The sounds of silence: Comprehensive student debt forgiveness goes nowhere

The recent State of the Union address made it very clear: Student loan forgiveness isn’t going to happen at least not now. It’s like a car stuck in first gear — cancel, cancel, cancel it sputters. If it is ever going to get students on the road to college, it needs higher octane. Forgiveness, yes — but also additives that will lighten the burden on future students permanently and empower families to negotiate costs with colleges.

The people demanding forgiveness focus on both principal and interest. But just by lifting interest charges substantial relief equal to about one-quarter of the total student debt payment could be obtained. Congress could then invest the principal payments students make to earn back the interest lost. As an example, the Social Security Administration earned $70 billion last year by investing payroll taxes in Treasuries.

Ending interest would allow the Department of Education to extend the tenor of student loans without increasing the interest charge on students. The longer the tenor, the smaller the monthly payment. The federal Income-Based Plan already doubles the length of time students have to pay. College is supposed to be a lifetime benefit. So, why don’t we allow student repayments to be scheduled over a lifetime?

Today, the average undergraduate debt is $35,000 which translates into a $370 per month repayment. Lifting interest and extending tenors reduces this bill to only $50 per month. For the vast majority of student borrowers owing only $50 a month would be great relief. 

There is the real risk, however, that lowering payments for students will only encourage colleges to raise tuition. Parents must have the agency to negotiate tuition with college administrators. Agency comes with money. Today, the government transfers financial aid to colleges bypassing the families. Why not send the money directly to 529 college savings accounts of families. After all, it belongs to them. Control over hard cash will level the playing field.

Colleges want the cash, but the families will have it. Congress should encourage families to form associations and require colleges to negotiate tuition and other price increases with their legal representatives. This would fill the vacuum that now exists, allowing colleges to lift tuition with impunity.

None of these suggestions are new. In fact, they are commonplace outside of higher education. Together they could go a long way to make college finance sustainable.

Robert Hildreth is the founder of the Hildreth Institute, a nonprofit research and policy center dedicated to restoring the promise of higher education as an engine of upward mobility for all. He also founded college access nonprofit Inversant and other organizations with complementary missions to get low-income students to college.