Big student loan debt is not a ‘Harvard, Yale and Penn’ problem

On the campaign trail, President Joe Biden promised to cancel at least $10,000 of federal student loans for all borrowers in response to the Covid-19 crisis. Over 60 lawmakers and 17 state attorneys general have called on him to go further and cancel up to $50,000 administratively. When Biden was asked if he would cancel $50,000 of student debt for struggling borrowers at a CNN Town Hall last Tuesday, his answer unfortunately reflected some commonly held misconceptions about student loan borrowers.

Public disinvestment from higher education, skyrocketing costs, combined with long standing economic inequality, have resulted in roughly 45 million Americans drowning in an unprecedented $1.7 trillion in student loan debt. And even before the pandemic, more than 25% of student loan borrowers were behind on their loan repayments.

As Biden acknowledged, for many borrowers, “Their education saddles them with so much debt it prevents them from buying a home or saving for retirement, or their parents or grandparents take on some of the financial burden.” Simply put, student loans already held families and the nation’s economy back even before the current Covid-19 crisis. Widespread student debt cancellation is needed to provide relief to the millions of borrowers who are struggling the most.

What was troubling about Biden’s suggested cancellation was that the government should not forgive debt for people who went to “Harvard and Yale and Penn.” Among the 45 million Americans with student loan debt, very, very few went to Harvard, Yale or Penn. Only 3% of Harvard College students take on any federal student loan debt. Quite simply put, student loan debt is not a problem of the elite. The vast majority of student loan borrowers are low- and middle-class Americans who had to go into debt to access postsecondary education, and who are paying dearly for it.

Instead of focusing on the rare Harvard borrower, policymakers should consider the millions who graduated from public community colleges and universities, HBCUs, trade schools, and less well-endowed private schools, as well as the roughly 40% of student loan borrowers who are burdened by debt without a degree.

For many students, loans are unavoidable. For example, in Georgia, 90% of students who attend Spelman (a private HBCU) and 84% of students who attend Savannah State (a public university) have federal student loans. In Biden’s home state, 75% of students at Delaware State take out federal student loans. These are the borrowers who would benefit from loan cancellation.

Importantly, studies have found that student loans are disproportionately held by women, Black and Latinx student loan borrowers — delivering relief to these borrowers would further the interests of racial and gender equity.

And at every income level, Black households, long denied opportunities for asset building and subjected to wealth stripping policies, are more likely to hold debt than their white counterparts. The JPMorgan Institute found, “Black student loan borrowers having higher student loan balances and repayment burdens and being less likely to be making progress on their loans compared to white and Hispanic borrowers.” Because Black families lack the intergenerational wealth that can provide an essential cushion against economic shocks, even Black borrowers in the highest income quartile are more likely to suffer default than white borrowers in the lowest income quartile.

The people hit hardest by student loan debt are also those hit hardest by the pandemic. Women have disproportionately borne the brunt of the jobs lost. Black communities are not only facing higher rates of coronavirus infection and death, but jobs for Black women are simply not returning at the rate they are for white workers.

Importantly, while $10,000 of widespread student loan cancellation would clear the debts of nearly two-thirds of defaulted borrowers, $50,000 of widespread debt cancellation is needed to begin to address the racial wealth gap.

Some opponents claim that income-driven repayment (IDR) obviates the need for cancellation. IDR caps a borrower’s monthly payment based on their income and family size and, in theory, provides cancellation of any balance remaining after 20 or 25 years of repayment. But since its inception in the mid-nineties, IDR has been plagued by implementation failures.

Borrowers, especially low-income borrowers whom the plans were intended to benefit, have struggled to access and succeed in the plans. While IDR is a critical option, it has failed to deliver on Congress’s promise of student loan relief. Likewise, the Department’s Public Service Loan Forgiveness program has resulted in over 97% of applications being rejected, and its disability discharge program has provided cancellation to less than 28% of eligible borrowers.

Biden has promised to fix these programs and address the college affordability crisis. And he must. However, borrowers, their families, and their communities cannot wait 20 or 25 years while hoping for the Department of Education finally succeeds in what it has failed to do for decades.

Finally, drawing lines to distinguish who deserves relief will inevitably leave out deserving borrowers. Limiting debt relief by income, for example, ignores the role of wealth in determining who takes on student debt and who struggles in repayment, and will exclude many Black households with twice the amount of student loan debt and just a fraction of the total wealth of their white peers. Like the distribution of stimulus payments, policies aimed at providing targeted relief to the most “needy” have consistently failed to reach all of the Americans the policymakers intended to help.

Because of the nature of the student loan portfolio, providing a certain amount of relief per borrower already serves to target the relief, as the highest earning borrowers with the most debt will still continue to owe significant amounts of debt. Moreover, providing relief to student loan borrowers is already targeted; it provides relief to only those who could not afford to access higher education without debt, and not to the “elite” — like the 97% of Harvard College students — who already graduate without debt.

Biden has promised relief that will correct these longstanding systemic injustices, and borrowers cannot wait. He needs to deliver on that promise now.