By Justin Draeger, NASFAA President
Student loan forgiveness has been front-and-center in the news recently, and for good reason. President Joe Biden signaled a willingness to tackle student loan debt as a part of a larger effort to combat the ongoing pandemic, but recently panned the prospect of using executive action to provide $50,000 in forgiveness to each borrower, as proposed by a number of congressional Democrats.
With such a significant higher education policy change being discussed at the national level, NASFAA recently recorded a special episode of our “Off The Cuff” podcast where we invited Tamara Hiler of Third Way, Preston Cooper of the Foundation for Research on Equal Opportunity, and Persis Yu of the National Consumer Law Center to dive into all angles of student debt forgiveness. Our guests shared their perspectives on how much, if any, student loan debt should be forgiven, as well as who it should be targeted toward, the main benefits of widespread debt forgiveness, and what should happen with the students who will take on loans again next year.
These are topics NASFAA’s Board of Directors has been mulling over as well. In fact, this last January, just before the inauguration, we had a robust conversation where we looked at the pros and cons of widespread student loan forgiveness, and delved into datasets to see who would and wouldn’t benefit. Perhaps most importantly, we scrubbed these policy proposals against NASFAA’s Core Advocacy Principles. On the surface, forgiving student debt seems like a no-brainer, but to make it effective, there’s more we need to consider.
First, we must acknowledge that student debt forgiveness would absolutely benefit borrowers. It’s self-evident. What’s less evident is whether all borrowers need help. The distribution of benefit — whether at $10,000 or $50,000 — would be uneven, and would, in fact, benefit a lot of folks who can successfully repay their loans. Today, 60% of the outstanding loan debt belongs to borrowers with incomes over $74,000. Using funds in this way, without regard to need, cuts against one of NASFAA’s core policy and advocacy principles: “to promote fairness and equity for students, with an emphasis on low-income students.”
Second, while money is flowing fast and furiously in Washington, D.C. to combat the economic fallout of COVID-19, we still live in a world of limited resources, and in that world, NASFAA continues to place, as our priority, using limited funds to “stress the primacy of need-based aid” and to support policies that address the needs of disadvantaged students and borrowers. That means our priority is to boost spending of the student aid programs that decrease the need for borrowing. To put it more bluntly, given the choice and where we apply our advocatorial muscle, we would rather double the federal Pell Grant than forgive massive amounts of across-the-board loan debt.
Hearing this, some will be quick to point out that we can “walk and chew gum” simultaneously. To that I would say “Yes, we can … as long as one doesn’t negate the other.” In an ideal world, forgiving loan debt wouldn’t preclude boosting existing federal grant programs and we wouldn’t have to make these types of “either/or” choices, but public policy, by definition, is a series of choices and priorities.
Third, and this is an area that unfortunately gets glossed over most frequently, NASFAA supports policies that encourage simplicity and predictability. Wiping out student loan debt probably meets the first requirement — simplicity (leaving aside which loans would qualify for this, federal or private, FFELP vs. Direct Loan vs. Perkins) — but certainly does not meet the second — predictability.
What happens the year after forgiveness is granted, when students and borrowers will borrow another $100 billion? How often will student loans be forgiven? Is this a one-time forgiveness measure? Is it ongoing? Will we adopt the ancient Jewish tradition of Jubilee, wiping out loan debt every seven years? A “Band-Aid” approach doesn’t do enough to stop the next tide of borrowing next year. And here’s where the process matters: even if the president believes he can wipe out much of the existing student loan debt, he certainly cannot increase need-based aid without Congress. Fixing the back end without fixing the front end puts us on an unsustainable and unpredictable path.
Fourth, and finally, our biggest concern may be how this very conversation has already crowded out real, meaningful, long-term improvements we can make to the federal loan programs, some of them today. While there are several legal questions about what the president can or can’t do to forgive student loans unilaterally, here are practical things that we know the president could do today, or which Congress has already reached some bipartisan agreement:
- Lower interest rates, and even set them to 0% as needed.
- Eliminate origination fees. This last year, NASFAA and thousands of other organizations received loans from the Small Business Administration. Our origination fees? $0. Students and parents should get the same deal.
- Immediately stop all negative amortization. Students should not have larger debts in the middle of repayment than when they began.
- Halt all collections and stop putting borrowers into default. This is an antiquated and punitive system that is a vestige of a bank-based lending system. It makes no sense today.
- Improve the income-driven repayment system to automatically put people into protective repayment based on income and tax returns, and by simplifying the number of plans.
- Boost federal grants so that low-income students, disadvantaged students, and populations of color who are disproportionately impacted by regressive loan policies — including Federal Parent PLUS loan policies — are no longer put further behind due to loan debt. The best student loan program would be one where low-income students aren’t reliant on student debt, and where others use them as an exception, not the rule.
So, where does NASFAA stand?
In the 24-hour, sound-bite news world, where everything is boiled down to a binary choice, it’s tempting to corner people into “for” or “against” positions. But as a society, we’re coming to understand that we are anything but binary, especially when tackling complex issues. Student debt issues are complex, and our response is going to need to be tactically flexible, while remaining fixed in principle.
In short, NASFAA is not against debt forgiveness, but we do believe that forgiveness in the absence of longer-term, systemic improvements to the loan program and front-end investments in grant programs is a short-sighted, poorly-targeted policy that overshadows other meaningful changes we can make to loans now. Our priorities remain squarely focused on using limited federal resources to move the needle as much as possible on access, completion, and repayment. This requires a change in policies, not a one-shot quick fix.
Justin Draeger is president and CEO of the National Association of Student Financial Aid Administrators, a nonpartisan, nonprofit organization that seeks to shape the future by promoting student access and success in higher education.