Viewpoint: Cancel interest on student debt, not principal

Viewpoint: Cancel interest on student debt,  not principal

Karen Rubin, Columnist

After two years of putting a moratorium on paying off student debt, President Biden announced that $10,000 of outstanding student debt would be forgiven for those earning less than $75,000. It is a reasonable, fair and productive solution.

Americans owed a collective $1.71 trillion in student loan debt as of December 2020, according to the Federal Reserve, more than twice the $845 billion owed in December 2010. Some 45 million people have outstanding student loans; the median amount for those who graduated from a four-year school amounts to $28,400.

Progressives, including Bernie Sanders, Elizabeth Warren and Alexandria Ocasio-Cortez,  argued emphatically that student debt is the largest single category after home mortgages; that a disproportionate number of those with outstanding debt are people of color, from low-income backgrounds, and a sizable proportion of whom never actually finished college in order to get that bump in income – the return on investment – student loans were supposed to bring.

Proponents like to say that forgiving that much debt would stimulate the economy – free up young people to purchase their first home (instead of being forever beholden to a landlord), take a job they loved that might not pay as well. In fact, student debt is possibly the only kind of debt that cannot be forgiven by bankruptcy or even death (your survivors will still have to pay up). Some proposed to allow bankruptcy to discharge student debt.

I was not in favor of canceling student debt (though $10,000 seems a reasonable amount), favoring instead expanding and improving upon what former President Obama put in place – reasonable ways to pay it back or earn loan forgiveness.

People who work in public service jobs can have their loans forgiven after 120 loan payments (but I understand that the program is so full of red tape and poorly run that very few have been able to take advantage). Some teachers can have up to $17,500 forgiven after five years of teaching. Nurses can have up to 60% of nursing education loans forgiven, followed by another 25%.

Income-driven repayment plans – an Obama initiative – are available that allow loans to be forgiven after 20-25 years of income-based payments, so that the payments are not onerous. Military members can have up to 100% of their loans forgiven. Medical doctors and lawyers have multiple options for forgiveness. AmeriCorps service members can have 100% of their loans forgiven.

Also, there is a difference between the student loans that were fair (in fact, I was able to take advantage of Sallie Mae, where I paid off a year’s tuition monthly at no interest at all) and those that were exploitive with usurious terms. Just about all other loans can be restructured. The administration should create a fair way to restructure student loans, recalculate the interest accrued on the loan based on the low rates that were prevalent, and allow refinancing or restructuring at better rates. In other words, forgive the interest, not the principal.

Improving on these programs would be a much fairer and more productive (win-win-win) solution.

But no one questions why student debt is so high, and why college tuitions rise each year at multiple times the rate of inflation (like health insurance premiums and drug costs).

People point out that forgiving student loans is unfair to those families that scrimped and saved so that their child could graduate debt-free, those students who worked one, two or three jobs while attending school, and while you’re at it, why not forgive medical debt, too, which is beyond crippling?

Also, student debt forgiveness is basically a bandage that does not address the actual problem of out-of-control tuitions and may even incentivize colleges to continue to raise tuitions at multiples of the cost of living, having nothing really to do with the cost of delivering education.

Besides the fact that state governments have shortchanged public universities, forcing them to make up the difference with higher tuition, tuitions are high because they have become a certification of a school’s prestige – a highly ranked school actually can’t afford to have a lower sticker price than a “lesser” ranked school. Colleges are a consumer product, a brand.

But what some have done (out of some level of social conscience) – like Yale, Harvard that have endowments greater than the GDP of some nations – is to offer “need-blind” acceptance, where theoretically the student is accepted based on merit and then the college figures out what to charge based on the student’s means. Increasingly, instead of student loans (which need to be paid back), the richest colleges are offering outright grants based on need. The ones who pay full freight are those who can best afford it and likely were only admitted as a legacy anyway. This actually seems like a fair solution.

But the high cost of tuition may finally have caught up with colleges. Ironically, partly as a result of COVID, students are now rethinking the cost-benefit of college tuition altogether. And many more jobs – including millions created by billions worth of infrastructure investment, as Biden loves to stress, do not require college degree. Apprenticeships and vocational training and re-training are alternatives. (Look at what happened to solve the trucker shortage that was impacting supply chain and causing inflation.)

More than 1 million fewer students are enrolled in college now than before the pandemic began. U.S. colleges and universities saw a drop of nearly 500,000 undergraduate students in the fall of 2021, continuing a historic decline that began the previous fall, NPR reported on “Morning Edition.”

“The phenomenon of students sitting out of college seems to be more widespread. It’s not just the community colleges anymore,” said Doug Shapiro, who leads the research center at the National Student Clearinghouse, where the new data comes from. “That could be the beginning of a whole generation of students rethinking the value of college itself. I think if that were the case, this is much more serious than just a temporary pandemic-related disruption.”

Overall, enrollment in undergraduate and graduate programs has been trending downward since around 2012, but the pandemic turbocharged the declines at the undergrad level, NPR reported.

It used to be said that a college degree would net you $1.9 million more in lifetime earnings than a high-school diploma. But wages at the bottom rungs are rising. Indeed, a big focus of Biden’s Infrastructure Act, his Build Back Better agenda implicit in his investment in Climate action, is to create millions of well-paying jobs that do not require a college degree.

Indeed, a report by the Georgetown University Center on Education and the Workforce found that more education doesn’t necessarily net you higher earnings. Roughly 16% of high school grads earn more than many workers with a college degree.

Food for thought.

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