A great rethink on student debt

Forty-three million borrowers owe the U.S. government $1.62 trillion in student debt, according to federal statistics. In March 2020, federal pandemic relief legislation suspended repayment. That pause is set to expire Aug. 31. President Joe Biden is expected to announce a decision this week to either extend it or cancel a portion of the debt owed by students or their parents. He may do both. 

The grace period has already been extended six times, twice during the Trump administration and four times since. But this round is different. The White House has never waited this close to the deadline to reveal its intentions. That has left borrowers wondering if they will soon face monthly payments again – or if they will suddenly be forgiven $10,000, a figure Mr. Biden has often endorsed. 

The tangible prospect of debt cancellation has also renewed a larger debate about how societies balance the values of civic equality and individual responsibility.

Democratic Sen. Michael Bennet of Colorado suggests that a focus on student debt is too narrow. In a recent Senate floor debate, he said, “An across-the-board cancellation of college debt ... offers nothing to Americans who paid off their college debts, or those who chose a lower-priced college to go to as a way of avoiding going into debt or taking on debt. Really importantly, it ignores the majority of Americans who never went to college, some of whom have debts that are just as staggering and just as unfair.” 

The bigger question, he argued, is “how to create a pathway to economic security for every American.”

Still, student debt levels do seem staggering. In the past two decades the cost of higher education has risen about 200%. American families have struggled to keep pace. Student debt has risen 600% during the same period. The average federal student loan balance is $37,667. That cost, together with rapid changes in the nature and needs of the workplace, has frayed the underlying calculation of higher education: that investing in a college degree ensures a more prosperous future.

In response to the current debate, a growing list of companies is helping employees to use a tax benefit to pay off student loans. Since 2016 more than 90 apps have been launched to help people locate scholarships to attend a school or manage how they repay their loans. The U.S. Education Department is trying to find a formula tying the pace of loan payments to borrowers’ incomes.

Many of these initiatives point to the ability of borrowers to rethink their approach to debt for education. One empowering quality is gratitude.

“While gratitude may seem like a soft skill to integrate into finances,” wrote Melanie Lockert in an essay for The College Investor, describing her approach to paying down her student loans, “it can completely change your money mindset and the way you spend money, hold on to money, make money, and more.” 

Another approach is to see debt as not a trap but as an opportunity to change habits. “Taking out a loan is a choice, and personal responsibility shouldn’t be supplanted by taxpayer bailouts,” argued Matthew Noyes, who graduated from the State University of New York at Albany. In an essay for the Foundation for Economic Education, he described paying off $27,000 within a year of graduating by taking on extra work and being frugal. 

The debate over student debt may lead Americans to find new models for safeguarding access to college. Higher education itself begins with the individual cultivation of character and promise. A great rethinking of student debt is surely needed.