Experts weigh in on the debate over student-debt forgiveness

The third school was the charm for Metropolitan State University of Denver alumnus Ryan.

After two false starts at other colleges, he transferred to MSU Denver and graduated in 2017 with a degree in journalism and media production. He works in marketing and is grateful to have a job that supports his family, especially during the pandemic.

But Ryan, who is in his mid-30s and asked to be identified by his first name only, said paying off student loans he incurred at three universities is an uphill battle. The $350 monthly payment he makes on that debt, he said, forces his family to put off purchases that they need.

“Finally getting that degree was 1,000% worth it, but even if I pay $150 more each month, it’s just barely chipping away at what I owe,” he said. “It’ll follow me for years to come. I’m going to be my parents’ age before I finally pay those loans off.”

Ryan’s situation is all too familiar to those who take on debt for the promise of a better life via higher education. The nearly 43 million recipients of federal student loans – Perkins, direct and Federal Family Education – equates to a balance of more than $1.5 trillion.

The economic downturn caused by the Covid-19 pandemic has accelerated debate around President Joe Biden’s campaign promise to forgive some student debt. He has proposed a program that offers $10,000 of relief for borrowers but did not include it in his larger Covid-19 rescue bill. Biden also recently shot down proposals to cancel up to $50,000 in student loans floated by U.S. Sens. Elizabeth Warren and Chuck Schumer.

While writing off student debt in any amount will almost certainly provide short-term relief, it does not address the systemic disparities in student loans, said Rey Hernández-Julián, Ph.D., professor of economics and finance at MSU Denver.

“The problems of ‘stock’ versus ‘flow’ are two separate questions,” he said. “Providing relief definitely relieves short-term burdens on individuals – the debt stock – but does nothing to fix how we got here in the first place – the flow.”

Instead of a large one-time debt cancellation, Hernández-Julián would prefer to see an alternative of keeping interest rates low and providing flexibility in forbearance for those who have lost jobs.

A more targeted approach, for instance, might cap interest rates at 2% or even 0% for the first $100,000 borrowed, Hernández-Julián said, allowing borrowers to chip away at principal owed to reduce overall debt stock. Such an approach distinguishes relative burdens faced by newly minted physicians (who take on large amounts of graduate-level debt but also enter the job market with six-figure salaries) versus entry-level teachers making $36,179 on average in Colorado.

It’s also important to acknowledge the political motivation behind the conversation, Hernández-Julián said. Comparative relief on higher-interest debt burdens of credit cards or auto loans would go further as a progressive relief effort, since those who go to college end up better-positioned financially – with the notable exception of those who take on loans without the payoff of a diploma.

“If you’ve got a 2.5% rate for mortgages while student loans are at 5%, you have to ask what we’re subsidizing,” he said. “Any policy on debt relief should focus on those who are on the margins of attendance. A place like MSU Denver is great because that’s exactly what we do.”

Mortgaging your future

The bigger picture when it comes to the student-loan debate is centered on wealth accumulation and access to the building blocks of social mobility.

For a school such as MSU Denver, which serves large populations of veterans, women and the underserved, loan forgiveness would be a welcome short-term relief at any level, said Will Simpkins, Ed.D., vice president of Student Affairs and Services.

“It’s not just about personal financial situations,” he said. “We have entire communities of color and first-generation students hamstrung by the process of building intergenerational wealth. They’re literally mortgaging their future to come to college.”

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Student costs go beyond tuition, Simpkins said. For instance, those who forgo employment while they go to school incur higher costs than those who can stay in the workforce.

While federal financial-aid formulas attempt to keep pace with the escalating cost of higher education, that rarely happens when factors such as housing, transportation and books are included.

As a result, MSU Denver students who pay what are among the state’s lowest four-year tuition rates are still carrying an average debt load of about $25,000, according to University data.

“Since the 1990s, states are de facto telling students that in order to access this wealth-building mechanism, we expect you to take out more and more debt,” Simpkins said. “And we have the proven models that help students succeed: resources through our Office of Financial Aid and programs like Brother to Brother, TRIO Student Support Services, Transfer Peer Mentors and our Health Scholars.

“But you can’t fund them at 60 cents on the dollar and be able to scale those outcomes.”

Is debt inevitable?

The pinch of loan debt is an inevitable part of Mel Glenn’s reality.

The 2013 biology graduate worked full-time while attending MSU Denver, yet still had to borrow substantially to cover her cost of living in the increasingly pricey Front Range metropolitan area. Now, she has struggled to make a dent in the loan’s principal balance, with the vast majority of her payment going to the ever-expanding interest.

“It was never an option not to, though. I couldn’t go back to making minimum wage and trying to piece things together,” she said.

Today, she puts her degree to work in mosquito control, a job she enjoys. But not much is left of her paycheck after factoring in rent and other monthly bills. And like Ryan, it has forced her to negotiate her future. Graduate school in biology would be a career-advancer, but she feels that her current debt limits her options. Even with full or partial funding for advanced study, many research or academic jobs she would qualify for would make the salary trade-off marginal.

In a landscape where workforces turn to higher education for post-pandemic skills retooling, doing more with less is a truism requiring radical reimagination of educational infrastructure for individuals and institutions. Glenn sees the conversation around debt-relief funding as a starting point but is ambivalent about its outcome, as $10,000 would be a “drop in the bucket” for her current situation.

“People don’t think of college students in their 30s like me, but that’s exactly the population trying to advance themselves by going to college at MSU Denver,” she said. “It’s a great place to do that but definitely still a struggle to make it all work.

“I will die with this debt; I will never get out.”