The Simple Guide to Student Debt Cancellation

Photo by Andrea Piacquadio from Pexels

Student debt cancellation is talked about as both a moral and economic issue. 

The moral argument is based on the belief that education is a net positive for society, and thus making it accessible to everyone would benefit everyone. It also would do more to even the playing field across class and racial lines.

I’m well aware there are large swaths of people who oppose this because it simply would not benefit them. They either already paid off their student loan debt or never took any out because they didn’t go to college or were lucky enough to go during a time when it was much more affordable.

If you hold that belief, I’ve included economic arguments below that may change your mind. This is not simply a problem of debtors, this could be the next big bubble burst that leads to an economic recession. Way too many people hold student loan debt but aren’t in a position to pay it back, similar to the housing crisis of 2008 when people began defaulting on home loans. 

Economically, it’s easy to see how large amounts of student debt, and monthly loan repayments, hold generations of people back from starting families, purchasing houses, and spending money in their local economies.

I believe the moral and economic issues at stake are important enough for the cancellation of all federally held student debt. The key words here are “all” and “federally held.” In total, 43 million people have student loan debt, and the federal government owns roughly 92% of it.

Cancel All of It, Not Just Some

The reason it needs to be “all” student loan debt, and not just $10,000 or $50,000 per borrower, is because the problem persists for as long as people are spending hundreds to thousands of dollars each month on loan repayments. Reducing the total amount of someone’s debt might reduce their monthly payment slightly, but it does not free up the amounts of money required to save for a house or support family.

I specify “federally held” because the solution is easy and the conversation between how to cancel federal debt, compared to private debt, is completely different. For simplicity’s sake, today’s conversation is about federally held debt.

Building off the need to cancel all debt is the reality that many borrowers owe more money now than they did when they graduated. Additionally, 42% of borrowers still owe money 20 years after leaving school.

If your response is that of course it went up that’s how interest rates work. My response is of course that’s how it works, and that’s the problem. Not only do I morally disagree with the rising costs of education, but charging rates of interest that make people’s balance go up while making payments is how you exacerbate a cycle that leads to massive wealth inequality. 

Those who can afford to go to college without loans, thanks to generational wealth, continue to benefit while those who need loans are held back.

Many people have become resigned to the reality they will be making monthly student loan payments for the rest of their life. All because they decided to get an education and gain more skills.

Hopefully, at this point, we agree it’s harmful to society as a whole to have millions and millions of people saddled with so much debt, all for gaining an education. Let it be clear, when people pay money to the federal government, as they do with federal student loan repayments, it means there is less money in the economy. This is how student loan debt affects everyone.

Now to the part of how federal student debt cancellation works. 

How To Cancel Student Loan Debt

It’s honestly quite simple thanks to the passing of the Higher Education Act of 1965, which says the secretary of education may “​​enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand, however, acquired, including any equity or any right of redemption.”

Essentially meaning that since the federal government owns the debt they can decide to waive it. They can say, “we are no longer collecting student loan debt.” This was partially done when President Trump paused student loan payments in 2020, and President Biden continued the pause just days before it was set to resume.

Since this debt is owned by the federal government, they have the option to stop collecting on it. This is the pathway many of the supporters of student debt cancellation point to. It’s a unique situation not applicable to other debts like mortgages or credit cards.

The current holdup to creating more clarity around the legality and precedent for such a decision lies with the White House. President Biden asked the Department of Education and Department of Justice to advise him on the legality of canceling student debt. He has since received that memo and refused to make its contents public.

Given his backtracking on a campaign promise to cancel $10,000 per borrower, it’s led some to speculate the memo makes it clear he has the authority to do so. Yet he simply does not want to do it, continuing the long history of candidates making promises they never intended to keep.

But this promise cannot be ignored. Because student loan debt is a crisis. 43 million people holding $1.7 trillion worth of debt is a crisis. The sub-prime mortgage crisis, known as the housing collapse of 2008, occurred when too many people started defaulting on their mortgages.

The key difference between these scenarios is that the federal government didn’t own mortgage debt. Just like they don’t own medical or credit card debt. 

They do however own student loan debt. They have the power to take a proactive approach to what is surely a debt bubble. College tuition continues to rise because we have a system that enables it. Forcing people to take out loans to become better educated and gain skills is proving to be unsustainable. The student debt problem will only get worse.

While you may say it’s a problem that doesn’t affect you, I would argue that’s not true. Did the recession that followed the 2008 sub-prime mortgage collapse only affect people who owned a home?

This is not a solution that fixes all our problems, and that can be scary. This is simply one tool that needs to be used after we open the toolbox. Thankfully, it’s the easiest one because the federal government has direct control, and that’s why it’s the one I’m most focused on.