Student Loan Debt Is Ruining Lives. Can We Just Cancel It?

About 45 million borrowers in the US collectively owe $1.6 trillion in student loan debt, a burden that has left millennials worse off than their parents, delayed marriages and children, widened the racial wealth gap, and had devastating mental health consequences.

After carrying the burden of student loans for more than 20 years, Thomas Gokey is still nowhere near being debt-free. 

“The high point was about $70,000,” the 41-year-old resident of Canton, New York, told COURIER. “I have about $37,000 worth of student debt [left]. I’ve been in debt since I was 18. I’ve been in debt my entire adult life.”

For Gokey, achieving the so-called American dream isn’t about reaching a certain tax bracket or being able to afford a lavish lifestyle. Success for him means no longer having the financial albatross of student loan debt around his neck. 

He’s not alone. Gokey is one of roughly 45 million borrowers in the United States who collectively owe $1.6 trillion and whose lives have been deeply altered by these monthly payments. Gokey’s experience with his debt is what drove him to co-found and organize with the Debt Collective, a union for debtors fighting to cancel debts. Gokey—like many others across the country—is calling for complete cancellation of student loan debt.

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As President-elect Joe Biden begins to signal his priorities and fill out his Cabinet, the debate over how to address the student debt crisis and rebuild the struggling economy has reached something of a fever pitch in recent weeks. One option that’s been discussed extensively is wiping that debt away completely for most borrowers, with no strings attached.

Sens. Elizabeth Warren (D-Mass.) and Chuck Schumer (D-NY) have called on Biden to issue an executive order canceling up to $50,000 in federal student loan debt per borrower, which would eliminate the debt burden for roughly 75% of borrowers. The senators, as well as some legal experts, believe that Biden can do so under the purview of The Higher Education Act of 1965, which created the federal student loan program and authorizes the education secretary to “compromise, waive or release” federal student loan debts. 

The debate over cancellation has become particularly salient, as some 22 million borrowers may once again have to resume making payments on their federal loans in February, after a roughly 10-month pause during the coronavirus pandemic. That freeze provided a much-needed reprieve to younger workers, who were more likely to lose their jobs during the pandemic. 

Those borrowers, many of whom remain jobless or underemployed, are now nervously waiting to hear whether Biden will extend that freeze—or perhaps even cancel their debt altogether. 

If Biden—who has not yet commented on Warren and Schumer’s proposal, but has expressed support for canceling $10,000 in debt—embraces cancellation on a larger scale, it would mark a watershed moment of what has been a slow-moving, decades-long problem that has ballooned into a crisis. 

Beginning in the 1980s, state governments began slashing funding for higher education, all while a larger percentage of Americans than ever before sought college degrees in order to improve their economic prospects. To afford the education they thought they needed to get a secure job, millions of eager high school graduates took on student loan debt. As the years ticked by and the cost of a post-secondary degree surged, so too did the amount students borrowed. By 2019, 69% of college students borrowed money for school and they graduated with an average of $29,900 in student loan debt.

The current crush of debt has devastated millions of Americans, particularly millennials, many of whom are delaying marriage, having kids, and buying a home because of the burden of paying off their loans. Starting new businesses and taking entrepreneurial risks are also more difficult for this generation.

If borrowers can’t repay their loans, it not only harms their credit, thus impacting their ability to buy a car or a house, but it also opens the door for the government to garnish their wages, depriving them of desperately needed funds.  

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Study after study has also shown that student loan debt has widened the racial wealth gap, as a higher percentage of Black students take out loans than white students. Those loans tend to be larger because of the existing, decades-long wealth disparity between white and Black families.

Beyond the economic and racial impacts, student loan debt can also have devastating mental health consequences, including significant anxiety and depression. One survey found one in 15 student loan borrowers researchers spoke with said they had considered committing suicide over their loan burden.

“A growing balance can be very demoralizing to folks,” Sarah Sattelmeyer, director of the Pew Charitable Trusts’ Student Borrower Success program, told COURIER. “It can chip away at their resolve in terms of actually participating in the repayment program.”

Nick Kleist is a 29-year-old artist and producer who lives in Perugia, Italy, with his partner. His education at the New School in New York City left him with about $130,000 in private student loan debt. He now owes around $95,000; his aunt helped pay off a loan she co-signed for him. 

When he graduated in 2013, Kleist quickly discovered he couldn’t make enough money to support himself in the arts, let alone pay off his loans. “I went from this amazing education to having to bartend and do three different jobs at once,” he told COURIER. In addition to deferring his student loan payments when he could, he also leaned on his working-class parents for help. 

That reality forced Kleist to only take jobs that turned an “immediate profit,” which he said deprived him of opportunities to showcase the creative work he went to school for.

The burden of owing so much money, Kleist said, has caused a lot of anxiety, strained his relationship with his parents (who co-signed his loans and face the consequences of his struggle to repay them), and dramatically altered his self-perception. 

Kleist is gay and came out at 17. “Being in New York from 18 to 21 was this process of realizing my sexuality and my identity and being a working-class, queer person,” he explained. But things changed after he graduated college. “My debt became so much a part of my identity that it dictated my decisions more than any other part of [me].”

Would Canceling Student Debt Stimulate the Economy?

Canceling student debt could represent a huge political opportunity for Biden and Democrats. According to a poll from progressive firm Data for Progress, 19% of Republican voters say they would be “much” or “somewhat” more likely to vote for a Democrat who canceled all student loan debt. In total, 53% of Republicans support a proposal to forgive $50,000 in debt for anyone earning under $125,000 per year, another poll from Data for Progress found.

The question is, would canceling student loan debt stimulate the economy? It depends on who you ask.

Gokey supports Warren and Schumer’s plan—to a point. He called it the “right mechanism,” but said there’s no reason to limit it to only $50,000, especially amid the ongoing economic collapse.

“We are in the early stages of a global Great Depression,” Gokey said. “There’s a real danger of doing too little. One of the rules of some that we’re hearing over and over and over again from experts on pandemics is that if you think that you’re overreacting, you aren’t doing enough. I think the same holds true economically here. We need to stimulate the economy, and there’s a real danger that Biden is going to do too little.”

He points to a 2018 study from the Levy Economics Institute of Bard College, a nonprofit, nonpartisan, public policy research organization, which found that student debt cancellation would boost the nation’s economic output by as much as $108 billion per year on average over the next decade. Debt cancellation would also reduce the unemployment rate and create more than 1 million new jobs per year, researchers found, while only having “moderate consequences” on the federal deficit. 

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Marshall Steinbaum is an assistant professor of economics at the University of Utah who co-authored the Levy Institute report. He also advocates for cancellation, calling student loan debt a “failed experiment.” After analyzing Warren’s $50,000 proposal, he found that it would “greatly reduce the burden of student debt for lower-income indebted households” and provide them “the largest relative relief.”

Other studies also indicate that student debt cancellation would provide a huge source of financial relief to borrowers. One 2020 working paper from the National Bureau of Economic Research found that borrowers who had their private student loans discharged as the result of a court decision saw their income grow by about $3,000 over a three-year period, became more likely to move, and change jobs. “Although we cannot quantify its costs, these findings speak to the benefits of loan forgiveness in reducing the consequences of debt overhang,” the report found. 

Skeptics, including economist and former Obama adviser Jason Furman, have argued that student debt cancellation would be limited in terms of its economic impact because it would not lead to a sizable immediate boost in consumer spending. Instead, they argue for something like direct checks to all Americans in order to address the dire economic crisis the country currently finds itself in. But any sort of direct stimulus policy would depend on bipartisan legislation from Congress—an unlikely outcome given the GOP’s decade-long obstruction of Democratic priorities. Biden could, however, bypass congressional gridlock and attempt to cancel student loans with an executive order. 

Some economists and experts oppose the idea of cancellation for other reasons. Brookings Institution senior fellow Dr. Michael Hansen, for example, believes cancellation is actually more regressive than progressive. 

“In general, the people who tend to have the highest loan balances tend to be those who walk away with a greater amount of opportunities for future earnings,” he told COURIER. “So, generally speaking, the largest loan balances are those that go to people going to graduate school, lawyers, doctors—people who often do have pretty good strong earning potential after they get out of college.”

In other words, canceling even a portion of student-loan debt—which is mostly held by Americans on the higher end of the income scale—would improve the finances of those who are already doing well financially. 

Steinbaum, however, rejects the argument that cancellation is regressive, pointing out that the rising rates of college attendance mean higher education has become a near-universal experience: Getting a college degree is not just for well-off Americans anymore. Indeed, two-thirds of high school graduates now enroll in colleges or universities, and many of them come from families who aren’t able to help them pay for their programs, forcing them to take on mountains of debt in order to obtain their degrees.

Cancellation would not only help these “relatively underprivileged” borrowers, Steinbaum said, but would also address the racial wealth gap that has been exacerbated by the loan crisis. Black graduates with bachelor’s degrees are significantly more likely to default on their loans than white borrowers.

RELATED: 1 in 4 Student Loan Borrowers Default Within 5 Years, Study Finds

“Conditional on income, Black borrowers have way more student debt than white borrowers, which is why if you cancel any constant amount of student debt, the people who have debt left over are disproportionately Black,” he said. “That exactly points to why canceling all the student debt, or canceling as much student debt as possible, reduces the racial wealth gap more.”

Research from the Roosevelt Institute, a liberal think tank, bears that out, finding that cancellation of $75,000 of student loan debt would provide complete forgiveness to nearly 90% of Latino households and about 80% of Black and white households with student debt. 

Some opponents have also argued that cancellation is unfair to those who’ve already paid off their loans, those may take out loans a decade into the future, and those who skipped college or went to community college rather than take out loans. Cancellation could also prompt colleges to increase costs or incentivize students to take out larger loans in the future because they believe the government might forgive them again in the future.

“I do think the claim that, ‘Well, why are we doing this if we’re just going to have to do this again in four years?’ has some merit to it,” Steinbaum said. To him, however, the implication is not that the government shouldn’t do it. “It is, ‘we should do it because we have to and we should do it again in four years if we have to.’”

Hansen does acknowledge the racial disparities, however, and believes any policies or reforms enacted to address the crisis should be made with those in mind and to address the borrowers who are showing the most need. 

“I want to be clear that I do feel like there is a need to provide assistance for students with debt relief,” Hansen said, “and that providing that debt relief is going to offer a disproportionate benefit to college graduates of color.”

Rather than cancel student debt to achieve this goal, Hansen believes that the existing repayment programs need to be improved and made more generous. He supports Biden’s plan to improve and simplify the much-maligned Public Service Loan Forgiveness Program (PSLF) by offering $10,000 of debt relief for each year of national or community service, up to five years. 

Biden has also said he wants to improve income-driven repayment (IDR) plans, which are designed to help struggling borrowers by tying monthly payments to 10 or 15% of discretionary income (the amount of income above what is needed to cover living expenses and taxes). More than 8 million Americans are currently enrolled in these plans and under the standard repayment plans, any remaining balances are forgiven after 20 or 25 years of payment. 

Other experts have also advocated for improving the IDR program, but the program has garnered criticism from experts like Steinbaum for being too complicated and failing to help the most at-risk borrowers. 

‘My Generation Has Really Been Screwed Over’

One caveat to this entire discussion is that any proposal to cancel student debt would only affect federal borrowers, not those with private student loans. Currently, private debt makes up about 8% of the total student loan debt.

Kleist is among those with private debt and would not benefit from cancellation of federal loans. Yet, he still supports the Warren-Schumer plan, and hopes Biden will follow through with another proposal of his to make it significantly easier for borrowers to discharge private student loans in bankruptcy. 

“If I was able to even relieve a portion of my debt via bankruptcy, [I would],” Kleist said. 

Whether Biden does embrace cancellation or stick with his own plans to reform the student loan system, two things are clear: Americans are struggling with the worst economic crisis in nearly a century, and major reform of the higher education and student loan system is long overdue.

“I graduated high school when the recession hit, and then I graduated college with $130,000 in debt, and now I’m turning 30 in a couple months and we’re in coronavirus. My generation has been really screwed over,” Kleist said. “It doesn’t make any sense why education should cost so much from a public or private institution and why student loan companies should be able to control people’s lives.”

Editor’s Note: The author of this story has both federal and private student loan debt.