Thanksgiving is coming. Need some cannon fodder for a rousing back-and-forth dinner table conversation?
Try floating this balloon: Student loan debt relief. Then sit back and watch as the hot potato is tossed.
Rampant inflation in the cost of a college education—up more than 65% since 2000, according to Best Colleges—has naturally led to a meteoric rise in student loan debt. For many, paying off the debt has become an albatross. Large numbers of debtors literally see no way out and are unable to keep up with the loans, while at the same time they are trying to start a working life and become productive members of society.
As part of his campaign in 2020, President Joe Biden promised to pursue extensive debt forgiveness for many of those struggling to repay their student loans. Despite encountering roadblocks, including a 6-3 Supreme Court decision declaring the debt forgiveness plan was unconstitutional, Biden, in the nearly four years since he took office, has managed to relieve more student loan debt than any other previous administration. As of July, he’s erased $168.5 billion in debt for 4.76 million borrowers.
And, like just about everything in America these days, the student debt relief issue has become polarizing.
Dr. David McCuan, professor of political science at Sonoma State University, says the issue of student debt relief is a classic case of politics. The controversy, he says, boils down to two things.
“One is the increased costs of college,” he explains. “And the other aspect is you cannot remove this [debt forgiveness] from the politics of today. While the president is not running for reelection and some may consider him a lame duck, the student loan issue is absolutely framed by the politics of the 2024 election.”
Costs of education rising
Let’s face it. A higher education today is much more expensive than in the past. The cost of earning a degree from a four-year institution is up 747% since 1963, has outpaced inflation by three times in the last 40 years and, since 2010, has risen 12% annually, according to Education Data Initiative (educationdata.org) which collects data and statistics about the U.S. education system.
Part of the reason, says McCuan, is that higher education spending has become much more discretionary in both state and federal budgets, leveling off at the federal level and declining at the state level.
The rising cost of higher education is similar to the housing market, says Dr. Robert Eyler, interim associate vice president of government relations and professor of economics at Sonoma State University.
“It’s very similar to housing markets in the sense that, as housing prices have gone up, it costs more to borrow in terms of just getting in the door. Ten years ago you could have borrowed half as much as what you need to borrow today to buy the same place. Because of the escalating costs of going to school, you have more financial risk in nominal terms than you did 10 years ago. A lot of that is how you see your income rising alongside the cost of school. If your wage or salary is increasing along the with the pace of local housing costs, you may not feel like you’re getting behind in terms of moving from a renter to a homeowner,” Eyler explains. “School is kind of the same thing. If you do not see your ability to generate income on the other side of getting your degree keeping up with the cost of what getting the education is going to be [the total cost of the debt based on the interest you’re going to pay] versus the other things you have to pay for, the rise in that base number—what you’re basically borrowing to buy—is going to force that final number farther and farther out for you to ultimately pay off.”
The higher cost “certainly has a role to play in pushing people closer to the edge,” Eyler says. “But that’s something people need to take into account when they go to school and borrow money to do that.”
Politics
Although the courts denied Biden’s initial federal student loan debt relief plan, the Department of Education in late July came out with a revised program, sort of a “Plan B.”
“They’ve tried to come out with a new policy in response to what happened in the courts. The White House is making a pitch to forgive student loans based upon eligible criteria in order to boost up the exposure to that issue, especially among 18- to 34-year-olds [a key electoral demographic],” McCuan says. “Progressives and liberals will like it…and conservatives will rail that it’s irresponsible.”
One can’t overlook the timing. The new plan will automatically cover all who are eligible, unless they choose to opt out of the relief. To opt out, they must have contacted all their loan servicers by Aug. 30.
“Debtors won’t enter repayment until the rules are finalized and that will take place in the September/October timeframe, right in time for the election,” McCuan says.
The new plan will appeal to what McCuan calls the Rising American Electorate (RAE), principally those ages 18 to 34, who are changing the political landscape. “This group has more women than men, is more liberal than not and is more urban than not—but affordability, costs and concerns about their pocketbooks percolate this demographic and this electorate.”
Who is eligible?
The new proposal limits eligibility only to those who have already begun to repay their loans and only under the following circumstances:
- Borrowers who owe more than they did at the start of repayment.
- Borrowers who first entered repayment many years ago—on or before July 1, 2005, for undergraduate loans, and on or before July 1, 2000, for those with at least one graduate loan and undergraduate loans.
- Borrowers who are otherwise eligible for loan forgiveness but have not yet applied, explained as someone who has not enrolled in an income-driven repayment (IDR) plan but would be eligible for relief.
- Borrowers who enrolled in low-financial-value programs, meaning they attended an institution that failed to provide sufficient financial value or one that failed Department of Education accountability standards for institutions.
The new proposal is quite detailed in amounts it will forgive based on specific criteria, including income levels—those earning $120,000 or less per year individually or married filing taxes separately; $180,000 or less per year for those filing as head of household; and $240,000 or less per year as married borrowers who file joint taxes or a qualifying surviving spouse.
Economics of aid
Eyler says the current state of controversy regarding student debt relief comes from two competing economic perspectives.
“One perspective says it’s good to relieve people of debts in which they got themselves into
tough terms on credit deals in the first place and they have buyer’s remorse,” he explains. “This basically cleans that up and gives them an ability to rework what they do with that money [to pay off the debt], like spending it on a new car, moving into a home or potentially having a child.”
Having the debt hanging over their heads while the interest just keeps growing means many just can’t keep up with the payments. “Debt relief takes away the problem and allows them to have a better economic life. That’s how the Biden Administration sees it. The government can provide relief because they’re too far behind. It’s a social assistance package.”
But the flip side of the coin, in many people’s minds, “is that you are rewarding people for taking on debt, maybe not finishing their education or not getting an education best suited for the labor market and it should be on you if you didn’t think about the implications of the debt you took on,” Eyler notes. In other words, “you’re rewarding people for making poor decisions. That’s the crux of the right-wing political argument.”
Those who paid
Eyler points out that he borrowed money to get both his undergraduate and graduate degrees and he paid it off. There are millions more who have done the same and they have a valid argument, which he explains:
“Now you’re saying that somebody who went into the situation with no idea that they would be able to have their debt relieved suddenly gets a check that washes away that debt,” he says. “Where does that leave me as someone who borrowed money to go to school and did the right thing by paying off the debt and not defaulting on it ever? Why am I the unlucky one? I’m not getting a retroactive check.”
Another question that conservatives have, says Eyler, “is why are we using taxpayer dollars [for the relief]? Couldn’t we use these tax dollars for something else instead of giving them to these folks who took out the risk and should bear the brunt of the risk? It’s a hot-button item.”
There’s also the economic argument regarding how student loan relief, if provided now, will impact how people will make decisions going forward, Eyler says.
“Is this just a one-time deal or can people now look at higher education and borrowing to do it with less risk? And will that drive people to make the decision to borrow?” Eyler asks.
Investment in people
Many of the people wallowing in student loan debt are those who were unable to complete their degrees due to family circumstances or other “life happens” issues. Hence, they are underemployed and not earning enough money to pay the debt. Eyler says the Biden Administration’s push on providing relief is “the idea that we’re making an investment in people to get them out from under the economic burden of that debt or removing that cost so they actually can complete the job and get their degrees.”
Personally, Eyler believes the best program would be to offer debt relief only to those who agree to complete their education. He’s not in favor of a “no strings attached” approach.
“The worst-case scenario is to say to someone: ‘Look, you took on debt and you have these interest payments. We’re going to relieve you of the payments but we’re not going to put on any strings that you have to complete the degree for which you borrowed the money in the first place.’ I’ve always thought there should be a good carrot-and-stick approach. The carrot is you get the relief; the stick is that you have to make a choice to get the degree and get the job done so we actually have a more educated workforce out there, which was the whole point of you going into higher education in the first place.”
‘Byzantine’ loan system
While the debt relief package is itself complicated, it’s exacerbated by the current student aid system, which McCuan describes as “Byzantine”—highly complex and intricate, requiring a great deal of administrative attention. Financial aid officers at local colleges and universities try to make the process as streamlined as possible, but recent changes in the Federal Application for Student Aid (FAFSA) have resulted in confusion, delays and unnecessary redundancy.
The Department of Education decided to overhaul FAFSA last year for the 2024-2025 school year. When the new system was introduced in 2023, it was delayed two months and even then “it kept crashing,” says Rachael Cutcher, financial aid director for Santa Rosa Junior College. Nearly a year later, Cutcher says it’s still in disarray. Shannon Little, director of financial aid at Sonoma State University agrees. “The Department of Education wasn’t really ready and [the new FAFSA] roll-out was rocky to say the least,” she says.
“The new [system] messed up everything for borrowers and students,” McCuan says. “And it gives the impression that the higher education finance system is completely broken. Therefore, what is difficult to navigate, whether you’re on the liberal or conservative side of this, is fixing a student loan system that is broken. It’s similar to what we see with comprehensive immigration reform and other issues that are percolating in public policy this election year. All of these things are part of a broader set of circumstances that are a challenge to solve. It’s not strictly on the Biden Administration. Many of these things have been going on a long time.”
Getting aid
There are myriad financial aid packages available to students and navigating the system can be challenging, but professionals like Cutcher and Little and their respective staffs are readily available to help.
It all starts with the FAFSA application, Cutcher says, and then branches into alternative aid sources if students are ineligible for federal aid for one reason or another. For instance, the California Dream Act is an aid program for undocumented or “dreamer” students. There are Pell Grants (federal) and CalGrants (state). There are parent loans and private loans. And then there are scads of scholarship programs, including SRJC’s Doyle Scholarship, which Cutcher describes as “nothing short of amazing.” First awarded in 1950, the Doyle Scholarship Program has benefited more than 140,000 students at SRJC, with awards totaling more than $100 million.
While much of the application process is automated, the challenges with the new FAFSA system have required more human intervention, with some information needing to be submitted manually and in duplicate.
“Financial aid officers are finding we need to be resilient, flexible and patient and we try to also impart that to our students,” Cutcher says. “We want to make it right for them, but it is taking more time.”
While Cutcher did not express any opinions regarding the Biden Administration student aid relief efforts, she did point to one program she’s very fond of: Public Service Loan Forgiveness (PSLF). Created by Congress during the George W. Bush Administration, the program provides an incentive for people to enter and remain in public service positions by forgiving their federal student loans after they have made 120 on-time monthly payments while enrolled in a qualified repayment plan. Eligible public service employees include teachers, police officers, firefighters and nurses, among a variety of other professions. The goal is to attract students, through promised loan forgiveness, to enter fields that are crucial to society but lack the compensation found in the private sector.
PSLF has been a popular program and one could argue it’s been beneficial to society as a whole. But even PSLF doesn’t escape the loan forgiveness controversy. When he was president, Donald Trump called for its elimination. And Project 2025, a collection of policy plans developed by conservative think tank The Heritage Foundation, calls for further cuts to student loan forgiveness programs, including the elimination of several affordable repayment plans for borrowers actually trying to pay their loans.
Like McCuan says, you can’t separate student loan forgiveness from the 2024 election politics. The election is weeks away. Stay tuned.
By the Numbers: The true cost of student loan debt
- The outstanding student loan debt in the U.S. stands at around $1.6 trillion.
- Nearly 43 million people—or 1 in 6 adult Americans—carry student loans.
- Women and people of color are most burdened by the debt.
- Student debt has more than doubled since 2008 and significantly exceeds the increase in the number of students, which the Department of Education (DOE) estimates has only risen 2%.
- Student loan debt has risen faster than other household debt, surpassing both auto loan and credit card debt.
- Graduate school borrowing accounts for most of the student debt outstanding. Overall, grad school loans account for more than 56% of student debt currently outstanding.
- Most student debt is owed to the federal government. About 92% is owed to the feds, with private financial institutions lending the remaining 8%.
- Students at for-profit schools owe more federal student debt, on average, than other groups of borrowers.
- The highest federal student loan default rates are among students at for-profit schools and Black borrowers.
- Student debt affects the economic outlook for Americans. Federal Reserve research indicates student debt may depress home ownership among young adults. It also hampers the growth of small businesses, limits retirement savings and delays marriage and family formation.
— Jane Hodges Young, with information sourced from the Peter G. Peterson Foundation
