President Biden’s recent statements that he will forgive some student loan debt is good news for the 616,000 Kentuckians who owe it, our communities and our economy. It will also be an opportunity to begin to fix a broken and unsustainable system and to recommit to education as a public good that benefits everyone.
Student loan debt, which exceeds $1.6 trillion nationally and $20.5 billion in Kentucky, is a problem that has been building for decades. Josh Mitchell’s recent book, The Debt Trap: How Student Loans Became a National Catastrophe, chronicles how we got here through the financial motives of powerful interests and flawed assumptions about the purpose and benefits of education.
The story begins with the admirable goal of expanding access to college in the 1960s. But in the debate of the time over whether higher education was primarily a public good or a individual responsibility, the latter prevailed. Congress made the crucial decision to fund the college primarily with loans rather than grants.
Banks and other private lenders got involved and lobbied to create a system that brought them huge profits with full federal financial support and little government oversight. Since students could count on easy access to loans, universities dramatically increased tuition fees. For-profit predatory colleges have also entered the scene, using big marketing budgets to funnel students into programs of questionable value and low completion rates. And lenders have successfully lobbied to continually expand loan programs and make student debt nearly impossible to eliminate through bankruptcy.
States like Kentucky then backed away from funding universities and community colleges through public funds, instead using the money for tax cuts for businesses and the wealthy and letting loan debt fill the void. . In Kentucky, the legislature has cut state funding for higher education by one-third since 2008 alone. And as public dollars provided a diminishing share of their budgets, universities increasingly detached themselves from their public missions and began to act more like businesses – with salaries at the top to reflect it.
These trends were also spurred by the widely shared canard that education was the answer to all of our economic problems, from poverty to stagnating wages to the disappearance of unionized jobs. If the problem of bad jobs was a “skills gap,” it could be solved if workers simply got more and better credentials. The debt was worth it.
These claims have now been shattered by decades of real-world experience. In Kentucky, the share of adults with at least a four-year degree has risen from 11% in 1980 to 24% today, but median salaries have not improved over this period. The resulting frustration is why some of the workers now involved in unionizing their workplaces at companies like Starbucks and Amazon have college degrees. The problem has always been a lack of worker power, not a lack of education.
The state of the student debt problem today is staggering. Since 1964, tuition fees have increased by 376%, adjusted for inflation, at the University of Louisville, for example. As a report from the Kentucky Center for Economic Policy shows, nearly one in five Kentucky adults now has student debt. These borrowers aren’t all young — about 20,000 Kentuckians with an average debt of $38,000 are at or near retirement age. Black students in Kentucky are more likely to have student debt due to lower family wealth caused by discrimination, and many indebted Kentuckians don’t have a degree — largely because they can’t afford to continue.
If President Biden were to eliminate $18,000 in loans, it would completely wipe out the debt of half of Kentucky’s borrowers. If he were to eliminate $40,000 in debt, 75% or 462,000 Kentucky borrowers would have their loans eliminated. Such assistance would be transformative for those affected and benefit the entire economy, as this debt no longer hinders families’ ability to start a business, buy a home, save for retirement, etc.
Knowing how popular it will be, opponents are outraged at the idea of student debt cancellation and are clinging to straws. One argument says it wouldn’t be fair to everyone who has already paid off their student loan debt. It’s as silly as saying we should never have created Head Start in the 1960s because it’s not fair to kids who couldn’t go to preschool before. Progress is good!
Canceling student debt isn’t the only thing we need to do to help people financially (a good place to start is for Congress to stop blocking the Build Back Better Act, which addresses family costs many ways). But it’s on the table because of a unique law that gives the president the power to write off student debt through the Department of Education without congressional action.
The periodic forgiveness of debts is a tradition as old as the jubilees declared in the Bible. It was then seen as a sacred declaration and a way for an entire people to start afresh. Given the sordid history of student loans, the economic weight of this debt, and the importance of education to our democracy, it is time for serious action on this issue.
Jason Bailey is executive director of the Kentucky Center for Economic Policy.