What would it mean to cancel student debt? A variety of opinions were on display during a hearing convened Tuesday by Senator Elizabeth Warren, a Massachusetts Democrat, her first as chair of the subcommittee on economic policy.
For Warren, who has been urging President Joe Biden to cancel up to $50,000 in student debt since she campaigned for president, broad-based student-loan discharge would mean declaring the nation’s higher education finance system, “a big failure.”
“We’ve tried piling one complicated program on top of another to help people manage their debts,” Warren said. “It’s time to go big and to go simple.”
Warren convened the hearing to make the case for student-debt cancellation, a policy she’s been pushing since her presidential campaign.
Warren convened the hearing to make the case for student-debt cancellation, a policy she’s been pushing since her presidential campaign. Ahead of the event, Warren released an analysis of Department of Education data requested by her office, which found that cancelling up to $50,000 in student debt would eliminate the loans for more than 36 million borrowers — 3 million of whom have been paying for 20 years or more.
During the hearing, Warren touted the data as ammunition for her case, which has many backers. Senator Chuck Schumer, a Democrat of New York and the majority leader, has joined Warren in urging President Biden up to cancel $50,000 in student loans.
Activists have been pushing for years for all student loans to be wiped away and over 400 advocacy groups, including those working on consumer, civil rights and other issues, released a letter Tuesday urging the president to cancel student debt.
The White House has appeared supportive but also hesitant towards student debt cancellation
But the idea remains controversial. Biden and his administration have expressed some support for cancelling student debt, though at other moments, the President has appeared hesitant to pursue it. White House Press Secretary Jen Psaki said last month Biden hasn’t ruled out cancelling student debt by executive action. Still, she added that he continues to call on Congress to cancel $10,000 in student loans.
Then there are those who are more skeptical. Senator John Kennedy, a Louisiana Republican and the ranking member of the subcommittee, questioned the fairness of student-debt cancellation at the hearing, wondering out loud, “How equitable is it to ask taxpayers who haven’t gone to college to pay for those who have gone to college?”
‘This is an extremely regressive policy — it provides more assistance to higher income rather than lower income borrowers.’
— Constantine Yannelis, an assistant professor of finance at the University of Chicago Booth School of Business
Constantine Yannelis, an assistant professor of finance at the University of Chicago Booth School of Business, portrayed student-debt cancellation as a too-dramatic approach that risks troubling consequences. “This is an extremely regressive policy — it provides more assistance to higher income rather than lower income borrowers,” he said.
Beth Akers, a resident scholar at the American Enterprise Institute, a conservative think tank, echoed that sentiment and told the committee that widespread student-loan cancellation would “create moral hazard” or the idea that the knowledge of a possible relief valve from loans would incentivize borrowers not to repay their debts and schools to charge more.
Dominique Baker, an assistant professor of education policy at Southern Methodist University, offered a different view. She told the subcommittee that student-debt cancellation is a required component of fundamental change to the student-loan system. “True reform necessitates that government works to both overhaul the system and provide relief for past shortcomings,” Baker said. “For the student-debt crisis, student-loan cancellation is part of that relief.”
But perhaps the most convincing witness on the impact of student-debt cancellation was Darimir Perez, a New York City guidance counselor. When asked by Senator Tina Smith, a Minnesota Democrat, how relief from student loans would impact her life, she told the committee:
“Aside from the emotional and mental stability that it will provide me and my children …I will be able to support them more in their journey, I will be able to also help my family,” she said, noting that she’d like to help her sister pay for college.
How you view the problem impacts how you would solve it
The range of opinions on the impact of student-debt cancellation stem in part from the range of views on what problem exactly needs to be solved. The skeptics of the proposal portrayed the student-loan system to the committee as flawed, but well-intentioned.
They called access to federal student loans “an opportunity for economic mobility,” education “the single highest investment most Americans will make” and characterized poor outcomes for borrowers as a result of poor quality schools.
The solution to these challenges is to tweak what’s already in place, they argued; streamlining available repayment plans and holding colleges more accountable for the outcomes of their students.
But to Warren, a long-time critic of the student-loan system, and other proponents of student-debt cancellation, evidence that the system isn’t working as promised are a signal for bolder action. For example, research indicates that a tool meant to encourage economic mobility is widening the wealth gap between Black and white households.
Senator Bob Menendez, a Democrat of New Jersey, said a borrower has a better chance of being struck by lightning than of having their debt cancelled through income-driven repayment.
In addition, the routes to relief the government has already promised to borrowers can be hard to access. A tense exchange during the hearing illustrates how one’s level of faith in those programs to deliver can influence their opinion of student-debt cancellation.
Senator Bob Menendez, a Democrat of New Jersey, told the committee that a borrower has a better chance of being struck by lightning than of having their debt cancelled through income-driven repayment, a program that allows borrowers to pay their debt off as a percentage of their income and have the remaining balance discharged after at least 20 years of payments.
His comments were based on a recent analysis, which found that despite 2 million borrowers repaying their federal student loans for at least 20 years, just 32 have had their debt cancelled through the program.
Yannelis told Mendenez, “that’s an extremely misleading statistic,” referring to the Senator’s comparison to being struck by lightning.
Yannelis and a colleague have argued that tweaking the income-driven repayment program would provide more relief to low-income borrowers than broad-based student debt cancellation. But his analysis is based in part on the premise that borrowers are able to access that relief at the end of 20 years of payments.
“I think your analysis is extremely misleading to be honest with you, thank you very much,” Mendenez shot back.
Exchange highlights challenges accessing relief that’s already available
Part of the reason borrowers struggle to access student-loan relief that’s already available is because student-loan programs are complicated. But in addition, critics of the student-loan system as it is, like Warren, have pointed out the role student loan companies play in making it more challenging than necessary for borrowers to repay their debts.
Mendenez grilled Jack Remondi, the chief executive officer of Navient
on the several million dollars in pay he’s received over the past few years even as his company has faced a slew of lawsuits from states attorneys general and others, alleging that they’ve thrown obstacles in the way of borrowers successfully managing their loans. (The company has repeatedly denied these accusations, calling them “unfounded”).
Warren called on the Department of Education to fire Navient and the Pennsylvania Higher Education Assistance Agency.
During the hearing, Warren called on the Department of Education to fire Navient and the Pennsylvania Higher Education Assistance Agency, or PHEAA, the institution that manages the Public Service Loan Forgiveness program, which has been plagued with challenges.
An exchange over the PSLF program, which allows borrowers working in public service to have their federal student loans forgiven after 10 years of payments, highlighted the role of student loan servicers’ in borrowers’ ability to access the relief they’re entitled to.
“The 98% denial rate is not due to complexity alone,” Senator Chris Van Hollen, a Maryland Democrat, said of the rejection rate of applicants to the PSLF program in its first year. “It’s because borrowers have not gotten the guidance,” that the Senators and the borrowers themselves, believe they’re entitled to.
“It has taken what has admittedly been a complicated process and made it worse,” Van Hollen said.
Van Hollen cited the story of a constituent working in public service who made on-time payments on his loans for 10 years only to find out then that he didn’t have the right type of federal student loan to qualify for PSLF. Van Hollen noted that the borrower was in touch with his servicer, Navient, but never received guidance that his loan wouldn’t qualify for relief.
“Don’t you agree that this kind of miscommunication is a significant part of why we have a 98% denial rate?” Van Hollen asked Remondi.
“It is complicated and we are working on that,” Van Hollen added, “but 98% denial rate is not only the result of a complicated program.”
‘During that time people will still be suffering’
The challenges borrowers face accessing relief they were promised is part of why supporters of debt cancellation, like Warren, see changes to the existing student-loan system as insufficient. Towards the end of the hearing, Warren asked Baker whether improving income-based repayment and Public Service Loan Forgiveness would be an adequate solution to the student-debt crisis.
Baker responded that reforming the system to the level some experts aspire to would take years. “During that time people will still be suffering,” Baker said. That’s why she sees student-debt cancellation as a tool that will supplement reform, she added.
Perez is one of those borrowers waiting on relief. Asked by Smith to respond to the idea that student-debt cancellation would create a moral hazard for borrowers like her — essentially encourage them to act irresponsibly and take on more debt — Perez responded: “I think of myself as someone who is very responsible,” she said.
She recalled that her choice of school and program was based in large part on affordability and the idea that she would be able to access some debt relief. “I did think that I was taking the right steps and avoiding taking loans because I knew my responsibility was to pay that loan,” she said.