Beyond forgiveness: Tackle the root causes of debt in higher education and health care

Higher education institutions and hospital systems are similar in many ways. Both provide people with vital services. Both anchor local economies and communities. And unfortunately, both too often leave people in debt. 

While the politics of debt forgiveness differs markedly between higher education and health care, both sectors urgently need pragmatic approaches to addressing the high prices that lead to widespread indebtedness.

Approximately 45 million Americans have student loan debt, compared to 100 million who have medical or dental debt. Student debt loads tend to be larger. Half of student loan borrowers owe $20,000 or less, whereas half of people with medical or dental debt owe $2,500 or less.

Student debt forgiveness has been marked by controversy. The federal government holds about 92 percent of all student loan debt, and the Biden administration lost a Supreme Court case in June over his attempt to forgive $400 billion in debt. The Department of Education subsequently used other regulatory mechanisms to wipe away $127 billion in debt, but Biden faces legal challenges to further loan forgiveness. 

One-third of Americans oppose forgiving federal loans for people with “excessive” student loan debt, including half of Republicans but only 14 percent of Democrats. Opposition to forgiving student loans seems to hinge on the belief that there should be no “free lunch,” or that people who choose to earn a degree should not get those economic benefits for free. People who attain a degree indeed earn about $1 million more in their lifetimes than those who do not attain degrees.

But only about six in 10 people who start bachelor’s degrees complete them, and even fewer complete their associate’s degrees, leaving many people with the double whammy of debt but no degree. 

Efforts to forgive medical debt have been far more limited, partly because those debts are spread across multiple private creditors including banks, collections agencies and hospitals. Hospital systems often sell debt to collections agencies for a fraction of what patients owe. The nonprofit RIP Medical Debt has been able to purchase some of that debt for pennies on the dollar, forgiving about $10 billion of it so far.

Medical debt forgiveness tends to be altruistic. Take the efforts of Casey McIntyre, who began a fundraiser before her death from cancer, raising nearly $700,000 as of Nov. 27. RIP Medical Debt used that money to forgive $70 million. Several local governments — including New York City, Denver, Philadelphia, and Cook County, Ill. — have begun purchasing and wiping away residents’ medical debt as well. I am unaware of any outcry against municipal forgiveness of medical debt, perhaps because these cities are spending relatively small amounts of money. But theoretically, these efforts could run afoul of the objections to government paying for people’s health care that shaped opposition to the Affordable Care Act.

The bigger question, though, is why people go into so much debt in the first place. In health care, the main drivers of high spending are the prices hospital systems charge — or as one of the most famous studies in health policy succinctly put it, “It’s the prices, stupid.” When hospitals merge or acquire physician practices, as they increasingly have over the last twenty years, their prices rise further. 

For many years, policymakers showed little appetite for regulating hospital prices (except in Maryland, which regulates growth in hospital prices). But recently, Connecticut, Colorado, Texas and New York have begun taking small steps toward price regulation by limiting outpatient facility fees. With strong cross-partisan support for policy action to reduce hospital prices, states may begin considering more comprehensive regulation — and will likely face opposition from hospitals. In Indiana, efforts to merely make hospital prices more transparent to the employers who purchase coverage for their employees sparked considerable pushback from the state’s hospital association.

In higher education, state policy has caused tuition to rise. The vast majority of colleges and universities are public institutions. But only in 2022 did per-pupil state higher education funding recover to the levels seen before the 2008 recession. With less funding from states, the public institutions that most students attend have had to rely more on tuition and fees, resulting in higher debt loads for learners. 

Debt forgiveness improves the lives of the beneficiaries. But forgiveness alone does not address the prices that are at the root of debt. Governments routinely intervene to control the prices of public goods and services. Higher education arguably is a public good because our nation’s economy needs more people to earn college degrees. About half of hospitals are non-profits (only about one-third are for-profit and the remainder are publicly owned), meaning that they already commit to providing community benefits in exchange for considerable tax benefits. Agreeing to more affordable prices seems like a reasonable way of ensuring that community benefits are meaningful. 

While the politics of debt forgiveness differs between health care and higher education, both face a similar fundamental problem: high prices. Policymakers can pursue strategies to address the high prices that drive debt in both sectors, whether through new payment models, direct regulation, caps on growth, or other strategies. Policymakers who want to forgive debt may attract more support if they pair forgiveness with realistic plans to keep debt from growing back. 

David Schleifer, Ph.D., is Public Agenda’s vice president and director of research.