Biden’s debt forgiveness misses targets

The Biden administration’s prospective move to cancel $10,000 of outstanding federal student loan debt, while welcomed by many current and former students with debt, has been critiqued for not being very well-targeted and for neither addressing the affordability of higher education nor the needs of future students. Instead, finding ways to decrease the cost of higher education going forward would reduce the need for families to borrow. In addition, fixing federal income-based repayment programs would ensure that debt does not become a lifelong burden for those who have borrowed but whose incomes ultimately make repayment difficult. 

Whether or not federal student debt is completely or partially forgiven, let’s not forget that many who started college and failed to get a degree also have institutional debt. These are debts owed to the colleges and universities they attended, for a range of expenses from tuition to library and parking fines. This type of debt too often keeps them from re-enrolling and completing a degree. This also disadvantages them in the labor market, making it even more challenging to pay back what they owe. Most colleges and universities withhold transcripts and prevent students from re-enrolling or transferring to another institution if they owe institutional debt. Withholding transcripts is viewed as one of the most easily available methods of collecting those debts. However, we have estimated that only about 7 cents on the dollar of such institutional debt are ever collected, while preventing individuals from gaining a valuable degree or credential that can help them increase their earnings. 

A program to help these students with institutional debt, freeing up their transcripts and any “stranded credits” so that they can continue their education, could potentially benefit up to 6.6 million adult learners. At the same time, this would help states achieve their educational attainment goals and contribute to the strength of their economies, including increasing tax revenues. 

Such a program need not cost much, because individual institutions would benefit if canceling institutional debt led to students re-enrolling and paying tuition (perhaps with Pell grants or other forms of federal or state financial aid). If institutions in a system collaborated in implementing such a program, all could benefit compared to collecting 7 cents on the dollar, if students reenroll and stay enrolled. This would take effective advising, including discussions around a clear pathway to a degree or valuable certificate. 

Canceling this institutional debt would be well-targeted, in that it would affect those adult learners with some credits who have been prevented from continuing their education because of these debts. And, it helps keep credits that students had previously earned, and states and the federal government in many cases supported through financial aid, from being wasted. This directly reduces the costs of degree attainment across higher education. Compared to the projected Biden policy, which cancels $10,000 of debt for each borrower, many who can and would ultimately pay it back, institutional debts tend to be smaller, less likely to be paid back by those who have incurred them, and prevent individuals from finishing their degrees. 

President Biden’s debt forgiveness proposal will benefit many borrowers, including many who ended up being worse off after borrowing, with debt and no degree. Yet at the end of the day, these benefits will only extend to those currently in debt. We need to also address the challenges of increasing educational attainment, particularly for lower-income and underrepresented populations, whose educational attainment continues to lag. A functioning income-based repayment program would reduce the risks of borrowing to invest in higher education. In addition, a means of addressing institutional debt would allow significant numbers of those with some credits and no degree, estimated to be about 39 million adults, to continue their education and improve their lives.

Catharine B. Hill is managing director of Ithaka S+R and president emerita of Vassar College.