Student Debt Debate Has Implications for Everyone

​The debate over canceling federal student loan debt is ongoing, with few indications that a resolution is coming soon. In the meantime, high education costs have left students and workers struggling to pay off loans through complicated government cancellation programs and employer-based loan repayment services.

The High Cost of Education

Millennials and members of Generation Z have seen education costs skyrocket. Dan Price, Internet entrepreneur and CEO of Gravity Payments, tweeted last week that Millennials (adults whose ages range between 25 and 40) currently hold 4.8 percent of U.S. wealth. By comparison, at the same age, Generation X had 9 percent of wealth and Baby Boomers had 21 percent. Price noted that Millennials, spurred on by the notion that they've had to become the most educated generation to compete, have become the poorest generation in history. Much of this cohort's debt stems from student loans.

A former executive for a major loan servicing company who wished to remain anonymous stressed that the root of the problem is the cost of education. "Why is school so expensive? That's what no one wants to talk about. The lender won't [talk about high tuition] because they rely on relationships with schools, and the schools get to promote who they think you should borrow through," she said.

According to data from the U.S. Bureau of Labor Statistics, college tuition and fees have increased by 1,200 percent since 1980. EducationData.org, which collects and reports information on the U.S. education system, found that the average cost of attendance—which refers to the total cost of tuition, fees, books, supplies and housing—for a student living on campus at a public four-year, in-state institution is over $103,000 for four years. Out-of-state students pay an average of $175,000 for four years at a public institution, while private-university students pay about $216,000. But only 39 percent of students graduate in four years.

A 2019 study by the Center on Budget and Policy Priorities revealed that cuts to public funding for colleges and universities have substantially contributed to tuition increases. Four-year private colleges saw average tuition and fees jump 26 percent between 2009 and 2019, while four-year public colleges saw fees increase by 35 percent over the same period.

Meanwhile, lending is a bit of a vicious cycle: Congress increases the amount of money that students can borrow, but then colleges gradually bump up tuition prices to match that amount.

"Congress keeps raising the amount, which is great because it makes college more accessible to everybody," the executive said. "But somebody has to pay the bill at the end of the day, and it's the student. They're literally children when they're deciding these things."

The Cancellation Debate

It is still unclear what actions President Joe Biden might take on student loan debt. Although White House Chief of Staff Ron Klain said in early April that the president might be open to canceling more than the $10,000 per student that he had previously discussed, advocates are still awaiting an announcement.

In early May, U.S. Secretary of Education Miguel Cardona said the pause on most federal student loan payments and interest could extend beyond its current expiration date of Sept. 30, but he made no commitments.

In a possible sign that change could be coming, Cardona announced that Richard Cordray, former Consumer Financial Protection Bureau director, has been named chief operating officer of federal student aid in the Education Department. Cordray has been a frequent critic of the student loan industry.

Still, Biden appears to prefer that Congress pass a bill over taking executive action. But congressional Democrats are pushing back, urging the president to be the one to act. In the past several weeks, they have been focusing on how this debt crisis is impacting particular groups rather than the U.S. population as a whole. Senate Majority Leader Chuck Schumer, D-N.Y., recently pointed out how student debt is severely impacting veterans.

According to the Student Borrower Protection Center, about 200,000 service members owe nearly $3 billion in student loans. But as of November 2020, a little over 17,500 of them had begun the process of having their loans canceled under the Public Service Loan Forgiveness (PSLF) program.

In early May, Democrats in Congress wrote a letter to Cardona, urging him to loosen restrictions on the PSLF program. Created in 2007, the program enables public-service workers—including first responders, members of the military, teachers and health care workers—to have their loans canceled after 10 years of service. However, various loopholes in the program have disqualified certain types of loans, repayment plans and the payments themselves, noted lawmakers.

The Education Department has taken steps to improve the PSLF program by streamlining the application process, posting more detailed information online and revisiting its payment rules. However, Democrats are pushing for Cardona to invoke the Higher Education Relief Opportunities for Students (HEROES) Act of 2003, which provides authority to do more.

No End in Sight?

With the high cost of education, questions about whether any relief is coming from Washington, and so much red tape to work through to access the relief that is already available, loan servicing companies and the government would do well to provide borrowers with better guidance on how much they might owe once they graduate. Students should get a better idea of how much they will ultimately owe depending on their major and school, said the former loan company executive who wished to remain anonymous.

"Interest starts accruing the day that you get the loan," she said. "So, while you're not having to pay for it, your interest is ticking up. For example, I was looking into going to law school a few years ago. Borrowing was said to be about $150,000. But by the time I graduated in three years, it would have ballooned to close to $250,000."

Workers can also take advantage of student loan repayment benefits if their employers offer them. These benefits had been on the rise before stagnating in 2020 due to the COVID-19 pandemic. The Society for Human Resource Management, an advocate for these programs, expects more companies to offer them once the economy returns to pre-pandemic levels.