College affordability, Debt Cancellation and a Path to the Future.

In my experience, when a fresh college graduate steps into the world of opportunities, college debt is a barrier that delays almost all the important milestones of their lives, including starting a family and buying a house. Expensive tuition is a major factor that leads to building up individual college debt. But no lawmaker is discussing the impacts of increased tuition. All they want to do is to treat the symptom without properly diagnosing the disease.

On Jan 26., Senator Elizabeth Warren (D-MA), Senate Majority Leader Charles E. Schumer (D-NY), along with 80 senate and house colleagues, urged President Joe Biden to use his authority to cancel student debt up to $50,000. “Canceling $50,000 of student debt would give 36 million Americans permanent relief and aid the millions more who will eventually resume payments their best chance at thriving in our recovering economy. In light of high COVID-19 case counts and corresponding economic disruptions, restarting student loan payments without this broad cancellation would be disastrous for millions of borrowers and their families,” they wrote in a joint statement.

They also argued that “President Biden has the legal authority to cancel student debt under section 432(a) of the Higher Education Act of 1965,”which says that the Secretary of Education can "enforce, pay, compromise, waive, or release any right" to collect on federal loans.

Biden extended the loan pause, which began during the COVID-19 pandemic, on Dec. 22, from Jan. 31 to May. 1 stating “millions of student loan borrowers are still coping with the impacts of the pandemic and need some more time before resuming payments,”

While the progressives advocate for student debt cancellation, Congressman Ted Budd (R-NC), along with GOP lawmakers, released a letter informing Education Secretary Miguel Cardona that "the Department [of Education] does not have the legal authority to cancel student loan debt en masse."

My reading is if this navigates toward a legal battle it might be a tough one. 

The argument by progressives involves a memo from the Legal Services Center of Harvard which cites specific provisions from The Higher Education Act of 1965. A summary of that memo reiterates that the secretary of education has been granted an "unrestricted authority to create and to cancel or modify debt owed under federal student loan programs'' by Congress. The above power is granted in a section of the Higher Education Act of 1965 that says the secretary may "enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption."

Although this memo interprets the powers of the education secretary in this manner, broad forgiveness via the executive branch has yet to be challenged in court to establish any precedent.

The interpretation of the act elaborates on the idea that it did not impose limits on the secretary's power. Its opponents argue that "unrestricted authority" should be practiced and applied, case-by-case, and does not apply to broad forgiveness.

The Antideficiency Act — which prohibits executive branch officials from spending money that Congress has not appropriated, is a piece of legislation that can run counter to the ability of the secretary to cancel debt.

Previous Education secretaries have gone out of their way to construct a legal memo of their own, making a case against executive authority.

Regardless of what the Department of Education, progressives or opponents believe here, this issue will most likely be litigated. And the arbitrator is going to be the legal system — “courts”.

The legal system is going to rule on whether the executive branch has the statutory and constitutional justification to unilaterally claim all authority over loans without Congress.

This could be a long process.

Instead of relying on the route of cancellation the U.S. Government should mandate maximum tuition prices for schools. This mandate would have to be substantial, though, to help. This route will only work for state schools since private schools probably wouldn't be included, but instead would opt out of federal grants.

Considerable weight should also be given to the missing point in this student loan debate — rather than the total amount owed by a borrower it is the borrower's monthly payment compared to income that matters a lot.

If there is loan forgiveness in the works, I will advocate for its approval, as student debt is a huge factor that ruins the lives of students. But in the meantime, I don’t believe this is a permanent solution to the problem.

According to the U.S. Department of Education, as of 2021, there are over 43 million borrowers across the nation owing up to $ 1.6 trillion in student loan debt. This is beyond the nation’s credit card and auto debt. 

Loan forgiveness is a very temporary solution. Not only are people going to continue to take out loans the day after any amount is forgiven, thus continuing the cycle,  there would be such an enormous political backlash that it would stall any conversations to resolve the student debt problem and education crisis moving forward.

What we should hear more about is reducing interest rates. Cutting the interest down from 3.73% to whatever amount is necessary to cover the administration costs, for example if it is around 0.5 - 1.5%, would save borrowers thousands of dollars, and it addresses the existing loans people have, as well as the new loans people will continue to take out.

This will also buy some time to address the college affordability issue, which will not be an overnight fix. There needs to be a bigger change than just forgiving current loans. Without addressing the outrageous costs of higher education, and the way many universities price gouge students through things like housing, meal plans, and campus fees that amount to more than tuition, it is unlikely that we see a long term solution for the student-debt crisis.

Another main reason for the student-debt crisis is the lack of financial literacy education. Higher educational institutions should consider the report “Best Practices for Financial Literacy and Education at Institutions of Higher Education” published by the U.S. Financial Literacy and Education Commission in 2019.

This commission calls for the educational institutions to provide students with “clear, timely, and customized information to inform student borrowing” in financial aid letters and other documents related to financial literacy. They also recommended that educational institutions “require mandatory financial literacy courses, deploy well-trained peer educators, integrate financial literacy into core curricula, and communicate with students about financial topics more often than during required entrance and exit counseling.”

At MSU, the Office of Financial Education offers these courses monthly and it is a great resource for students to become more financially literate. (https://www.montana.edu/aycss/financialedu/) 

Another aspect that colleges should focus on is incentivizing students to graduate on time. This will have a considerable impact on the student-debt crisis. Students should also understand the importance of their graduation and the career paths they plan on getting into so that they have a vision of what their financial future is.