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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.
This week’s episode is dedicated to a Nerdy Deep Dive into the student debt cancellation debate.
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Student loan debt has reached a whopping $1.75 trillion spread among more than 43 million Americans — that’s approximately 1 in 8 Americans with debt. The burden of this debt has caused borrowers and advocates to call for broad student debt cancellation. That means cancellation of some amount of debt for everyone who has federal student loans.
President Joe Biden voiced support for broad student debt cancellation during his campaign, but he has since volleyed responsibility to Congress. Movement on debt cancellation has since remained as stagnant as federal student loan payments. As borrowers inch closer to payments restarting in September 2022, they’re wondering if debt will be canceled after all. The pause has given pundits, politicians, borrowers and nonborrowers alike plenty of time to offer up their opinions on whether or not debt should be canceled.
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Those who argue for student debt cancellation say student debt has caused a generation to delay starting their lives, from buying homes to launching businesses. These advocates also argue that student debt cancellation could reduce racial inequities, since low-income Black and Latino borrowers are disproportionately burdened with debt.
However, those who are against student debt cancellation point to economists who often argue that cancellation would disproportionately benefit wealthy student loan borrowers, since those with the highest debt tend to have higher degrees — which usually result in higher lifetime earnings.
And finally, they both say cancellation doesn’t address the root of student debt: The cost of college is unaffordable for most Americans.
To unpack this debate, we spoke with two experts on debt cancellation. On the con side is Beth Akers, a senior fellow studying economics of higher education at American Enterprise Institute, a right-leaning public-policy think tank. On the pro side is Andrew Ross, a professor of social and cultural analysis at New York University and a founding member of the Debt Collective, a debtor's union.
Both provide their reasons — for or against — broad-based debt cancellation and whether they think debt will be canceled after all.
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Interviews have been condensed for time and clarity.
Sean Pyles: Welcome to the NerdWallet Smart Money podcast, where we typically answer your personal finance questions and help you feel a little smarter about what you do with your money.
Like last week's episode, we are doing something pretty different than usual for Smart Money in this episode. We're doing a Nerdy Deep Dive into student loans, how they came to be and what's happening around cancellation. If you didn't hear the previous episode, I would encourage you to go back and give it a listen to find out the history of student debt and how we arrived at $1.75 trillion worth of it.
For this episode, I'm joined once again by our resident student loans expert, Anna Helhoski, for the second in this two-part series. Anna, welcome back to the podcast.
Anna Helhoski: Thanks, Sean. Looking forward to diving back into the cesspool with you.
Sean Pyles: Well, what can we expect from this episode?
Anna Helhoski: Today, you're going to hear a little less from us and a little more from two experts on the student loan debt-forgiveness debate. This episode should give listeners a better idea of both sides of this debate — that is, to do widespread loan cancellation or not.
Sean Pyles: We'll also hear from some student loan borrowers about how they think cancellation would affect their lives. We asked listeners to leave us messages and voicemails like this one.
Listener 1: Forgiving my student loans will drastically improve my mental health as I have been struggling with anxiety and stress since I graduated, trying to figure it out and navigate how to pay these. So I think the major improvement will be my mental health.
Anna Helhoski: You'll hear more from other listeners throughout the episode. But, first off, I want to provide some context for what I like to call my least favorite question to answer at parties: Do you think student loans will be canceled?
Sean Pyles: Yeah. I'm betting that you get this question a lot. And how do you typically answer it?
Anna Helhoski: It depends. Sometimes I give some kind of a lengthy nuanced response, and other times I just shrug. The truth is I don't know. No one really does.
Sean Pyles: Right.
Anna Helhoski: But we're hoping in today's episode to unpack the debate over cancellation. I spoke with two experts to help me out: one who was for broad debt cancellation and one who's against it.
Beth Akers represents the con side of this debate. She's a senior fellow studying economics of higher education at American Enterprise Institute, a right-leaning public-policy think tank. She's also the author of “Making College Pay: An Economist Explains How to Make a Smart Bet on Higher Education” and the host of the podcast “An Economist Goes to College.”
Akers says student debt isn't so much of a crisis, because everyone who has student debt isn't necessarily struggling. And borrowers shouldn't be afraid to go to college just to avoid debt, because a college degree is still worth it.
Beth Akers: There are lots of people who are in crisis with their student loans, that are in crisis with their financial position more generally, but it's not the crisis I think that most people are imagining.
Anna Helhoski: And on the pro side is Andrew Ross, professor of social and cultural analysis at New York University and a founding member of the Debt Collective, a debtor's union. He was active in the Occupy Wall Street movement. He says he was compelled to get involved because he knew that, as a professor, his salary depended on his students being burdened with debt.
He says he thinks colleges are too dependent on student debt to sustain their funding, and it's the students who suffer the consequences. He also says debt has prevented a generation from entering the homeownership market, having children and making long-term plans.
All of this combined makes for some seriously stressed out consumers.
Andrew Ross: I know from my experience of working within the debt movement how this immense anxiety about student debt leads to depression, divorce, suicide. It's also a major contributor to the gathering of public health crisis. So in short, yes, we are in a crisis situation.
Anna Helhoski: The push for student loan cancellation started with progressive groups like the Debt Collective, which formed in 2012.
But the idea entered the mainstream during the 2020 election. Senators Bernie Sanders and Elizabeth Warren both campaigned on debt forgiveness. Joe Biden pledged to cancel $10,000 in student debt per person. Some Democrats in Congress thought the amount should be $50,000.
Sean Pyles: But Biden started pulling away from his campaign promise after he got elected. President Biden said that Congress should decide, but Republicans in Congress don't support debt cancellation, and neither do some Democrats. There's been a stalemate ever since.
Beth Akers explains why she's against broad-based loan cancellation — and broad-based cancellation basically just means cancellation for some amount of debt for everyone who has federal student loans.
Beth Akers: It doesn't deliver the benefits, the financial gain, to the people who we really think of as the most needy in our economy. And, in fact, economists will call this regressive. That's an excessively wonky way of saying just that a lot of the money is going to really rich people.
If you think about who borrows to go to school and who borrows the most, it's people who go to get their degrees, finish their degrees and maybe even go on for professional or graduate training. Those people have large balances, and if they were wiped away, they'd essentially be the biggest beneficiaries of the policy. Whereas people who are working in the labor market without the benefit of a college degree — they get nothing.
So, you can see, it's a flip of what we usually try to do with social benefit programs.
Anna Helhoski: Akers says she's concerned about the precedent that broad-based debt cancellation creates going forward for current and future college students.
Beth Akers: You know, I just wrote a book about how to pay for college, and I encourage students to borrow. Part of the reason is because there's a safety net that says, "If you come out of school, and you're not making a lot of money, you won't have to pay back those loans that you took on."
So now — if we add to that, that there's this implicit guarantee that the government's going to wipe away our debts occasionally — I'm going to encourage people to borrow even more.
And I think even people who aren't taking my advice, but just kind of are knowing the system, are going to realize, “I can borrow and pay a lot more for school than I might have otherwise, and maybe I actually don't have to pay it in the long run.”
That dynamic creates a real problem, and it's not just that those people are taking advantage — that doesn't concern me so much at all.
What concerns me is that when we have that dynamic, colleges know that their potential customers are willing to pay more and more and more and more. And that contributes to the tuition inflation that we have seen over decades, really, that's really out of control.
And the last reason is that we already have in place programs that protect people who really, truly are struggling with student debt.
Anna Helhoski: Ross says student debt cancellation was once a novel position in leftist circles, but work of activists has migrated it from the margins to the mainstream.
Andrew Ross: You know, the support among the political class is pretty broad at this point. But it's come from pushing, from a movement from below. And that's been successful so far.
How we get to our goals is another issue. For those who argue that total debt cancellation favors the wealthy, I would say that's pure nonsense. I mean, the statistics show quite clearly that by far the largest beneficiaries come from lower- to middle-income households, and especially minority households for whom student debt is a major magnifier of the racial wealth gap.
I mean, wealthy people tend not to have student debts. They can afford to pay full freight in college. For the most part, we're really not talking about the most well-heeled people in this society.
Sean Pyles: Let's take a quick break and hear from a student loan borrower who is also a parent.
Listener 2: What would I like to do if I could pay off my student loans? Well, for a start, I would like for both of my children to go to school without having to take out loans of their own.
In 2003, my ex-husband and I started repaying our graduate school loans and, unbeknownst to us, we took out one heck of a doozy of a loan: a spousal consolidation loan — one of the few loans that cannot be consolidated into a direct loan and to that extent does not qualify for PSLF [Public Service Loan Forgiveness].
I've been in public service since 2004, so it's pretty frustrating. So yeah, I hope we can change the status of our loan. I hope that we get some attention in Congress. I hope that people take notice, because I would sure love to send my kiddos to college.
Sean Pyles: There are targeted programs for debt cancellation. One is the Public Service Loan Forgiveness for borrowers who work in public service. Another is borrower defense, which is for borrowers who are defrauded by their schools. And total and permanent disability discharge is for disabled borrowers who cannot work.
None of these are easy to get, and the track record for forgiveness is very low. But the Biden administration has made some changes in the past year to make the process easier. And they've touted their successes that have resulted in more than $11.5 billion in loan cancellation for over 580,000 borrowers.
Anna Helhoski: Akers says she thinks this type of targeted cancellation is the right approach, but the current programs are a mess. Ross says these programs are dysfunctional and no substitute for broad cancellation.
Andrew Ross: The experience of those who've actually managed to get some relief through these programs is that they felt lucky. You shouldn't have to feel lucky to access something that is a right. I mean, a right is a right, not a lottery ticket.
And the deficiencies, I would say, the chronic failure of these targeted programs confirms that partial cancellation or targeted cancellation only generates resentment when it doesn't work out. Or else it generates this weird feeling that a miracle or a windfall has occurred when it does, for those who qualify.
I understand why students approach college in a transactional fashion these days. I mean, they have no choice in a way, because it's become so financialized.
But it's a great tragedy for education, and especially when they really have to think about what kinds of subjects or majors they want to specialize in — in terms of financial follow-through and what rewards there might be for choosing that major. That's a very tragic predicament for education to be in.
Beth Akers: I'm not opposed to the forgiveness that's taken place through some of these piecemeal policy changes, because I think what it has done is really effectively made up for some of the deficiencies that were baked into the program in the first place.
But I don't think they're going to do a lot towards addressing the real systemic challenges that people are facing. I mean, my sense is that these are more politically motivated than anything, because I think Democrats need to campaign soon and want to be able to say, "We've forgiven X million dollars in student debt," even though people who really know what's happening here know that X million dollars in student debt is a drop in the bucket.
Anna Helhoski: Let's hear from a borrower with graduate student debt on what cancellation would do for his life.
Listener 3: Well, considering I have $136,000 of student loans that were strictly acquired during grad school — I had zero student debt when I finished undergrad and acquired all that during grad school — all the money that would be going towards my monthly payment of student loans would be going into my brokerage account and my Roth and retirement accounts.
It would be a complete stress relief, and it would also allow me to save and grow my money to where I can buy a house and feel financially stable now that I'm entering my 30s.
Sean Pyles: One of the arguments for broad-based student debt cancellation is that student loans are inherently predatory, even though they may be the only way that some families can afford to go to college. Here's Beth Akers with her perspective, as an economist.
Beth Akers: I'm going to be a typical two-handed economist here and say, sort of, yes, the program is predatory, and in other ways it's a tremendous tool for people to be able to use.
In what sense is it predatory? Well, we don't limit how much people can borrow. And like I said, when I advise young people who are thinking about borrowing, I'm always telling them: “As you think about how much to borrow, as you think about how much to pay, think about what the return is going to be to make sure that that debt is affordable to you.”
The way that we've structured the federal loan program is that we don't necessarily require people to do that analysis when they think about taking on debt to pay for school. So there are some programs, some majors, some schools even, that we know people don't come out of making any more money than high school graduates, but they've got a debt to pay for.
And so I have a big concern that we're not limiting borrowing in those circumstances. You know, we would think of it as predatory if a bank gave someone a loan for a house that we knew they couldn't afford. And yet, the federal loan program is in some instances doing just that.
We're lucky in that the average return on a college degree is huge, so most people who are borrowing through the program — even though there are not safety nets or guardrails on how much they can borrow — they're still coming out ahead of the game.
But the way that we've set it up, it's also possible to lose. We do have those safety nets, like we've been talking about, with the income-based repayment program, but they're lousy. So I think there's a lot more that we could do to protect consumers that wouldn't necessarily be a huge giveaway or even eliminating the program altogether.
Anna Helhoski: While borrowers wait for student loan cancellation that may or may not ever arrive, the Debt Collective isn't telling borrowers to wait. It's encouraging borrowers to strike. But striking in this sense doesn't quite mean just stop paying your bills, which would lead to default.
The Debt Collective wants borrowers to use the existing programs like income-driven repayment to get payments as low as possible. And, indeed, if you're unemployed or earning a low enough income, your payment would be $0 on an income-driven plan. Or borrowers can go into forbearance, which would mean they wouldn't have to make a payment.
Sean Pyles: But there is a downside. Interest accrues, which increases the total amount a borrower owes. If the debt is canceled, that's no big deal, but it's unclear right now if cancellation will happen.
Anna Helhoski: I asked Ross if he thought it was possible the message to strike would be muddled in its delivery.
Andrew Ross: We've learned to be careful about messaging. We never encourage debtors to default individually, for the most part. We are about collective action, and debt strikes are part of our remit for building collective action.
Because the truth of the matter is that, as individuals, you can always negotiate with your creditor. Creditors usually have their doors open to individuals to compromise and restructure their loans.
But it's much more effective and powerful to do it together, and because we're a justice organization and we believe that abolition is an act of justice, we encourage people to think of themselves not as acting individually.
And we've proved that collective action can produce results. The impact of our debt strikes and collective action has led to almost $5 billion worth of debt abolition so far on behalf of for-profit college student debtors; it was a campaign we started a few years ago. So we have produced a proof of concept, as it were, that collective organizing can actually get results, as any union would claim to do.
Anna Helhoski: My final question for both Akers and Ross is the crystal ball question: Do they think student debt cancellation will happen?
Beth Akers: I love crystal ball questions because I don't have to actually base it on anything. It's just a shot in the dark.
I do not think that Biden is going to cancel student loans. I never thought he would. If you listen closely to the things that he's had to say about it, he is echoing a lot of the things that I've said, really, in this conversation about loan cancellation being regressive.
There was one particular town hall event where someone asked him whether or not he was going to cancel student loans as he promised — and it was sort of later in this long event — and I think he let his hand show a little bit too much in the way he responded, by saying something like, “Well, graduates from Penn and Harvard, they don't need loan cancellation." And I'm paraphrasing. That's not exactly what he said, but that was the sentiment.
And so I think he appreciates that there are issues with broad-based cancellation that might sound good on the campaign trail — that's a theme here — but actually are not good policy.
He used cancellation as part of his platform to help get elected. He got to hang with the party on that front, but now that he's in office, he can kind of put it to Congress to make it happen. And I think we — probably most of us — would guess that Congress will not make it happen at this point.
It's not overwhelmingly popular enough within the Democratic Party, amongst politicians in the Senate. Even though there are some very vocal, adamant supporters of it, the party is not completely aligned, and so I don't think we'll see it happen.
Andrew Ross: Joe Biden has spent a lifetime serving Wall Street in one capacity or another, so it goes against every bone in his body to consider canceling — actually canceling — financial obligations. We know that's a big no-no in the financial industry, even though big banks get relieved of their debts when there is a crash or when they fail.
But it makes economic sense. It's immensely popular. It's politically efficacious for his party. A huge number of young people are very aggrieved that they worked very hard to get Joe Biden elected on his promises about student debt, and also climate change for that matter, and now he's, he's been sitting on his hands when he could do it himself.
And there are lots and lots of people in Capitol Hill, of course, who are pressuring him now. So everyone's breathing down his neck. I think we're going to see some movement on it. It hasn't come very easily to Joe Biden, I think is what I'm saying. It can’t come very easily to him because of his political past, but he's very aware of the pressure.
Anna Helhoski: Hopefully, listeners, you now have a sense of what's happening in the student loan debt cancellation debate. To finish off today's episode, here are voicemails from two final borrowers — one who doesn't support broad cancellation and another on what doors would open if debt was canceled.
Listener 4: I don't need my loans forgiven or anything, or have had them forgiven. But I graduated in 2010 with about $35,000 in student debt, and I paid extra, and I paid them off in seven years.
So while I know what it would do for the economy, it's kind of hard to swallow other people getting theirs relieved, just because I was conservative with my choices and my school. I stayed in-state, worked all the way through college to pay for my rent and everything on my own, so it's kind of hard to hear other people getting their debt relieved.
Listener 5: If my loans were forgiven — I have about $100,000 in grad school loans — I think I would choose a different career and have a lot more fun in terms of my career choices. I feel the pressure of the ROI of using my social work degree to do social work jobs, but I think there's a lot of other things that I'm interested in as well that I have the skillset for.
So I think I would definitely play around more with my career, take a pay cut if needed just to kind of scope it out and I would also take more chances with my partner. We recently tried to do a backpack trip around the world. Due to COVID, it got canceled, but I think I would feel more financial freedom to be able to take more choices and more risks like that to live life a little bit more.
Anna Helhoski: That's all we have for this episode. I'm Anna Helhoski. He's Sean Pyles. Music for this episode is by TradeWinds. If you have a money question for us, including about how to manage student loans, turn to the Nerds, and call or text us with your questions at 901-730-6373. That's 901-730-NERD. You can also email us at [email protected]. And visit nerdwallet.com/podcast for more info on this episode.
And remember to subscribe, rate and review us wherever you get this podcast.
Sean Pyles: And here is our brief disclaimer, thoughtfully crafted by NerdWallet's legal team. Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Anna Helhoski: And with that said, until next time, turn to the Nerds.
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