Partial Student Debt Forgiveness: A Half Measure

The U.S. higher education system has much to its credit, from countless academic breakthroughs to equipping millions of students with the skills to advance their stations in life. But along the way, it has developed an unsound and unworkable means of financing. The Biden administration’s recent announcement of partial debt forgiveness only served to reinforce how difficult the challenge of reforming education finance will be.

The high cost of higher education has been well-covered across many outlets. Since the early 1980s, college tuition has increased at triple the overall rate of inflation. Working one’s way through college is increasingly out of reach for most students, and taking out loans is routine. Student debt averages $37,113 per borrower; new graduates start their working lives with an average monthly payment due of $391.

Obtaining a degree is still a worthy investment for most students. Holders of a college degree enjoy lower unemployment rates and wage premiums that accumulate to $450,000 over the course of a career—certainly enough to justify taking on a loan. This opportunity for upward mobility should be available to all, and student loans make it possible.

But not everyone graduates. A 2016 Department of Education study found that three years after enrollment, 44% of students at two-year colleges and 20% of freshmen at four-year colleges had dropped out. They paid tuition but realized no upside for employment or earnings; these are the borrowers most likely to default on their loans.

Student loans are unique among consumer debts. Most involve no underwriting: students are eligible to borrow simply by enrolling in courses. With no ability to assess or price a borrower’s risk, private lenders have little interest in this market, leaving the federal government as the dominant lender. If the borrower does not repay, the debt is never written off. It cannot be discharged in bankruptcy; borrowers who fall behind, or never make any payments, will find their credit record impaired indefinitely. This limits their ability to take certain jobs, rent apartments and make other major purchases.