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What's still up for debate when it comes to student debt forgiveness

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Will your student loan debt be forgiven?

Roughly 45 million Americans collectively owe $1.7 trillion in student debt. Many of these borrowers are hoping for forgiveness. 

Over the past 10 years, college costs increased by more than 16% and student debt increased by 99%. Today, roughly 70% of college students take out loans to pay for their education — and for good reason. 

Automation is rapidly eliminating jobs for those without a college degree and college grads earn 80% more than those with just a high school diploma. The gap between the average life expectancy of those with and those without a college degree is growing due in part to diverging economic opportunities

Now, legislators appear to be seriously considering student debt forgiveness. House and Senate Democrats have called for President Joe Biden to "broadly" forgive up to $50,000 of federal debt through executive order. 

But Biden has repeatedly shot down the idea of up to $50,000 of student debt forgiveness and stated that he will only support up to $10,000 of debt forgiveness and that he would prefer Congress craft the legislation

The debate between these two paths has caused some disagreements within the Democratic party. CNBC Make It spoke with experts about the two proposals and about whether student debt forgiveness is "fair." 

The extent of executive authority

Biden has repeatedly stated that he does not believe he has the authority to cancel student debt through executive action. 

Many of the experts CNBC Make It spoke with suggested student debt forgiveness is within the president's authority.

"[Biden] has the authority to direct the secretary of education to at least cancel all of the student debt held by the federal government, which is about 95% of the student debt out there," says Suzanne Kahn, managing director of research and policy at the Roosevelt Institute.

"President Biden absolutely has the authority to cancel student debt," says Ashley Harrington, federal advocacy director and senior counsel at the Center for Responsible Lending. "This is the same authority that was used by the Trump administration last year to waive interest and pause payments or for federal borrowers who had federally held loans. That same authority was used later that year to extend that pause. And then it was used this year by the Biden administration to extend that pause again through the end of September."

Biden repeatedly rejected this idea, including during a February town hall. "I am prepared to write off $10,000 [of] debt, but not $50,000," Biden told a member of the audience. "I don't think I have the authority." 

This month, the president's chief of staff Ron Klain revealed to Politico that Biden has asked Education Secretary Miguel Cardona to prepare a memo about his legal authority to cancel student debt

"He'll look at that legal authority, he'll look at the policy issues around that, and then he'll make a decision," Klain said. "He hasn't made a decision on that either way. In fact, he hasn't yet gotten the memos that he needs to start to focus on that decision."

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$10,000 vs. $50,000

Beyond logistics, there is still much debate about how much student debt should be forgiven. 

"We would see a significant number of borrowers in default have their entire loan balances canceled at $10,000 of student loan debt. It would be about roughly two thirds of borrowers in default would have their loans canceled," estimates Yu. "However, at $50,000, we'd see 93% of student loan borrowers in default have their loans canceled."

Many economists have argued that relief should be targeted towards those who need the most assistance and have pointed out that borrowers with less than $10,000 in student debt are the most likely to go into default.

Borrowers who struggle the most "tend to be more in the category of a student who started at a community college, some unforeseen event occurred in their life, and they didn't graduate. They made an investment that had no return, they're stuck with this debt, and getting out of that debt is difficult for them," says Phillip Levine, professor of economics at Wellesley College. "Certainly, there are students who borrowed $50,000 to go to a four-year college and are struggling to pay it back. But there's plenty of students who borrowed that $50,000 who are going to pay that money back." 

Levine argues that forgiving up to $50,000 of student debt would inadvertently benefit some college graduates who are comparatively well-off.

"In the $50,000 level, I'm not saying those people don't [struggle]. It's just that the composition of that group also includes a lot of people who are going to do just fine and have no trouble paying back that loan. And so if you alleviate that debt for all of those people, you just provided a huge benefit to a lot of people who don't need it," he says. "There is no question that we have issues of limited economic opportunities. Addressing those problems should be handled directly by providing benefits to the people who need the benefits. I don't really see the value in providing it to people who don't need them."

He continues, "The irony in all of this is that it doesn't really seem to satisfy progressive goals. Progressive goals seem like you should be giving things to people who need it."

Others have argued that forgiving larger student debt totals would account for the racial and gender gaps in what borrowers owe. 

For instance, The Brookings Institution estimates that on average, Black college graduates owe $52,726 in student debt while white college grads owe closer to $28,006. 

"Black and brown borrowers, low-income borrowers, veterans, women. These are the folks who are disproportionately impacted by this crisis," says Harrington. "There's a study out of Brandeis that showed that 20 years into repayment, the typical Black borrower still owed 95% of their original balance, while the typical white borrower only 4% of their original balance."

"African American borrowers, in particular, have to take on more debt in order to get an education, and they often struggle more to repay those loans," adds Yu. "So while $10,000 may do a lot of good in general for borrowers in default, it may not be sufficient to actually help borrowers of color who are in default because they have typically higher balances."

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Is debt forgiveness fair?

In the same February town hall that Biden rejected $50,000 in student debt forgiveness he also claimed that $50,000 in debt forgiveness would lead to forgiving "billions of dollars in debt, for people who have gone to Harvard and Yale and Penn."

This has become a common misinterpretation of the student debt forgiveness debate. Just 0.5% of college students attend Ivy League schools such as these and the majority of them do not need to take out student loans. However, this idea that student debt forgiveness may help some already well-off people has taken hold because of a national conversation about fairness. 

Is it fair for people who got the change to go to college — a chance many Americans don't get — to have their debts forgiven? 

"It's a common critique that there are a number of borrowers who are well-off, who would benefit from student loan cancelation, and I think that talking about the student loan portfolio in that way is a little bit misleading. Student loan borrowers exist at every single income quintile. The vast majority of households with student loan debt are families making less than $100,000," says Yu. "It's true that there are some folks who would benefit who are higher income, but what we would see is the vast majority of people who would really, truly benefit are low and middle-income student loan borrowers."

"There are always going to be things in our political system, in our economy, where it doesn't look like all the direct benefits are going to everyone. But this wouldn't be the first time. This would actually just be one of the first times that we see direct benefits actually going to a problem that is disproportionately impacting black and brown families," says Harrington. "There have been several times in the history of this country where direct benefits have flowed from the federal government to help people who are struggling or to help people build wealth: in land, houses, education benefits, the GI Bill, all of those things have happened before. This is not something new or unique that we are asking for. It is just something that will actually help so many people of color in a way that none of these other programs did." 

Plus, it is important to note that the student debt crisis is not "fair" either. And it's not "fair" that some students must take out more student debt for the same education. 

"The system itself is unsustainable"

Beyond fairness, the debate over student debt forgiveness has also revitalized discussions about how to best fund higher education. 

"College is an outstanding economic investment. People who go to college do much better and make hundreds of thousands of dollars more over the course of their lifetimes than students that don't. It's a very good investment. Sometimes the right way to finance a very good investment is through debt. That doesn't mean it should be excessive debt. That doesn't mean it should be to the point where it's placing such a heavy burden on people that they're unwilling to take it up," says Levine. "But there's nothing wrong with small amounts of debt if those small amounts of debt are contributing to a quality education that can provide them with the economic returns that college typically does."

Harrington says there is broad support among voters to re-imagine how college is paid for in the United States. A Morning Consult survey found that 56% of all U.S. adults and 62% of Generation Z (which disproportionately voted for Biden) support $10,000 in federal student loan forgiveness.

"The system itself is unsustainable. A debt financed model of higher education is unsustainable," she says. "On the campaign trail, President Biden talked about debt cancelation in a lot of different forms. All we're asking him is keep your promise."

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