The “Value” of Student Debt – and the People Who Hold It

The “Value” of Student Debt – and the People Who Hold It

May 17, 2021
By: David Bergeron

A recent Wall Street Journal article questions the “value” of the student loans held on the books of the U.S. Department of Education. The article reports that a retired banker had reviewed those books and determined that recent changes in repayment patterns, particularly among those who default but are attempting to repay, means that the federal government is losing money on these loans. The banker concluded that these loans are therefore increasing the national debt, not reducing it, despite prior estimates which project that the government would make a substantial profit.

If that is true, that’s good for those of us that have been advocating for full cancellation of student loans. It just got much cheaper. A lot cheaper. But what do we mean, exactly, when we talk about the “value” of student loans? The underlying assumption of the article and, more cynically, the response from critics of the federal student aid system is that investments in our nation’s college, university, and post-secondary career education training are only worthwhile in if they make taxpayers money. That’s not how we should think about students, or their debts. It brings to mind the old adage about people who know “the price of everything, but the value of nothing.”

The original approach to student loans – first, in the Perkins Loan program, and then in the Federal Family Education Loan program – was that taxpayers would provide funding to reduce the cost of borrowing for students. For example, student loans were always discharged if the borrower died or became totally and permanently disabled. Sadly, but inevitably, the number of student loan borrowers that have died or become disabled has increased as a result of COVID-19. Increased unemployment has also made it harder for many borrowers to make payments.

Public service has also been considered part of the “value” of student loans. Repaying loans through service has also been an important way for borrowers to satisfy their obligations to taxpayers. Indeed, most federal student loans can be cancelled, in whole or in part, if a borrower goes into teaching. In the fiscal year 2019 alone, a total of 39,600 Federal Direct and Family Education Loan borrowers had $372.7 million in student loans cancelled for teaching. In recent years, this cancellation was expanded to include other kinds of public service. Under programs of public service loan forgiveness, a total of 5,960 borrowers had nearly $385.7 million cancelled through November 2020.

Borrowers can also have their loans discharged under certain conditions if the postsecondary institution they were enrolled in closed before they completed their program of study. Through June 2020, a total of 31,300 borrowers had more than $350 million cancelled for this reason. An additional 61,511 borrowers that were determined to have been defrauded by the institution they were attending have had their loans cancelled with, sadly, many more waiting to have their claims adjudicated.

Finally, there are a small but growing number of borrowers that have been repaying their student loans for decades under an income-driven repayment plan that cancels the amount which exceeds their payment limits. This group will, undoubtedly, grow in part as a result of the impact of COVID-19 on the U.S. economy but it will also grow simply because wages – even among college graduates – have not kept up with the increases in student debt.

The Wall Street Journal’s article was based on a false premise. The value we derive from students is not fiscal, but social. The value lies in the contributions each of them can make to the economy, to society, and to the people around them. Student debt is not the value we should be concerned about. On the contrary, we need to free people from this debt so that they – and we – can prosper.

David Bergeron is currently retired and previously served 30 years in a variety of roles at the U.S. Department of Education including as acting Assistant Secretary for Postsecondary Education. He also was Vice President for Postsecondary Education Policy and then Senior Fellow at Center for American Progress.

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