The Noisy Student Debt Relief Issue
An Important Debate For Sure, But Who Will Listen When Democracy Dies?
Welcome to the Civic Way journal, our quick take on the relevance of current events to America’s future governance. The author, Bob Melville, is the founder of Civic Way, a nonprofit dedicated to good government, and a management consultant with over 45 years of experience improving public agencies.
Knowledge is in every country the surest basis of public happiness. – George Washington
George Washington believed that higher education was vital to our nation’s success. He could not have foreseen, however, its astronomical cost nor the crushing debt needed to acquire it.
The controversy surrounding President Biden’s recent student debt relief plan seems staged, if not absurd. Framed by the combatants as our salvation or ruin. Really?
How about a little perspective?
Even in our MAGA Matrix world, we ought to be able to agree on a few things.
Higher education is integral to our democracy and competitiveness. Public resources should be spent wisely. During conventional times, weighty policy issues like higher education finance should be rigorously analyzed and debated, preferably in the legislative branch, before we act.
Higher education is prohibitively expensive for too many Americans. In recent decades, even as college enrollment rose, higher education costs soared. From 1999 to 2019, the cost of attending a public college increased by over 130 percent.
By shifting more higher education costs from states to students, we turned our backs on one of our greatest competitive assets—our higher education system. As tuitions rose, more students had to borrow. From 2000 to 2020, average student debt rose by nearly 20 percent. In 2022, 43 million owed $1.6 trillion in federal student loans (about $36,000 per borrower). As government regulation of education financing programs atrophied, more students were exposed to fraud.
Today, higher education is out of reach for many Americans, even those attending public universities and working part-time jobs. Community colleges and vocational education programs are under-funded. Young adults are poorer today than they were in 1989 and, due to high stock and home prices, less able to accumulate wealth.
Instead of building a bridge to the future, we are building a wall.
What happened to our long-standing public commitment to higher education? A nation that once made visionary (and bipartisan) investments like the Morrill Act, GI Bill and Pell Grant program, can’t even renew the Higher Education Act (not since 2008). With Congress unable or unwilling to reform our higher education financing, President Biden is doing the one thing current law may allow him to do—write off a portion of federal student debt.
President Biden’s proposed plan would forgive $20,000 in federal student loan debt for Pell Grant recipients and $10,000 for non-Pell Grant recipients. It would cap monthly payments for such loans at five percent of discretionary income. It would extend the current loan-repayment freeze (first enacted in 2020). Finally, it would exempt any forgiven debt from federal income tax. Only those with outstanding federal student debt and gross adjusted income under $125,000 ($250,000 for couples) are eligible.
What is the plan’s estimated impact? At a cost of $300 to $600 billion, about 20 million borrowers will be debt-free (some called for extinguishing all student debt). The plan’s advocates argue that it is moderately progressive, giving more lower- and middle- income families access to higher education and economic growth. Its opponents see it as a nakedly political abuse of presidential power that will worsen the federal deficit and exacerbate inflation.
So how shall we view President Biden’s student debt relief proposal and the surrounding debate?
At the very least, we should see it for the political theater that it is. Another issue for political players to exploit (and the media to milk). For Democrats to court young, college-educated voters. For Republicans to decry socialism and liberal profligacy. And for both parties to display their penchant for hyperbole and hypocrisy (e.g., the forgiveness of PPP loans and budgetary impact of the 2017 tax cuts).
We should view the plan as a step more properly taken by Congress (as part of a broader plan). Even if we see the plan as well-intentioned, we also should see it as a symbol of Congressional malpractice. Mostly, we should see the action as a symbol of our failed politics. And, if it is stalled by legal challenges, we may see it as another example of our inability to govern.
We should be clear-headed about the plan’s potential policy flaws.
Due to the limits of its enabling law (the post-9/11 HEROES Act empowers the Education Department to waive or modify student loan payments during national emergencies), the plan does not benefit those unable to attend college. It neglects past college graduates who avoided or paid student loans. It ignores future college graduates. It fails to address other onerous debt (e.g., medical, business or grad school).
Some flaws are unrelated to the HEROES Act. The plan fails to distinguish essential and boutique majors. It could divert resources from more targeted and effective programs. Its cost will increase future federal budget deficits and could exacerbate inflation.
In the final analysis, the plan fails to solve the underlying problem, our broken higher education system and the way it is financed. It could even worsen the crisis.
Writing off student debt and imposing debt payment caps (without any disincentives) could fuel more college tuition increases. It could spur more student borrowing and debt relief. In five years, without more holistic action, higher education could be more exorbitant and student debt more oppressive.
So, what should we do about the Biden plan?
We can complain about the plan as executive overreach, a blatant political ploy or even misguided policy. We can bemoan it as a symbol of both parties’ failure to solve larger structural problems.
We can see it for what it also is, a political distraction. Another convenient excuse for those who know better to forsake American democracy. Another partisan brawl to sidetrack us from a far graver issue—the fatal threat that election deniers pose to American democracy.
At this moment, with democracy at risk, fighting over Biden’s modest student debt relief plan is like debating the cost of replacing the roof when your house is on fire. Afterall, if we lose our democracy, we will lose the best system we have for solving other ills in a concerted and collaborative way.
We know from our own lives that some problems are more urgent than others. Emergencies, for example, demand our immediate attention. Others can be faced tomorrow.
If we defeat election deniers in 2022 and 2024, we will save our democracy. We will have an opportunity to debate the student debt issue more thoroughly. With public officials who care more about governance than politics, we could redesign our higher education financing model.
Perhaps we could even begin to solve other intractable problems.
But, let’s put the fire out first.