Activists hold a student loan forgiveness rally near the White House on April 27, 2022.
Anna Moneymaker | Getty Images News | Getty Images
Throughout the conversation about canceling student loans, a frequently asked question is why cancel student loan debt, and not, say, credit card debt or mortgages?
What makes student loans so different?
In some ways, nothing. People borrow for education for the same reasons they borrow for anything else – they can’t afford the item or service on their own.
But there are significant reasons why there has been such a strong, unified and broad-based movement to get student loans forgiven. Here are four, according to experts.
1. The system is “broken”
Even before the pandemic, and when the economy was booming, repayment issues were common among federal student loan borrowers.
The country’s outstanding education debt has exceeded $1.7 trillion and has placed a greater burden on households than credit card or auto debt. It is estimated that around a quarter of loan holders – or 10 million people – are in default.
About a fifth of federal borrowers attended for-profit colleges, many of which have been criticized for misleading students and failing to provide them with a quality education. Half of the students who leave these schools end up defaulting on their loans.
The US Department of Education has also failed to deliver on many of its promises, said Persis Yu, director of policy at the Student Borrower Protection Center.
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Millions of people enrolled in programs meant to lead to debt forgiveness after a certain amount of time, including income-driven repayment plans and the popular civil service loan forgiveness program, have been stuck continuing payable and rejected for relief, often for technical and confusing reasons.
Companies that handle federal student loans have been accused of giving borrowers incorrect and incomplete information.
“There have been decades of mismanagement, abusive practices and general incompetence, which has resulted in millions of borrowers being deprived of many vital programs and benefits afforded by law,” Yu said.
2. Most Loans Won’t Be Repaid Anyway
One of the arguments for canceling student loans is that millions of borrowers will never repay their debt anyway. In the meantime, they face a myriad of consequences from having tens of thousands of dollars on their personal balance sheet, including difficulty buying a home and starting a business.
According to a rough estimate by higher education expert Mark Kantrowitz, before the pandemic, roughly half of federal student loan borrowers, or 20 million people, were in repayment — the rest were on borrowed time or forbearance or had completely stopped repaying their loans.
3. There is (essentially) one creditor
Federal student debt is far from the only debt weighing on American families. Household debt, including credit card and mortgage balances, exceeds $15 trillion.
However, writing off any other type of debt other than federal student loans would be much more logistically and financially tricky. Hundreds of banks underwrite credit cards and auto loans, while it’s mostly one party — the US government — that holds federal student debt.
With the pain of inflation hitting families and fears that a recession is looming, supporters see canceling student loans as a relatively easy way for President Joe Biden to relieve the country. especially after most of its social spending agenda was derailed by Congress.
“Unlike debt held by private creditors, the president has the power to eliminate federal student loan debt with the stroke of a pen,” Yu said.
4. Education is a public good
While credit card debt, auto loans and home mortgages are primarily a private benefit, “a higher education is part of the fabric of society, with both public and private benefit,” Kantrowitz said.
College graduates pay more than double the federal income tax of high school graduates, he added. “It’s not just a good investment for the federal government – there’s no better investment.”
Those who graduate from college also have lower unemployment rates and are less likely to need public benefits such as Medicaid and food stamps, Kantrowitz added, “reducing the burden on society.” They also vote and volunteer at higher levels than those without a bachelor’s degree.
Yet college tuition has skyrocketed over time, while state aid and grants have declined. As a result, the cost of higher education is increasingly falling on families.
The average graduation loan balance tripled from $10,000 in the 1990s to $30,000. About 7% of student borrowers owe more than $100,000.
“It really goes back to this idea that debt-free college is a public good, and just as we believe K-12 education serves the public good, the health of our economy, and the health of our democracy, so too , should we be thinking about higher education,” former education secretary John King told CNBC recently.