinn had borrowed $49,996 in federal student loans to pursue a master's degree in education at UCLA. But after almost five years of making monthly repayments tied to her income level, she is confronted with a total balance of $56,497.02 — about $6,500 more than the original amount due to compounding interest.
"It's just another day older, deeper in debt is how I feel," said Quinn, a public high school teacher in Los Angeles. "It just feels like quicksand. It feels like this huge thing I'll never get out from under."
She has paid a total of $9,621.96 since 2016, but only $97.02 of that has been applied to her principal balance.
Quinn is among the 42.9 million Americans who had federal student loans as of last year, according to the National Student Loan Data System. Meanwhile, Federal Reserve Board statistics show outstanding student loans overall have swelled to $1.7 trillion, surpassing the nation's auto loans and credit card debt.
Seth Frotman, executive director of the non-profit advocacy group Student Borrower Protection Center, characterized the current state of student loans as a "quiet crisis."
"Maybe unlike the mortgage crisis where you could see down the street there used to be a house owned by your neighbor that's now owned by the bank, there isn't this visual, tangible thing you could see when your neighbor defaults on a loan or your neighbor's struggling to save for retirement because their student loan bill just never seems to go away. And I think that has also hampered our ability as a country to actually tackle both the root causes of this crisis and the fallout it's had on American families," Frotman said.
The fallout for Jeremy Porter has been the delay in purchasing a home and possibly growing his family.
"I feel that the student loan debt, my student loan debt, personally is very crippling," Porter said.
Porter originally took out $21,900 in federal student loans to attend Delta State University in Mississippi. But now over seven years later, his total balance has grown to $30,443.93. He did not complete his undergraduate program, but through the national workforce development program Year Up, Porter was able to connect with an internship in Virginia and eventually rise up the ranks to become a senior telecommunications officer at the same company.
"A lot of times I've had to defer just because it's either make these payments or pay my rent. And of course you have to have a roof over your head," Porter said.
The push to forgive student debt
Democratic lawmakers including Senator Chuck Schumer, Senator Elizabeth Warren and Representative Ayanna Pressley, among others, have called on President Biden to forgive $50,000 in federal student loans by executive action, citing research showing such cancellation would help close the racial wealth gap and stimulate the economy, especially during the COVID-19 pandemic. Mr. Biden has indicated he favors a $10,000 debt cancellation through legislation.
Princeton sociology professor Frederick Wherry and Charlie Eaton, an assistant professor of sociology at UC Merced, helped draft an open letter asking Mr. Biden to "right a series of wrongs" by using executive action to cancel student debt. More than 1,100 other academics who study higher education, student debt, and racial inequality signed on.
"Part of this is just recognizing the humanity of debtors, recognizing that they had ambitions when they took out those debts to go to college, and asking ourselves what would happen if they got a fresh start," said Wherry, who is also the director of the Dignity and Debt Network.
"If we want to right the wrongs of the student loan problem… one of the ways to right that wrong is to say, 'Sorry, we messed up,'" Wherry said. "This would be a moment for the federal government, President Biden, to say, 'We had a great idea. It started out with the best of intentions, and it went off the rails. So because we messed up, it is time for us not only to ask for forgiveness, but to extend forgiveness."'
Despite a decrease in annual borrowing overall in the last decade, outstanding student loan debt has more than doubled to $1.7 trillion over the same period.
Eaton, whose upcoming book "Bankers in the Ivory Tower" explores the influence of financiers in higher education, said, "I think it's fair to ask the question, do we really want the secretary of education to be effectively the CEO of the largest consumer bank in America?"
Racial disparities and student debt: A "two worlds issue"
Wherry also stressed the disproportionate ways the student loan system burdens Black communities in particular, calling it a "two worlds issue."
According to the Consumer Financial Protection Bureau and 2011-12 data from the U.S. Department of Education, over 90% of Black undergraduate students leave college with student debt, compared to 66% of White students.
"Having grown up in South Carolina, the one thing that I would hear over and over again as a young Black kid was, 'Get your education. It's the one thing they can't take from you.' So you were supposed to do whatever it took, and the family was willing to do whatever it would take in order for you to get your education, which required debt," Wherry said.
According to a 2016 Brookings report, Black students owed about $7,400 more on average than White students upon graduation, but the debt gap more than triples to $25,000 after four years. Black borrowers are also more likely to default, and they are more likely to enroll in for-profit institutions for graduate school degree programs.
Frotman said the industry "targets" borrowers of color.
"We've seen cases about how for-profit schools engage in [reverse] redlining practices, particularly offering worthless degrees into the hardest-hit communities. We see how student loan servicers will fail to get borrowers of color into critical consumer protections, leaning them more prone to delinquency and default. This happens over and over again where it's not only more debt, it's how the student loan industry drives needless interest, fees, predatory products that just makes the student debt crisis even worse," he said.
Rising cost of education
Among the factors contributing to the growth in student loan debt is the surging price tag of higher education. Between 2007 and 2017, the cost of undergraduate education at public institutions (including tuition, fees, room and board) rose by 31%, adjusting for inflation, according to the Department of Education. At private nonprofit institutions, prices rose by 23%.
"The one thing that [colleges] could count on was the fact that the demand for education was not going to go away. So long as the federal government's backing those loans and you've got this really robust market to provide those loans, whatever your expenses are or what they are, the students will still come," Wherry said. "That is exactly what happened, and they have come into situations where there are some beautiful dorm rooms now across all these colleges, great athletic facilities, etc., but at a very high cost."
On top of the rising prices, if student debt cancellation were to become an additional factor, economist Beth Akers of the conservative think-tank American Enterprise Institute said she would be concerned. Students may be inclined to borrow more or go to a more expensive institution due to the likelihood that loans might be forgiven in the future, she said.
"We take discipline off of individuals to make good decisions about their finances. And then the result of that is that we get institutions lacking the pressure from their student borrowers to keep prices in line with value," Akers said.
The cost of forgiveness
Some critics of cancellation proposals point out that student debt forgiveness programs currently exist within the federal financial aid system.
"It's a solution that ignores the solution that's already in place," Akers said. She pointed to income-driven repayment plans, which forgive remaining balances after 20 to 25 years of qualifying monthly payments, and the Public Service Loan Forgiveness program that forgives after 10 years of qualifying payments. But Akers acknowledged they are implemented "very poorly," and aren't available to all borrowers.
Recent data obtained by the National Consumer Law Center showed only 32 individuals have actually received loan forgiveness since the launch of the first income-driven repayment plan in 1995. The policy and advocacy organization estimates that approximately 2 million borrowers have been in repayment for at least 20 years under the various income-driven repayment plans.
Akers also argues that widespread cancellation would offer "a lot of benefits to people who are already doing quite well in this economy."
Brookings analysis of Federal Reserve data showed households with master's, professional or doctoral degrees owe 56% of the nation's student debt. Their median household earnings are approximately $72,000, $111,000 and $101,000, respectively, according to 2019 U.S. Census Bureau data.
Additionally, critics like Alexander Holt, a policy analyst at the Committee for a Responsible Federal Budget, make the case that blanket cancellation of student debt would present a "moral hazard" and is "not a good use of taxpayer dollars."
"There's a cost to forgiveness. It depends on the cancellation policy being proposed, but it's either hundreds of billions of dollars or up to a trillion dollars," Holt said. "That cost adds to the federal debt. So ultimately, taxpayers are responsible for the federal debt."
He added, "If we were to cancel student loans, we are basically making a decision to provide relief now and have some future generation pay for it later. That's particularly egregious since we're also saying we're not going to change any parameters of the student loan system."
Holt said lawmakers should be considering policies that "help people at the lower end of the income spectrum, especially now" during the pandemic. "Those tend to be the people who didn't go to college, who didn't take out any debt," Holt said, and they make up a majority of the U.S. population. Statistics from the U.S. Census Bureau show 64% of people over the age of 25 do not have a bachelor's degree or higher.
"No silver bullet"
While payments of federal student loans are currently suspended due to COVID-19 emergency relief measures, and the interest rate is at 0% until at least September 30, 2021, outstanding student debt still looms over about 1 in 8 Americans.
"There's no silver bullet for a $1.7 trillion crisis," Frotman said, adding that the issue needs to be tackled "from all angles."
"We need to enhance the consumer protections, so student loan borrowers are no longer second-class citizens being forced to deal with abuses that people with a mortgage or credit card don't have to face," Frotman said. "We need to improve the Department of Education to ensure that they're actually doing a much better job overseeing these programs. We have to make college more affordable for the next generation, so we're not just dealing with this in another five years. On the table needs to be reducing, canceling debt for millions of people across this country who have been held back because of it."
In a statement, the Department of Education told CBS News:
"To strengthen this country and our global competitiveness, we must ensure that students can enroll and graduate from college without the fear of lifelong debt all students deserve access to a high-quality, affordable education that equips them with the skills to succeed. To fulfill that goal, the Department of Education must act to protect students from institutions that take advantage of their postsecondary investments — particularly when it is financed with federal financial aid. The same goes with the companies that service or hold federal student loans. Borrowers deserve world-class service that makes it easier for them to manage their benefits. When they do not, there must be consequences. The fact that students of color are disproportionately likely to have student loans or have attended colleges with credible accusations of misconduct further highlights the importance of strong protection.
"We have taken the first steps to uphold these promises when the Department announced a change that will grant some 72,000 borrowers a fresh start after their colleges engaged in misconduct. That is just one step. This work will continue as the Biden-Harris Administration is committed to providing opportunities to all students."
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