Student debt fears lower the bar for low income students

As the pandemic stretches on, President Biden has come under pressure from Democrats to cancel student debt in amounts larger than he has supported. They argue the move would narrow the racial wealth gap and help lead an economic recovery and they have demanded immediate executive action.

Biden has promised to address student debt but spoken in terms of only $10,000 in relief. This month, Senators Charles Schumer, Elizabeth Warren and others called for $50,000 of debt to be forgiven for any American, regardless of income level, raising the ante against prior Senate and House resolutions that called for smaller amounts of relief. 

With the political rhetoric so charged and a major policy decision potentially looming, I decided to look closely into the issue of how college debt affects low-income students in higher education and their families. Over the last year and a half, after talking with many in different parts of the country, I observed first-hand the crumbling of the national promise to provide equal access to higher education and educational opportunity to all.  

I came to the realization that the problem is less that low-income students and families are taking on too much debt, than that they frequently take on too little. 

The national debate over the student loan crisis and the many stories of students saddled with decades of college loan payments has convinced many low-wealth families to avoid educational debt at all costs, even though, for all but the wealthiest families, financial success in America often depends on undertaking some debt. 

The goal of Congress and the White House should thus be to ease the path to and through higher education prospectively — by providing access to inexpensive loans — rather than simply relying only on loan forgiveness after graduation.

Consider one student I got to know in my travels — a graduate of the advanced, international baccalaureate curriculum of her Chicago public high school, who now studies psychology at her local community college. Her first name is Kim. Faced with a financial aid gap of around $15,000 to attend the University of Iowa, her cheapest four-year option and first-choice college, she decided to stay home, rather than take on loans. Her college counselors advised using debt in order to get to more competitive campuses, but then she heard a teacher mention that he was paying off student loans and she worried about becoming a burden to her parents. 

Now, as she approaches the end of her sophomore year at community college, where she has easily earned nearly all A grades, she still does not view a bachelor’s degree as attainable. Even though local universities have partnered with her community college to offer substantial scholarships, the scholarships do not cover the full cost of tuition and she still does not want to undertake any debt. (Her father, meanwhile, has taken out a car loan to upgrade her car.)

Research shows that a student’s success depends on resources that are more available at more competitive institutions. Students who undermatch by choosing less-demanding colleges than those they qualify for graduate on time in smaller numbers. Yet a majority of talented students from low-income families do not even bother to apply to competitive colleges. In fact, most low-income students enroll in community colleges, often because they have the cheapest list prices, even though the majority of those students fail to earn any credential there within six years.

Olivia is an ambitious Nashville student who has participated in two separate federal programs aimed at increasing college-going among low-income students. She initially planned to study psychology at a four-year university. She told me she envisioned herself graduating to start a nonprofit organization to carry out ideas for creating community transformation, which she had developed in a series of lectures she gave at her church. More recently, to avoid debt, her plans have changed and she now intends to enroll in a medical assistant-training program. She fears that her dreams are “too uncertain” to merit taking on college loans, even though her original vision had reached such specificity as coming up with a name for her future nonprofit.

Increasingly, low-income students confront a powerful trifecta of rising college tuition, stagnant family income and federal grant aid that has not kept pace, which together demand sweeping reforms. In America, higher education has historically provided a ladder of opportunity, driving social mobility and wealth generation. Through lower unemployment and greater economic mobility, bachelor’s degrees still, on average, pay off. Returns on college-going have remained high largely because weakening labor power has collapsed the wages of those without degrees, underscoring the need to improve labor conditions for everyone.

Meanwhile, guidance counselors have told me how they increasingly view debunking college debt as a core part of their responsibilities to disadvantaged students. One whom I met at Kelly High School in Chicago explains to parents that if they educate themselves about loans, the debt can pave a path to colleges with higher graduation rates and better job placement rates. As a first-generation college graduate himself, he is paying off loans from Perdue University and credits his degree for his job and future prospects. 

Nevertheless, one of his top-performing students, who will graduate from high school this spring, has not fully absorbed his counter-messaging. She won a prestigious scholarship for four years of tuition to a private, out-of-state college, but she feels loath to take out loans to cover the remaining cost of room and board. She would rather find a job, although working more than 15 hours a week strongly correlates with increased risk of dropping out.

These tradeoffs pose a tricky risk-benefit evaluation for any 18-year-old.

Because of course, debt does not always bear fruit. The population for whom it does not pay off generally comprises students who earn non valuable credentials at for-profit colleges that fail to translate into employment — 52 percent of for-profit borrowers default on their loans, compared to 26 percent of community college borrowers — along with those who drop out before finishing their degree, many of whom also start at for-profit colleges. Those students lose out on the wage increases that typically enable student borrowers to repay their debt. They default at far more frequent rates than students with larger loans, who generally use the funds to pay for more education, which generates greater income over time.

We need to be crafting solutions at the structural stress points that can truly make a difference in increasing the number of Americans who attain college degrees. We should be investing in under-resourced secondary schools, so that students start college with the preparation to succeed and graduate and we must provide resources to support making up for lost learning during the pandemic. We need to recalibrate wages and federal Pell grant formulas to track increases in tuition and cabin the amount of debt that students have to undertake. And we need to hold for-profit colleges to account, while shoring up wraparound services like counseling, tutoring and childcare at public campuses that have proved to make a difference in helping the most at-risk students succeed.

Jodie Adams Kirshner, a bankruptcy scholar, is a research professor at New York University’s Marron Institute of Urban Management. Her latest book is “Broke: Hardship and Resilience in a City of Broken Promises.”