Biden’s student loan forgiveness necessary, but still not enough

Friday, Aug. 26, 2022 | 2 a.m.

Kudos to President Joe Biden for fulfilling his campaign promise to give a helping hand to the millions of people across the country saddled with student loan debt. The president’s announcement on Wednesday of a one-time forgiveness of up to $10,000 for anyone who makes less than $125,000 per year is a welcomed bit of relief for a generation of recent graduates who have seen their debt burdens skyrocket.

Critics have already attacked the plan from multiple angles including “giveaways to the wealthy” and “freebies for entitled young Americans.” These critiques demonstrate a fundamental lack of understanding of both the debt in question and the proposed forgiveness, which, to repeat, is only available to people making $125,000 or less.

Even after adjusting for inflation, the cost of tuition and fees at a four-year public college (read as “less expensive”) roughly doubled (a 100% increase) every 10 years between 1990 and 2020.

For comparison, tuition and fees increased by only 50% in the decade between 1980-1990 and decreased in the decade between 1970-1980.

Given that during that same 50-year time span since 1970, inflation adjusted wages have remained essentially stagnant, a low-wage student wanting to pay their own way through an undergraduate degree program in recent years would need to work four times as many hours as a student in 1970.

And that’s just the cost of tuition and fees. It doesn’t consider that the cost of housing has more than doubled, even after adjusting for inflation, or that the cost of other essential services such as health care and insurance have outpaced inflation as well.

Traditional students who graduated in the last 20 years also have the unfortunate distinction of trying to start their careers during both of the two largest recessions in modern U.S. economic history. In less than 15 years they have experienced a decline in gross domestic product of greater than 5% and 10% unemployment ... twice. For comparison, prior to 2007, the last time unemployment was greater than 10% at the same time that declined by 5% or more was 1948.

In other words, despite the claims of some critics of debt forgiveness, college graduates in the last 20 years have, on average, faced a significantly more difficult economic landscape than the two generations that came before them.

All of which is to reiterate that a one-time, $10,000 forgiveness of student debt, is a welcomed decision that the Biden administration should be lauded for.

And yet, critics are correct to point out that one-time forgiveness does not solve the student-debt crisis in any meaningful way.

It doesn’t address the rising cost of tuition and fees. It doesn’t make services like health care more accessible to low-income students. And it doesn’t reduce interest rates or expand access to grants or interest-free subsidized loans.

As we wrote in our Aug. 7 editorial “Cut the profits out of student loan debt, tie interest rate to inflation,” Biden’s current approach of limited forgiveness simply kicks the can down the road to future generations of student borrowers.

In that editorial, we argued that the Biden administration should retroactively reset and recalculate all interest on current and future student loans to the federal inflation rate, making students responsible for paying back their debts, but limiting the government’s ability to profit on the backs of students. The interest on loans from private, for-profit lenders should be similarly restricted, but with a small annual service fee.

That one change would enable more than a third of all borrowers to start paying down the principal on their loans instead of just servicing interest on their debt.

Biden should also expand access and availability to subsidized, interest-free loans for low- and middle-income students; streamline and expand forgiveness programs such as the public-service and public-interest loan forgiveness programs that incentivize students to fill needs and gaps in low-income communities; and provide pathways for low- and middle-income students to have a lower cost of attendance — whether through expansion of Pell Grants or new programs such as subsidized public housing or food subsidies.

But if he really wants to tackle this problem in the long term, Biden’s administration should institute incentive programs for public higher education tuition and cost controls.

According to the Congressional Budget Office, a 1% corporate tax hike would generate more than $10 billion in annual revenue — even more if tax loopholes are eliminated. That’s a significant pool of money.

Congress could earmark that money specifically for public institutions of higher education and tie access to specific benchmarks that reduce the cost of attendance. Examples might include tuition reduction, increases in need-based scholarships, funding of programs that provide food or housing assistance to students and basic cost controls such as caps on the egregious public-employee salaries earned by coaches and some administrators. This would create opportunities for schools to increase their budget while simultaneously decrease the debt burden of their soon-to-be graduates.

This makes sense not only from a public policy standpoint but from an economic cost-benefit standpoint. American corporations benefit the most from a highly educated, highly skilled workforce and from the spending of higher-income consumers. It makes sense to have a reasonable corporate tax to fund higher education.

And each of these actions would help ensure that college graduates are able to participate fully in the U.S. economy sooner, ultimately benefiting the economy as a whole.

The nation has a powerful vested interest in making higher education available and affordable for all because it drives innovative economic activity. When China wanted to enter modern economies, subsidizing higher education was critical. And the GI bill is what drove 50 years of economic expansion in the US after WWII — higher education is the key to modern economies

No matter what comes next, we applaud President Biden for taking significant action on student loan debt. But it is clear that more action is needed if we are to avoid returning to the student debt crisis in a few years from now.