Student loan forgiveness has dominated headlines over the past six months. Largely, I’ve seen back and forth arguments about the legality of debt forgiveness, and whether the President has the authority to single-handedly offer it. Economists argue over the value of forgiveness and if it will stimulate the economy. Even those who agree that forgiveness is an option end up debating how much debt forgiveness should be offered: From $10,000 to full forgiveness. Well, I think these debates are pointless.
Debt forgiveness through executive order does nothing to solve the college funding crisis that students face.
As the argument stands today, people believe at the heart of the student debt crisis are generations holding too much debt and an inability to get out from under it, even with a degree. If this is the case, how does an executive order waiving the debt stop future generations from getting into the same situation? It does nothing. The action and timing feel arbitrary to borrowers. Causing frustration and confusion for those who have already paid off debt or will accumulate new debt come September. Therefore, executive action is not an acceptable response to the current student debt crisis.
We need actionable funding reform if we want to ensure the same debate is not raging again in 20 years.
We talk about total indebtedness, default rates, average monthly payment and ability to repay. But all of these are symptoms of what many say is a broken student lending process. If we do not want these symptoms to return, then we need to acknowledge the root issue.
If students, on average, hold too much debt and it is crushing them in every stage of life, we owe it to them to change the system that has generated the symptoms we are seeing today.
So how do we begin treating the disease and not just the symptoms?
Let’s start with speaking the same language.
There are two very different conversations being muddled into one. The first is around the financing of certificates — associates or even a bachelor’s degree; and the second is focused on funding an advanced degree.
Those not familiar with the data or the problems associated with student debt often report items that inappropriately combine these two conversations. Knowingly or not, this only confuses and misinforms politicians and the public. The Higher Education Act regulates federal student loans. These are all offered through the Direct Lending program, where the Federal Government is essentially the loan holder and guarantor of the loans. Interest rates, origination fees, and borrowing limits are established through legislation, not at the whim of colleges or businesses.
If students are borrowing too much for college, then we should reduce the annual and aggregate loan limits established to protect them from this risk in the future. I warn those considering this that the direct lending program is indeed a loan program that grants access to higher education by providing a funding vehicle, regardless of credit history or income. Lowering borrowing limits alone would result in reduced access to higher education for low- and middle-income families. Reduced loan limits would put college out of reach for many students.
I’ll save the debate about graduate funding for another time, but the graduate Plus program has allowed student borrowers to game the system and obtain unlimited loan dollars to finance advanced degrees. Students in these programs, when not isolated, can significantly skew data and information about student debt.
The old axiom that “he who benefits, pays.”
As of 2019, only 8% of employers offered student loan repayment assistance to employees but 65% of jobs require an education beyond a high school diploma. Employers reap massive benefits from the knowledge, skills, and experience college-educated students bring to the workforce. So, I find myself asking why businesses are not paying their fair share toward the cost of the education they benefit from?
Perhaps, mandatory student loan assistance for jobs that require a degree is a smarter solution: Take, for example, the average student who graduates with a 4-year degree holds an average of $30,000 in federal student loans. Implementation of a mandatory employer contribution of $1,500 per year paid directly to the loan holder over the standard 10-year repayment cycle would result in a 50 percent payment reduction for the student; Half of the loan being paid by the student and half by the employer. As degree requirements escalate into a Master’s degree or Ph.D., the minimum employer obligation would increase. Contributions could be paid much the way employer contributions are made to 401k programs.
Employers who are resistant to the idea could instead choose to hire students who have a high school diploma and invest the necessary resources to provide on-the-job training. Basically, they would absorb the cost necessary to educate employees on both the soft and hard skills they acquire currently during their college education. Very quickly, businesses would realize that the investment in student loan assistance is a far better deal.
So, what now?
Regardless of the solution identified, we need to realize that debt forgiveness with no underlying change to the funding model of higher education is a short-term solution that addresses merely the symptoms of the disease. If we really have a student debt crisis, then we need to look at the system that has allowed this crisis to come into existence and fester amongst entire generations of college-educated Americans.