One of the most controversial topics in public policy today is whether to forgive student debt. President Biden has suggested $10,000 of debt be forgiven; progressive Senators Bernie Saunders and Elizabeth Warren argue for at least $50,000 of debt forgiveness. Many others argue for no debt forgiveness, believing the students borrowed the money knowing that they would have to pay it back.
We know that student debt levels are excessive with the average graduate leaving school with about $37,000 in debt and many with much more debt. We also know that there is more student debt than credit card debt or any other kind of debt except for home mortgages, student loans are increasingly in default, and many graduates cannot fully participate in the economy and may never be able to do so. Families are being delayed, marriages delayed, home purchases deferred, and consumer purchases postponed or eliminated. It is a personal disaster for many people and an economic hardship for borrowers and the general economy.
So why not forgive the $1.6 trillion in student debt? Lots of reasons. First, it is really expensive to write off $1.6 trillion. How much will taxes need to rise to offset this unplanned expenditure?
There is also the issue of fairness. Is it fair to ask taxpayers who never went to college to pay for students who did? Is it fair to pay off the debt of someone who received a law or medical degree and is earning a high income while someone else is earning much less because he or she did not borrow money to obtain a graduate degree? And is if fair when one family sacrifices to avoid incurring debt while another family does not but then has their debt retired?
The Government is trying to mitigate the high cost of student debt through a variety of programs. Some programs forgive debt if the graduate works for approved and designated charities or public sector assignments for typically 20-25 years. Another program lets the borrower pay 10-15% of his or her income instead of the previously agreed debt service. And recently, as part of the Covid Relief Bill, student borrowers who take advantage and secure debt relief, no longer are required to pay income taxes on the amount of debt forgiven even if they deducted interest on their taxes in prior years.
But the biggest argument to reject unrestricted debt forgiveness comes from a former colleague of mine, Kurt, who wrote me recently. I have paraphrased Kurt’s heartful letter as follows:
“A few years ago, my son, Michael, was a high school senior and evaluating colleges. He had done very well in school and had submitted applications and been accepted by Notre Dame, Georgetown, UC Berkeley, and a few others. He was on the waitlist for Harvard, which showed every indication of accepting him. He visited the schools and decided Notre Dame was his favorite; it was his dream school. It was the school where my father had attended with Knute Rockne, and where Michael had heard about all the years he was growing up. Our family has always been committed to the Catholic Church, and Notre Dame stood waiting to embrace him.
The only problem was the cost. I worked as a property manager my entire career. I made enough money to have a nice middle-class life and send Michael and his sister to good public schools, but I did not make enough to pay for expensive private schools including Notre Dame. And I made too much for Michael to be eligible for financial aid.
Michael was a good student, but he was not so exceptional that he was offered significant merit-based scholarships, and he was not a scholarship-level athlete. Like so many in the middle class, it was up to us to pay whatever we wanted.
I always knew I wanted Michael and his sister to go to college, and from the time he was born, I set aside what we could in a college savings plan. Some years were better than others, and money was always tight. There were vacations not taken and expenses avoided. My wife and I were determined to save so our children would receive a good college education.
By the time Michael was ready for college, we had amassed a savings of $100,000. That seems like a lot, but unfortunately, the cost of college has risen greatly. $100,000 was barely enough to pay tuition and room and board at a state school; it was not enough to pay for a private school like Notre Dame.
Michael and I sat down and discussed economic reality. I explained he could go to his dream school, but he would incur a lot of debt – potentially $100,000 – and would be paying off debt for many years after graduation. I felt bad; I wanted my son to go to his dream school, but I just did not have the money. A parent can feel helpless at the time. We do want our children to be happy and we want to reward them for their hard work. And for Michael, that end would be Notre Dame.
Michael finally decided to go to the University of California at Berkley, which was an in-state school. It was not his preferred school or even his second or third preference, but it was a good school and was affordable. It was a setback after working hard through high school and striving for admission to an elite school, but Michael soldiered on to his credit.
He graduated from Berkley with a degree in English and without debt. Unfortunately, a recession was underway, and he was unable to secure a job right away. In economically challenging times, English majors are not in high demand. He survived working part-time jobs; fortunately, he did not have debt with compounding interest hanging above him. Eventually, he did secure a good job as a professional writer. We are both thankful he is well employed and happy today without the overhang of excessive debt and accumulated interest.
When I hear Senator Warren or other politicians talking about the need for debt forgiveness, I want to blurt out, “Will that include a check to me for at least some of the $200,000 I didn’t spend on vacations and other electives but instead paid so my children could graduate without debt? And will that allow Michael to turn back the clock and go to Notre Dame?”
I sense there are thousands and perhaps millions of people like Kurt watching the debate about student debt. We need to recognize their sacrifices in seeking solutions to the unaffordability of a college education.
But we also need to understand there are millions of people overly burdened by student debt. They were typically 18- and 19-years-old, thrilled to gain admission to college, and not financially literate. They did not have a father like Kurt and were never given the total picture of what they were borrowing and the requirements of paying back loans. Just claiming these young borrowers should have made better financial decisions doesn’t solve a problem that is burdening so many people and society in general.