By Pete D’Amato

As economists, congressional leaders and the White House argue about how to resolve the nation’s student loan debt crisis, the debate is coming down to one sticking point: What dollar amount should the U.S. forgive for borrowers?

The tension was on public display at last week’s CNN town hall, when President Joe Biden told a questioner he was prepared to write off $10,000 of debt but not $50,000. The fact that the exchange happened at all shows how fast the policy of student loan forgiveness has been embraced, transforming from a somewhat radical idea with roots in Occupy Wall Street to a potential policy tool under the Biden administration.

“I’m comfortable saying I've evolved,” said Judith Scott-Clayton, an economist with the Community College Research Center at Teachers College, Columbia University, about believing some form of forgiveness should be enacted now. (The Hechinger Report is an independent news organization located at Teachers College.)

Scott-Clayton has spent years studying the data on student loan debt and defaults. In a 2018 study, her analysis of U.S. Department of Education data found that Black borrowers had defaulted at more than twice the rate of White borrowers within 12 years of enrolling in college. Although her policy prescriptions then focused on income-driven repayment plans, in the intervening years data has shown the limitations of such programs. She now believes some degree of immediate loan forgiveness must be enacted for students these plans have failed to help, and suggests those who have remaining balances be automatically enrolled into income-driven repayment plans in order to prevent debt from reaccumulating.

“I think it's really a combination of different things,” she said, “including a better understanding of student loan defaults, and a better understanding of how many people were not really being served well by income-driven repayment plans.”

This week, The Hechinger Report released analyses of Federal Reserve survey data that give a clearer picture of how U.S. borrowers have accumulated trillions in student debt and of who might benefit under various forgiveness plans. Our reporting supports findings such as those of Adam Looney of the University of Utah and Sandy Baum of the Urban Institute showing that upper-income households hold an outsized share of the debt and would see the highest values of debt forgiveness. The analysis also shows that along dimensions such as family wealth and race, the picture is more complicated. Black households have been particularly impacted by student loan burdens in such ways that limited forgiveness plans may not offer adequate relief.

Income-driven repayment plans also have unintended effects on borrowers. Borrowers who enroll can see their balances rise over the first several years. That growth can continue if incomes remain low, and even though the debt is forgiven after a period of 20 to 25 years of payment, the rising debt is reflected in credit histories, according to A. Wayne Johnson, a former senior Department of Education official under President Donald Trump.

“Even people in good standing are getting hammered,” said Johnson. In addition to supporting universal cancellation up to $50,000 in debt, Johnson would like to see a policy that removes people’s negative credit bureau marks. “Then they’d be able to rent apartments, get jobs and maybe even buy houses,” he said.

With student loan debt repayment essentially paused amid the coronavirus pandemic, some form of cancellation would offer relief to families holding debt and would clear out potentially millions of Americans with low balances from the student loan servicing system, allowing the focus to turn to more complex cases.

“There’s going to be a moment when payments restart,” said Scott-Clayton. “While you're thinking about the bigger picture of reforms that will be sustainable over the long term, it's pretty sensible to me to just clear out the underbrush.”

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SUBJECT LINE: Student loan forgiveness idea gains momentum

By Pete D’Amato

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