Top Higher Ed Debate in 2019? Big Solutions for Borrowers

As the for-profit Corinthian Colleges chain began to collapse in 2015, tens of thousands of borrowers were left with student loans they had no prospect of repaying. Debt activists turned to a novel solution -- they said they wouldn't repay the loans and argued the federal government should clear the student debt.

That campaign resulted in debt relief for thousands of former for-profit students until the loan forgiveness process became the subject of a regulatory rollbacks under the Trump administration. When it began, debt forgiveness was considered an extraordinary solution to a unique problem related to the for-profit sector.

Four years later, though, automatic debt cancellation for every student borrower is being taken seriously as potential policy to address the $1.5 trillion in outstanding federal student loans.

Senator Elizabeth Warren, a Massachusetts Democrat, said last week she would introduce legislation to cancel up to $50,000 in student loan debt for 42 million borrowers, mirroring details she outlined in a presidential campaign proposal estimated to cost about $640 billion.

And Washington-based think tanks are issuing new publications looking into the potential benefits of broad debt cancellation.

Where the 2016 presidential campaign pushed free college onto the national agenda, candidates and policy makers are getting pressure now to take a position on solutions for current student borrowers struggling to repay their loan debt. An idea that was previously relegated to the political fringes -- canceling student debt -- is gaining new momentum. That’s a reflection of just how many borrowers have student debt that is a major concern, observers say.

“Demands previously regarded as laughably unrealistic are now part of mainstream political discourse” thanks to grassroots efforts of student borrowers, said Ann Larson, an organizer with the Debt Collective, the activist group that began pushing for loan forgiveness in response to Corinthian’s collapse.

Senator Bernie Sanders, a Vermont independent, is the only other candidate for the Democratic nomination to endorse massive student debt cancellation. But Warren's plan has reshaped the debate over higher ed in the Democratic primary.

Student debt is even drawing the attention of philanthropists and corporate brands. Billionaire investor Robert Smith's announcement that he would pay off the student debt of the entire Morehouse College Class of 2019 created new buzz around big solutions for student debt. It also highlighted the extent to which African American borrowers in particular struggle with student debt burdens.

Even corporate brands are looking to build marketing efforts on the issue, where a few years before they might have offered tuition assistance or free college courses to employees. Fast food chain Burger King last month announced it would pay out $250,000 in student loan payments to customers who use the company’s app. And bargain beer brand Natural Light said in January it would give $1 million for student loan payments.

Student organizers with the Debt Collective pushed the Obama administration to grant debt forgiveness to defrauded students who attended for-profit colleges through a provision of federal law known as borrower defense to repayment. That resulted in more than half a billion dollars in debt cancellation for students before the process ground to a halt under Education Secretary Betsy DeVos.

Warren was perhaps the biggest champion of debt cancellation for defrauded borrowers in Congress. She took then Education Secretary John King to task in 2016 over the pace of relief for former Corinthian students. Her presidential campaign proposal, though, made the case for canceling debt on a much wider basis. The $1.5 trillion in student debt, she argued, amounted to a failed experiment to offload the burden of financing higher education onto students and their families.

Other Democratic candidates have rolled out policy platforms promising to fix the Public Service Loan Forgiveness program or allow student borrowers to refinance their loans at lower rates. But none have generated buzz like the Warren debt plan. Some polling has found that a majority of Democratic primary voters support the plan.

The proposal has also taken criticism from those who say it isn't targeted enough to borrowers most in need of assistance, that it's too expensive or that it isn’t fair to those who have already paid off their student loans. Warren's proposal would provide debt relief on a limited basis to borrowers with incomes of $100,000 or more. Less than half of borrowers in the top income quintile would receive full student loan forgiveness, compared to more than 80 percent of borrowers in lower income brackets, according to analysis from the campaign.

An analysis from the Brookings Institution, though, found that the proposal would be regressive, because the highest-earning households would receive the most benefits in dollar terms.

But Marshall Steinbaum, a professor of economics at the University of Utah, said arguments that the proposal is regressive understate the extent to which lower-income borrowers increasingly struggle to manage their student loan burdens. They also rely on outdated views of who holds student loan debt, he said, when a college degree has increasingly been a requirement to compete for good-paying jobs.

"Having student debt used to mean you were relatively privileged," he said. "Now it's the case that having student debt, at least among younger cohorts, means you're relatively deprived."

New Focus of Progressive Policy Groups

Steinbaum was the co-author of a 2018 paper from the Levy Economics Institute at Bard College that called for the federal government to wipe away all $1.5 trillion in federal student loan debt, arguing it would stimulate the overall economy. That paper acknowledged that the largest loan balances are held by the highest earners but said that the degree to which student debt is held by high earners has diminished. Steinbaum said it's clear that there's been a shift in the policy discussions over the past year.

"The public is obviously interested in this. And because the public is interested, some policy makers are interested in at least exploring it," he said. "Then you've got the people supposedly responsible for formulating policy dragging behind to keep up with the changing political balance."

Other progressive policy shops -- the kind of places that generate many of the policies candidates run on -- have started to study broad debt cancellation more seriously as well. The Aspen Institute in April issued a paper assessing broad student debt cancellation. And in the past two weeks, Demos and the Center for American Progress have released separate papers examining the potential impact of debt forgiveness along with a range of other potential policies to assist student borrowers.

Both papers examined the equity implications for several potential policies designed to assist current student borrowers, including total debt cancellation, targeted debt relief, reform of various repayment options and student loan refinancing.

Mark Huelsman, associate director for policy and research at Demos, said the idea of loan forgiveness is politically salient for many voters because it addresses an issue they are dealing with today. The Warren proposal would also extend debt forgiveness on federal student loans to individuals who attended private and for-profit institutions, where free college plans address costs at public institutions.

“There was a pretty robust push for bold solutions on college affordability and expanding what was possible from a policy standpoint,” Huelsman said. “It’s taken a little longer to coalesce around a solution for outstanding student loans.”

One reason for that development is an evolving understanding of challenges with loan repayment among researchers who track student loan debt.

“There was an assumption that the student debt problem was concentrated among those at for-profit colleges or predatory programs. Or it was seen as a problem with repayment and not necessarily with debt itself,” he said. “That has shifted over the last couple of years.”

Ben Miller, vice president for higher education at the Center for American Progress Action Fund, said new federal data on loan repayment released in recent years have revealed the extent to which even many borrowers who completed degrees struggle to repay student loan debt. Federal data in 2017 showed, for example, that nearly a quarter of black college graduates who entered college in 2003-04 defaulted on their loans within 12 years. Just 6 percent of white borrowers defaulted over the same period.

The various policy proposals from Democratic candidates would have particular benefits for specific groups of borrowers, the two papers found.

“Our hope is that policy makers understand that whatever their given solution is, that it should truly match the problem,” Miller said. “Circumstances for borrowers vary, so the right answer is probably a combination of these tools.”

Tiffany Jones, director of higher education policy at the Education Trust, said the growing focus on solutions for current student borrowers shows a recognition that there are challenges at every part of the higher ed system -- from unaffordable college costs to challenges repaying loans. But she said figuring out how those choices would affect different kinds of borrowers should guide how those solutions are crafted.

“The first step is asking the question, ‘Who is going to benefit?’” she said.