A former coworker of mine has a saying that I have since adopted as my own: Americans lead one financial life. When families gather around their kitchen tables — or more likely today, their computers or tablets on Zoom — to discuss their finances, they do not talk about the components of their balance sheets separately as we often do in the policymaking space. Instead of independently considering child care, housing, and education, families have one bottom line: When groceries and gas get more expensive, or when a parent has to cut hours at work to care for a child, something else has to give.
The Biden administration provided a cushion for tens of millions of people with federal student loan debts this week by extending the current pause on payments, interest, and collections through the end of the year. The announcement also features plans to cancel up to $20,000 in student debt for those who received Pell Grants — available for low-income students — and $10,000 for those who did not. To benefit from this cancellation, borrowers must have federal student loans held by the Department of Education (ED) and make less than $125,000 as individuals or $250,000 as households.
It’s hard to overstate the reach of this executive action: 95 percent of borrowers are eligible and as many as 20 million could have their debt completely wiped out. And it is a game changer for those most likely to struggle to repay: low-income borrowers, those who did not complete a degree or credential, and families of color, particularly Black families. Under this initiative, the typical Black borrower could see his or her loan balance cut in half, if not by more.
Higher education is not only an important path up the economic ladder; it is also one of our most effective anti-poverty strategies. But a combination of the high cost of college, a lack of resources for the most vulnerable students and the institutions that serve them, and the proliferation of programs that provide low-quality, high-cost credentials means that low-resource students often take out loans to access a college degree. In essence, they start their education already a step behind their more advantaged peers.
Debt or no debt, a credential alone cannot propel someone up the economic ladder. Higher education must work in concert with policies and programs that facilitate a strong safety net, good jobs, and supports for families. Students must be able to afford to go to college in terms of the cost of tuition and fees. But they must also be able to afford other living expenses on top of books and money for classes. A large portion of college goers today are not the 18- to 22-year-old coeds pictured in movies, but rather working adults with families returning to complete a degree, seeking out new skills, or entering the higher education system later in life. These students must be able to access and pay for transportation to and from campus, child care, food, and housing.
These families often struggle to make large, mobility-enhancing investments (like college) and to deal with shorter-term emergencies. The pandemic pulled back the curtain on this insecurity, but it has existed for decades. Even families who might seem secure from the outside can have income and expenses that fluctuate widely from month to month. A broken car, a rent increase, or a refrigerator repair — which can happen to all of us — sends shockwaves through the budgets of vulnerable students and borrowers. And centuries of racism and structural discrimination mean that the systems that allow white families to build, transfer, and leverage resources can hold back Black, Hispanic and Latinx, Native American, and other communities of color. This instability and inequity both pushes families to borrow and is further eroded by the addition of another bill to the pile.
“We cannot fully reap the benefits that come with any amount of debt cancellation when our social safety net remains broken…”
On top of all of this, the student loan repayment system is confusing and complex, programs that lower monthly payments and lead to forgiveness can be hard to access, and even when borrowers are able to afford their payments, their balances can grow over time. As a result, college becomes more expensive after the fact for those who can least afford it through years of debt payments. Financial insecurity itself can also chip away at the financial, emotional, and psychological resources that families have to manage these processes.
That is why it is critical that — in addition to cancelling student debt — the administration released details of a new student loan repayment plan that will be more affordable for borrowers, eliminate balance growth for those making monthly payments (even if those payments are low or $0 as part of this new plan), and shorten the time to forgiveness for many. And they announced that ED will provide greater oversight of colleges and programs that lead to high debt and poor outcomes. These initiatives will magnify the effect of the administration’s ongoing efforts to make college more affordable, make the repayment system more accessible, and hold institutions of higher education accountable for student and borrower success.
An important rallying cry behind cancelling student debt — and cancelling more than $10,000 — is to reduce poverty and advance racial equity and justice. No goals are more important. We have made some progress on both over the last half-century. And important policies passed and enacted during the pandemic shored up these gains, at least temporarily, especially for children. This week’s higher education and student loan announcements furthered those goals, but there is more work to do.
We cannot advance equity in higher education without free and low-cost pathways to and through college, stronger accountability frameworks for schools to ensure students and taxpayers get returns on their higher education investments, and reforms to the entire loan repayment apparatus. But providing affordable access to high-quality education and relief to struggling student loan borrowers are only parts of the larger puzzle of programs needed to boost family economic security. The other pieces will not effectively fall into place as long as higher education and broader supports for families exist in different spheres.
We cannot fully reap the benefits that come with any amount of debt cancellation when our social safety net remains broken, when support for child care continues to be stripped from legislative packages, including the lauded Inflation Reduction Act, and when our poverty guidelines say that someone earning roughly $13,000 a year should be able to make ends meet. Families already live one financial life. The rest of us must stop policymaking in silos.
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