Should the Federal Government Forgive Student Loans?


The prospect of widespread student loan forgiveness makes for attention-grabbing headlines. With so many Americans feeling the burden of excessive student loan debt, it’s no wonder. Heck, I write about student loans because I’m a cautionary tale of what can go horribly wrong. My story is less one of excessive overborrowing than one that reveals the persistent flaws in the system.   

The federal student loan system is broken. Thus, forgiving even a portion of student loan debt per borrower, as an August 2022 White House announcement proclaimed for those making under $125,000, could address systemic problems and help millions of Americans who desperately need relief. 

But many have argued it will hurt the U.S. economy by adding to the total U.S. debt and that it isn’t fair to those who’ve already repaid their loans or never went to college. So as much as borrowers may welcome the move, you have to ask yourself whether it’s a good idea to forgive student loans.  

Should the Federal Government Forgive Student Loans?

I’m hardly alone in struggling with burdensome student loan debt. According to a Federal Reserve report on student debt from 2016-17, the average monthly student loan payment is almost $400. Many graduates struggle to afford these payments. Even before the pandemic, 20% of borrowers were behind. 

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Supporters of student loan forgiveness argue that eliminating some or all of a borrower’s student debt would reduce some of the harmful economic impacts of an indebted society. 

Because of otherwise limited 2020 U.S. Census data on student loan holders, the Committee for a Responsible Federal Budget has calculated how many borrowers forgiveness would impact and the government cost at multiple forgiveness levels.

Forgiveness Amount Borrowers Affected Borrowers Left Out Government Cost
$10,000 15 million 28 million $245 billion
$50,000 36 million 7 million $950 billion
Total forgiveness 43 million None $1.6 trillion

Some advocate for eliminating all student debt. But you can see how quickly these numbers could add up, making many apprehensive about offering that much student loan forgiveness and others staunchly against offering any forgiveness at all. 

But some type of help is desperately needed. As a borrower, I’m in deep with a degree I can no longer afford to use and a long list of the government’s broken promises. As an educator, I worry about my students taking on more debt than they can later manage. And as a mom, I worry about affording my son’s education in the next decade. But is student loan forgiveness the right route?

Arguments for Federal Student Loan Forgiveness

Advocates for student loan forgiveness have united around social justice issues, a failed federal student aid system, and the need for equitable economic recovery in the wake of the pandemic, rising inflation, and growing income inequality. Proponents argue there are several benefits to student loan forgiveness. 

It Would Boost the Economy

A 2019 report from the Federal Reserve Board found a definite correlation between student loan debt and delaying homeownership. And a 2022 joint Acorns and CNBC survey found that nearly half of the survey respondents under 35 said student loan debt caused them to put off buying a home.  

But homeownership isn’t the only thing at stake. 

Freeing nearly $400 per month in millions of household budgets would allow many Americans to stop living paycheck to paycheck. They could put money into savings, including retirement savings. 

Or they could help boost the overall economy by spending money on nonessentials like travel or entertainment. Increased consumer spending can be good for the economy and support job growth. 

And thanks to the student loan payment pause during the pandemic, we know how they would spend it. According to a Jan. 2022 joint CNBC and Momentive poll, 48% of survey respondents put the cash toward everyday expenses like groceries, 35% paid off other debts, and 14% saved it. 

But only those with higher incomes put the money toward paying off other debts or increasing savings. That implies that the more critical impact on the economy isn’t about freeing up money but averting financial catastrophe for the millions of Americans already living paycheck to paycheck who must resume making student loan payments when the payment suspension ends.       

Resuming payments means the two-thirds of Americans currently living paycheck to paycheck will be forced to forgo necessities. It could also mean defaulting on debts they can’t pay, including student loans.

In fact, according to a 2021 Pew Research Center study, one-third of all borrowers have defaulted at least once on their student loans over the past two decades, and that was before the pandemic and record-high inflation. And enrolling in an income-driven payment plan is unlikely to help because the plans don’t take into account other debts or daily expenses. 

Moreover, because bankruptcy isn’t generally an option, as it is with all other unmanageable consumer debts, those in default are subject to wage garnishment of up to 15% of their paychecks. And that doesn’t just hurt the borrower. Taxpayers end up paying the collection costs on those loans too.

Thus, the bigger question may not be to what extent forgiveness will boost the economy but what kinds of financial collapse it might prevent.

It Would Reduce the Wealth Gap

A college degree hasn’t proven to be the great equalizer everyone keeps promising impressionable high school students on the cusp of massive student debt. 

You’ve probably seen the 2022 Federal Reserve statistics and others like it: The top 10% of Americans own more than twice as much wealth as the bottom 90% combined. 

The massive disparity isn’t just about income. It’s about wealth creation, the ability to accumulate assets like a home, savings, and investments. And for those with student loan debt, this ability is severely crippled. 

When families and individuals live paycheck to paycheck, they can’t put aside money for emergencies, which could plunge them further into debt when unexpected situations arise. In a 2016 Prudential study, 55% of college graduates with student loan debt reported their debt was a barrier to saving for emergencies, especially in low-income households. 

It also means borrowers can’t save for retirement, which sets households up for financial distress down the line. 

According to a 2020 Fidelity Investments survey of nearly 60,000 borrowers, 79% reported student debt impacts their ability to save for retirement. And delaying saving for even a few years can significantly impact your overall savings since you won’t benefit from all the compounding interest your money could have earned over the years. 

For example, suppose you were to put $400 into an investment account every month from age 22 to 65. Assuming the historical average market return of about 10%, you’d amass over $2.8 million for your retirement years. 

But if you start just 10 years later because you’re busy using that money to pay your student loans, you’ll end up with less than half that amount at around $1 million.   

And that’s just math on paper. The Prudential study found that real student loan debt-free college graduates are able to amass a net worth nearly eight times that of graduates with student debt.  

As such, forgiving the student debt of millions of Americans could go a long way toward alleviating the massive wealth gap in this country. Not having student loans is even better for amassing wealth than the college degree itself. A 2021 report from the Georgetown Center on Education and the Workforce showed that college graduates only make about $1 million more than their high school degree-only counterparts. 

That’s a gap a high-school-only graduate could easily close by choosing a higher-paying job that doesn’t require a degree and making smart investments. An entry-level wind turbine technician can make around $40,000 per year and get up to as much as $70K the longer they work in the field. That’s a salary in line with college graduates but with no student debt and the potential to get into the workforce (and start saving for retirement) four years earlier.  

It Would Help Address Racial & Gender Inequity

Student debt hits minorities and women the hardest. Nonwhite and women (especially nonwhite women) borrowers are more likely to need student loans, require larger amounts, and struggle the most with repaying those loans. 

The stats are overwhelming, and you can read more from the National Center for Education Statistics, CNBC and Momentive, the Brookings Institute, the Brandeis University Institute on Assets and Social Policy), a 2022 University of California Merced-Princeton University analysis, and the Education Data Initiative. But suffice it to say that these populations would benefit greatly from student loan cancellation.

Girls and students of color are specifically told a college education is the key to overcoming their obstacles, but ultimately, student loans can stand in their way. Student loan payments just exacerbate the wealth inequality they already experience. 

Women get paid an average of 16% less than men, according to a 2020 Pew Research Center report. Historically, women have less accumulated wealth due to unbalanced motherhood-related career interruptions and child care duties; disproportionately low pay for female-dominated professions like teaching, child care, or social work; and outright gender discrimination. It’s worse for women of color because they face the dual prejudices of gender and racial discrimination.

According to turn-of-the-decade PayScale research, men of color get paid 9% to 13% less than white men, and women of color are paid 21% to 29% less. Historically, these individuals have less accumulated wealth due to hiring biases, workplace discrimination, and disproportionately low pay for professions they tend to dominate.  

A college education can’t counteract hundreds of years of inequity and present-day discrimination. Lower pay leads to less money to pay off those student loans, regardless of the reason. And that means affected individuals have a harder time saving for their kids’ educations. That only serves to further widen the gulf of racial and gender inequality, as it perpetuates generational obstacles to wealth equality.  

The Government & Servicers Have Consistently Mismanaged Student Loan Repayment

Perhaps one of the strongest arguments for forgiving some student loan debt is the ongoing flaws within the lending system. 

Look no further for evidence of the gross mismanagement of federal student loans than the Public Service Loan Forgiveness Program and income-driven repayment counts. 

Over the years, the government has unfairly denied hundreds of thousands of forgiveness applications under a longstanding forgiveness program. It allows people to work in public service jobs like the U.S. military, public school teaching, and nonprofits to receive forgiveness after a set number of years of service. Some denials were based on the government’s mismanagement, and other applicants were misled by servicers.  

Similarly, the government found issues after a review of the income-driven repayment program, which bases monthly payment amounts on the borrower’s income and forgives the balance after a set time. The Department of Education discovered servicers miscounted payments, causing some to continue paying much longer (and much more) than they should. 

And this isn’t the extent of the ongoing issues with student loan servicers, who contract with the government to manage and collect federal student loan payments. They’ve also been accused of steering borrowers into deferment and forbearance for years when an income-driven repayment plan would have better served them, driving up interest and the subsequent loan costs.  

And steps to fix these issues always come up short. The government recalculating income-driven payments or reconsidering forgiveness doesn’t go back and fix the different life decisions people made, such as not having kids or buying a house. It doesn’t make up for lost accumulated interest on money they’d have saved instead.

And even when borrowers win judgments against servicers, it stops short of compensating fully for the financial problems caused. For example, Navient’s multistate student loan settlement garnered only $260 per borrower, hardly enough to make up for the years of bad advice and actual money potentially cost per person. 

Given the circumstances, a modest $10,000 forgiveness seems like the least they could do for years of horrendous mismanagement resulting in additional loan costs and missed life opportunities for millions of borrowers.   

Arguments Against Federal Student Loan Forgiveness

Opponents of forgiving student debt argue that there are several reasons that student loan debt forgiveness is ultimately a bad policy move. 

It Costs Too Much Relative to Its Benefit

While forgiving student loans may be an appealing idea, the Committee for a Responsible Federal Budget report shows the proposal would cost the federal government more in lost interest and loan payments than it would boost the overall economy.

For example, forgiving just $10,000 of student debt per borrower would only boost the economy by $31 billion over three years, but it would cost the federal government $54 billion. And forgiving $50,000 of student debt per borrower would boost the economy $91 billion over three years, but it would cost $950 billion.

Yet, even the committee notes their projections don’t take into account the millions of borrowers who may never fully pay off their loans anyway because of participation in federal programs like public service loan forgiveness or income-driven repayment. 

Moreover, the government isn’t a business. It doesn’t need to make a profit. It simply needs to keep the lights on. And the government has been functioning just fine without taking in virtually any student loan payments for the past two and a half years. 

 That can’t go on forever, but there are potentially other areas where it could cut back on spending or take in more money to make student loan forgiveness a possibility. 

For example, the 2017 Tax Cuts and Jobs Act extended a $2.3 trillion tax break to millionaires and corporations. But rather than boosting the economy with new spending and jobs, a fact-finding analysis by Politico found it was slated to increase the federal deficit by well over $1 trillion over the subsequent 10 years. The recently passed Inflation Reduction Act will bring in more tax revenue from corporations, but most of the provisions targeting the ultra-wealthy didn’t make the final cut.

Ensuring the ultra-wealthy pay their fair share would be enough to forgive all the current student loan debt and then some. In fact, without the 2017 legislation, the federal government would have already taken in the required amount. 

It Mostly Benefits High-Income Earners

Opponents of widespread student loan forgiveness argue the policy would primarily benefit high-income earners since only about one-third of American adults have a college degree, as noted in a 2022 Pew report.

This argument rests on the assumption that those with college degrees automatically earn more than those without — as much as $1 million more over their lifetimes. Meanwhile, the average student loan debt is a paltry $38,000, which is hardly comparable.  

Further, most of the high debt balances belong to grad students, who have an even greater ability to make their loan payments — think doctors, lawyers, and MBAs. In fact, a 2019 analysis from the Brookings Institution shows that individuals in the top two income quintiles own over half the student loan debt. 

Thus, student loan forgiveness would amount to a giveaway to well-educated and wealthy professionals who can afford to pay off their expensive degrees. 

However, there are several flaws in this argument. First, while it’s statistically true that a college degree tends to earn you more than just a high school diploma, those are just averages, and it doesn’t hold for all degree-holders. 

According to the 2021 CEW report, 16% of those with only a high school diploma, 23% with some college education but no degree, and 28% of associate’s degree holders outearn more than half of those with bachelor’s degrees. And 36% of bachelor’s degree holders outearn those with advanced degrees.

And these aren’t just numbers on paper. A colleague’s brother, who has no college degree and no student loan debt, makes more than she does with a college degree and the debt to go with it. 

And getting even more education doesn’t help. My advanced degree (a doctorate) never earned me more than one-fifth as a professor (the reason I got the doctorate) of what my brother earns with only his bachelor’s. Even my husband, who has some college but no degree, outearns my teaching income. Yet I have more than 18 times as much student loan debt thanks to my 10 years of higher education.

Further, nearly 40% of those with student loans have debt but no degree six years after first entering college, according to the Hope Center’s Mark Huelsman’s analysis of data from the National Center for Education Statistics.

These borrowers don’t get the benefit of the higher paycheck that often comes with degrees, which means they struggle the most to pay it off even though they tend to have the lowest debt balances, according to statistics from the Federal Reserve.

Ultimately, black-and-white analyses of income versus debt don’t consider the daily impact of student loan payments. Most borrowers prioritize making monthly student loan payments over other financial goals. That’s roughly 20 years of several hundred dollars per month they can’t save for retirement or spend on things that benefit the economy. For some, it even keeps them one instance of bad luck away from eviction or foreclosure or signing up for welfare.

It’s those people who would benefit most from student loan forgiveness. 

It’s Unfair

Many argue against widespread student loan cancellation simply because it feels unfair to those who worked hard and already paid off their loans. Thus, current borrowers shouldn’t get a free pass.

However, this argument misses several crucial pieces. First, it implies those who haven’t yet paid off their student loans aren’t working just as hard. But working just as hard doesn’t guarantee the same income or opportunities.

Second, the cost of attending college, even public universities, takes a bigger chunk of the average American’s wages with each passing year, making it harder to pay off the student loans required for a degree.

Specifically, a 2018 Pew analysis shows that real wages (income amounts adjusted for inflation) have barely moved since 1964. By contrast, the cost of attending a four-year college — including tuition, fees, room and board (adjusted for inflation) — rose 166% during the same time frame, according to data from National Center for Education Statistics.

The result is that more students have been forced to borrow greater sums of money. Thus, it’s equally unfair to compare current borrowing conditions to past ones. 

That’s especially true when you consider that the students who owe money today were promised their educations would lead to a secure financial future. But for many, that hasn’t held because the government has failed to ensure minimum wage kept up with inflation. And it’s a problem that affects everyone since minimum wage affects all employees’ pay. Unlike its counterpart, trickle-up economics is real.

Moreover, the fact that a former borrower paid off their loans indicates that they could. A disproportionately large segment of current borrowers can’t.  

It’s also a strange condition of American politics that we don’t seem to have trouble giving handouts to millionaires, but when we talk about helping those who actually need a hand, it’s suddenly unfair.   

And finally, it’s a false argument from the start. Imagine that student loan debt is a type of cancer. If we discovered the cure, would you deny lifesaving medicine to those who need it just because those who came before didn’t have access?

Borrowers Have an Obligation to Repay Their Debts

The idea that anyone who took out a loan has an obligation to repay it is a similar argument to a lack of fairness. After all, if non-student loan holders can’t get the government to pay off their mortgages or credit cards, why should student loan borrowers get a bailout?

But there are also several issues with this argument. First, student loan debt is unlike any other consumer debt. If you get in over your head on credit cards or mortgages, bankruptcy is an option. That’s not the case for most drowning student loan borrowers. A student loan bankruptcy discharge is borderline impossible.

Further, we should remember that student loans, specifically undergraduate loans, are offered primarily to teenagers. So-called older, wiser adults consistently tell those who’ve barely entered adulthood they need to go to college to get a well-paying career, and student loans are how you pay for college. Student loan debt is even referred to as “good debt” by financial experts. 

But most borrowers are not well-informed about the debt they’re taking on, according to a 2016 focus group of college students published in the Journal of Financial Counseling and Planning. That holds with what I know of my students today in 2022. Few know anything about student loans, despite being told to sign away their futures. 

Even in my late 20s, I didn’t know much about student loans, despite having borrowed them for my undergrad degree. All I knew was that my bachelor’s degree wasn’t paying off, so grad school seemed like the next logical step. So not knowing what else to do, I borrowed massive sums to cover the cost of getting a Ph.D.

The simple truth is that I thought grad school was my ticket to a better life, and it ended up leaving me significantly worse off than if I’d never gone. And I’m not alone. According to a 2021 CNBC and Harris Poll survey, more than half of older millennials say student loans weren’t worth it.

But hindsight is 20/20, especially when so many adults, including financial aid counselors and financial experts, tell teens it’s worth it without qualification. That leaves student loan borrowers holding what may amount to snake oil with no way out. 

Existing Forgiveness Programs Already Exist

Another popular argument against student loan forgiveness points out that forgiveness options are already available. Thus, much student loan debt is already on track for cancellation.

But these programs — public service loan forgiveness and income-driven repayment — are fundamentally flawed. And decades of mismanagement isn’t the only problem.

For example, public service loan forgiveness only benefits those who work in public service and meet certain other criteria. One of these is the condition to work full-time for a qualifying employer. 

While it’s possible to string together multiple part-time jobs to meet the definition of full-time work, some public servants fall through the cracks. I’m a prime example. 

I’ve been teaching college for 15 years, often working at multiple schools at one time. Thus, I’ve spent years working 60+ hours per week, yet I don’t qualify for public service loan forgiveness because of how teaching hours get recorded for part-time (adjunct) teachers. 

And unfortunately, I’m not an anomaly. According to the U.S. Government Accountability Office, the vast majority (70%) of teachers in higher education are part-time teachers who must cobble together a living by working at multiple schools. Yet despite our public service jobs, we don’t qualify for public service loan forgiveness.

Income-driven repayment also has its issues. With so many programs, the system is a confusing maze for borrowers. And most must wait 20 to 25 years before they achieve forgiveness. 

Worse, because payments are tied to income and family size, many are locked into the trap of negative amortization. That’s when your monthly payments don’t cover the interest that accumulates on them, so your balance continues to grow, despite making payments.

For example, I’m in income-driven repayment, and my monthly payment is about $650, but my loans accumulate $1,800 in interest every month. If my income grows at the average rate of only 5% per year, when I reach forgiveness after 25 years, I’ll have repaid my original loan amount but still owe three times what I borrowed. 

Theoretically, I should get that loan balance forgiven. But income-driven repayment comes with a potentially colossal tax bomb. Although student loan forgiveness is currently tax-free through 2025, unless made permanent, starting in 2026, forgiven balances will be subject to income tax. 

That means that even after my loans are forgiven, I’ll owe another $180,000 in income tax — close to the original amount I borrowed, making income-driven repayment forgiveness meaningless. 

Granted, even $50,000 of student loan forgiveness doesn’t help grad students with multi-six figure debt. But it’s worth noting that the current system doesn’t necessarily cancel any debt either.

It’s Only a Temporary Fix

Opponents argue that forgiving some student loan debt may help current borrowers, but it does nothing to fix the system for future borrowers. It also doesn’t do anything to make college more affordable or to counteract the fact that some college degrees never pay off. 

In fact, a 2022 Committee for a Responsible Federal Budget report estimates that outstanding student loan debt will return to its current level by 2027 with just $10,000 of forgiveness per borrower, 2034 with $50,000 of forgiveness, and 2039 for complete cancellation.

However, student loan forgiveness doesn’t have to be an either-or situation. It can be a yes-and one, as Anne Lowry argues in The Atlantic. 

Forgiveness may not solve all of America’s problems with higher education and equality, but it would still do some good. And the broken lending system also needs to be fixed.

The Verdict: Is Federal Student Loan Forgiveness a Good Idea?

Everything the government “privatizes” (slang for letting their rich friends and donors use government functions to make more money) turns to fool’s gold — and the rest of us are the fools. See the post office and the private prison system. 

As Josh Mitchell explains in “The Debt Trap,” the student loan industry is rife with scams, predatory lending, and government malpractice. The industry has massively profited off the exploitation of the lower and middle classes while banks have filled their own pockets. And it’s left a generation of victims ensnared in crushing debt with no real way out.   

Moreover, if the kind of harmful mismanagement federal student loan servicers have practiced for decades were carried out by a private company, they’d be required to cancel the debt. 

Case in point: the massive, multistate class action suit against Navient. While Navient barely had to compensate the federal borrowers it serviced for the harm done, it was required to forgive its predatory private loans — as it should have.

Yet the federal government is just as culpable. Its student loan servicers have engaged in mismanagement for years, pushing borrowers into programs that have cost them money or ruined their financial lives, all in the name of profit. 

But policymakers have consistently favored the companies who take advantage of borrowers over the victims of their deceptive practices, as detailed by The New York Times. 

Even the Department of Education’s own Office of Inspector General issued a federal student aid report in 2019, noting that the government failed to adequately oversee servicers, who committed a host of violations at borrowers’ expense. And as the National Consumer Law Center reports, in 2021, that mismanagement locked millions into debt.

Thus, it’s time the government — and the student loan industry — lived up to its promise. Student loans originated as a way to give higher education access to those who couldn’t otherwise afford it. But in the intervening decades, it’s become a profit machine for lenders, servicers, and the federal government at the expense of those the loans were designed to help. 

And if the federal government can afford to bail out banks, as it did in 2008, to the tune of more than $1 trillion, it can do the same for the American people.

At the least, it can afford to forgive $10,000 per borrower. After all, as the Urban Institute calculated, it would add nothing to the national debt right now. The money is already lent. It would only marginally impact the deficit in the future when the loans and interest aren’t repaid. 

But even then, the impact could be very minimal due to factors like rising interest rates on current and future student loans and other economic policies that could add future revenue. Further, so many borrowers enter federal forgiveness programs like income-driven repayment anyway that the actual impact of widespread forgiveness on the national deficit is likely significantly less than calculated.  

But questions of affordability aside, in all fairness, the federal government has an obligation to immediately cancel all the debt because the extensive mismanagement and failings of the industry have resulted in millions of borrowers being wrongly harmed by a broken system.  

It can recoup the money by taxing corporations or the wealthy or by sanctioning those who are truly responsible for the student debt crisis — banks and servicers — instead of continuing to harm the victims of their malpractice. And then, it can fix the system for future borrowers, who shouldn’t have to suffer under the same harmful conditions.      

Alternatives to Student Loan Forgiveness

The federal student loan lending system is unquestionably broken. Without significant fixes, the student debt crisis will continue whether or not the federal government forgives some amount of student loans. Thus, it’s crucial to fix the system before it harms more borrowers. 

Reinstate Bankruptcy Protections for Student Loans

Many opponents of widespread student loan forgiveness claim it’s a bad idea because it will indiscriminately forgive the loans of those who can easily pay them in addition to those who can’t. But there’s a simple fix, and it even has bipartisan support: Reinstate bankruptcy protections for student loans. 

Unlike all other forms of consumer debt, student loan debt is virtually impossible to discharge in bankruptcy thanks to a long history of lobbying by banks. 

But bankruptcy is referred to as a “borrower protection” for a reason. It protects those who borrow all types of debts by giving them a fresh start when their debts become unmanageable. It also puts a check on predatory lenders, as explained by Alan Collinge, founder of the grassroots organization Student Loan Justice. 

In August 2021, a bipartisan bill was introduced to Congress to allow students who’ve been in repayment for 10 years and qualify for bankruptcy to discharge their federal and private student loans. That’s exactly the kind of relief that would help borrowers like me, who find themselves unable to pay their debt with no way out. A bill like this one should immediately be passed through Congress.   

End Negative Amortization

We’ve all heard the horror stories of people owing more on their debt years down the road despite making payments. I’m one of them. That’s because income-driven federal student loan repayment plans, which tie your monthly payment to a portion of your income, allow negative amortization, paying less than the interest due on your loans every month. 

Usually, when you pay on a loan, even a very high-interest rate loan, some of your minimum payment goes toward the interest and some toward the principal (the original amount borrowed). That allows you to pay the loan down over time, even if it takes decades.

But many borrowers, including myself, see their student loan balances grow exponentially despite making payments. That means you end up paying just to get further into debt.  

That might not be a problem if one’s balance gets forgiven at the end of the income-driven repayment term. But there are two complicating factors. 

First, if someone’s income increases to the point where they’re no longer making payments tied to their income, they’re now responsible for all the accumulated interest in addition to their principal balance. So, in effect, they’re penalized for getting stuck in a low-income job and then finding a better one.

Second, there’s the tax bomb that comes at the end of income-driven repayment plans, which could have you paying taxes on a forgiven balance larger than the one you originally borrowed.

A simple fix is to end negative amortization. If borrowers qualify for income-driven repayment and their payments are less than the interest that accrues, the federal government should waive the interest. And if borrowers reach a point that they qualify to make payments larger than the amount of interest due, it can reinstate the interest.

Make All Student Loan Forgiveness Tax-Free Forever

Unless the temporary tax-free student loan forgiveness granted as part of the American Rescue Plan becomes a permanent law, borrowers could end up owing tens of thousands in income tax after spending decades paying off tens of thousands in student loans. 

Thus, if you, like most borrowers, don’t have access to that kind of money, you end up making years of payments to the IRS just when you thought you were finally done with your student loans. That makes forgiveness on an income-driven repayment plan next to useless.

Expand Pell Grants

The original purpose of federal student loans was to give those who couldn’t otherwise afford it access to a college degree. In essence, it was to create a more equitable society. But over time, student loans have only further widened the gap between the wealthy and those with lower incomes. 

One potential solution is to expand the amount of the Pell Grant, a form of unrepaid financial aid awarded to students with financial need. 

When Congress first created Pell Grants in 1973, they covered roughly 80% of the cost of attending a public, four-year college. Today, they cover less than 30%, according to a 2020 report by the Congressional Research Service. 

Returning them to a size proportionate to the original would significantly reduce the need for reliance on student loans by lower-income students. 

But that doesn’t need to fall solely on the federal government. Several states have their own grant programs, and some have even expanded them in recent years. One example is the MassGrant Plus program, which covers up to the total cost of tuition and fees at Massachusetts community colleges and state universities.

Fix Gaps in Public Service Forgiveness

The federal government has taken a few steps to fix the severe problems with the Public Service Loan Forgiveness Program. That includes initiating the temporary waiver, which allows those who’ve paid under the wrong type of payment plan or with the wrong kind of student loans to get credit as long as they’ve worked for a qualifying employer.

But that fix doesn’t go far enough. Some individuals who should qualify under the guidelines don’t, such as the vast majority of teachers in higher education, as noted by the American Association of University Professors. We fall through the cracks for bureaucratic reasons, even though we should qualify for debt relief.

However, the Biden administration is currently considering changes that could grant contingent faculty access to public service loan forgiveness. That’s much-needed relief for those already working in a harsh profession.

Fix Issues With Income-Driven Repayment

Many college graduates can’t afford monthly payments on the standard 10-year timeline, which leads them to enroll in an income-driven repayment plan. 

But income-driven repayment comes with a host of its own problems, including multiple repayment plans with differing sets of eligibility criteria, differing repayment terms, and differing monthly payment amounts that aren’t fair to all borrowers — especially grad PLUS and parent PLUS loan borrowers.

Another glaring problem with income-driven repayment plans is that they don’t consider other debts, including private student loan debt. That often means borrowers must forgo enrolling in income-driven repayment and opt for years of deferment and forbearance, which significantly increases the cost of their federal loans.

For example, I had to borrow private loans for grad school because the grad PLUS loan didn’t yet exist. I couldn’t pay my private and federal loans simultaneously, so I had to defer my federal loans. But deferment caused my federal loan debt to nearly double within six years.  

Moreover, those with student loans are more likely to have other kinds of debt because their monthly budgets don’t go as far. For example, the CNBC and Momentive poll found that 47% of student loan debt holders have a car loan compared to 35% of those without student loans. And 24% have medical debt compared to only 10% of those without student loans. 

To fix income-driven repayment, all debts and household expenses need to factor into the monthly payment formula. Additionally, the payment plans should be streamlined into a single program with one set of eligibility criteria, one income-driven amount — such as 10% or less — and one length of repayment term for undergraduates and grad students. That would make it fair to all borrowers. 

Final Word

Student loan debt cancellation would be life-changing for millions of borrowers. Beyond merely freeing up some of their monthly budget, it would enable them to build emergency savings, retirement investments, and even become homeowners. 

Further, research such as a 2019 working paper published by Harvard Business School shows that when student debt is canceled, people are more able and likely to create or invest in small businesses, attain more advanced degrees, move to where they want to live, and do work they love.

But it’s also crucial to fix the broken lending system to prevent further issues for current and future borrowers. To make real and lasting progress, we must focus on forward-moving solutions that address the actual problems and make education and borrowing more equitable for all.

In the end, the debate over federal student loan debt should no longer be about whether we do something, but what we will do.

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