What’s next for student debt after forgiveness?

As President Biden moves closer to canceling at least some student debt in the near future, many higher education advocates and members of Congress are concerned that cancellation without broader reforms to the federal loan system at large will merely provide a temporary solution to a much larger issue.

“The problems with our system are there are a lot of players involved. We’ve had states disinvesting for decades now, colleges raise tuition, Pell Grants are flat and all of that comes out in the student loan program, where we see more and more people borrowing and borrowing larger amounts,” said James Kvaal, under secretary of education. “You have a student loan program that really is not working for many. So we need to really rethink how we finance higher education in this country.”

The issue at hand, advocates say, is the system that created the debt crisis in the first place. Biden’s plan to cancel at least $10,000 of student debt for borrowers with incomes under $150,000, according to White House officials, will provide relief to some borrowers struggling to repay their debt. However, many argue that the relief that will be felt from debt forgiveness will soon fade.

“If we’re going to move forward with widespread debt forgiveness, what are the policy solutions that we’re focused on to ensure we’re not in the same position in one year, five years or 10 years?” said Justin Draeger, president of the National Association of Student Financial Aid Administrators.

Relief With Reform

Thus far, the Biden administration has forgiven $25 billion in student debt through a range of targeted debt relief initiatives. These include simplification of the Public Service Loan Forgiveness (PSLF) and Total and Permanent Disability (TPD) discharge programs to make them more accessible to borrowers and moves by the administration to discharge student debt for students who attended predatory for-profit colleges.

According to Draeger, “with each of the targeted loan debt relief [efforts] offered so far by the department, the administration has made or recommended policy changes to address the underlying challenges that necessitated that forgiveness.”

At a panel hosted by the Bipartisan Policy Center on the future of student debt Monday, Draeger gave the example of the TPD program. “When we’re talking about $9 billion for total and permanent disability, the department just finished negotiating new rules that will make it easier for borrowers who are experiencing hardship to access that benefit,” said Draeger.

So far, the Biden administration has not offered a targeted set of reforms to complement the administration’s debt relief plan. Many higher education leaders have pointed to possible areas of reform, some which raise questions of whether it is the Biden administration’s responsibility to act—or Congress’s.

The Problems With the Current System

An expected 15 million Americans could stand to benefit from Biden’s campaign promise to cancel $10,000 in student loan debt. According to federal data, 52 percent of the Americans who hold student debt owe less than $20,000, so the remainder of borrowers are those with high levels of debt and, largely, incomes.

Soaring tuition prices coupled with a complex system of borrowing places some of the most vulnerable borrowers, typically low-income and low-wealth borrowers, in positions where they take on greater levels of debt and equally struggle to repay these debts, especially if they do not complete their degrees or are in a job with an insufficient income to meet their repayment requirements.

Experts have suggested that creating more safety nets to keep borrowers from taking on unmanageable amounts of debt or defaulting on their loans during repayment could be a step in the direction of assisting these borrowers.

“We have a vestige of a bank-based lending program, even though we’ve had a direct government–to–student loan program for more than a decade. So things like interest rates, negative amortization, capitalization, even the concept of default,” said Draeger. “Those made perfect sense in a bank-based lending system. That is not what we have today. So it requires us to re-examine the entire structure of federal student loans.”

Additionally, advocates argued that these safety net programs must be simplified to limit bureaucratic obstacles that keep many borrowers from taking advantage of them. According to Kat Welback, the director of advocacy and civil rights counsel at the Student Borrowers Protection Center, when the Education Department removes administrative obstacles, “we create systems that minimize the administrative burden for borrowers and we realize those who are most in need and are actually able to get relief that’s intended by these programs when they were initially created.”

Higher education advocates are also calling for increased accountability between the main players in federal student loan provision: borrowers, the Education Department, loan providers and institutions of higher education.

They are hoping to see increased communication between loan providers and borrowers on repayment plans and payments. In addition, they would like to see increased limits on who can borrow and how much. They argued there should be limits on borrowing in Parent PLUS loans for families who will struggle to repay such debt. Since parents do not reap the economic benefits of their children’s degree, a recent study by the Century Foundation found that Parent PLUS loans are disproportionately harming low-income and low-wealth families.

“We really need to make sure that when people are borrowing, they’re getting an education that’s worth it,” said Kvaal.

Congress and Reform

With the focus of the policy debate on higher education focused on debt relief, Congress has not been focused on reforming the student loan system at large. However, although Democrats and Republicans disagree on debt forgiveness, they do agree that the system of debt needs to be reformed.

“Both sides of the aisle were talking about reforming the safety nets, conservatives and liberals alike. I think both agree that income-driven repayment needs to work better. But when you’re fighting for widespread loan cancellation, it sort of doesn’t work,” said Beth Akers, a senior fellow at the center-right think tank the American Enterprise Institute.

Congressional Republicans, who argue that Biden does not have the legal authority to relieve student debt via executive authority, believe that a public policy process to address the debt crisis through Congress could have brought reforms to the student loan system to the forefront, according to one senior Senate Health, Education, Labor and Pensions Committee aide.

On the other hand, Democrats like Senator Elizabeth Warren of Massachusetts want Biden to continue to use executive authority to push for greater oversight of for-profit colleges, provide more aid through the Pell Grant and other federal financial aid programs, and move toward a system of free tuition public college.

Movements on grand reforms to higher education have in the last decade have become stalled, with the last reauthorization of the Higher Education Act of 1965 coming in 2008, which brought about the last round of grand changes to the student loan system. Any attempt to revisit the legislation since has been stalled by political jockeying, which is unlikely to subside in the near future.

Many argue that increasing federal dollars for grant programs could be a viable solution to moving higher education away from a debt-financed system. However, proposals such as increasing the Pell Grant require action by Congress.

“We need to pay for the higher education system we want,” said Kvaal. “If we’re hoping to put the money behind that we need Congress.”

Without many explicit movements by Congress to address the debt system, Draeger said he hopes the Biden administration will use executive authority to push reforms to the student loan system.

“If the president can forgive student loan debt for borrowers on direct loans, why can’t the president do away with negative amortization into the future for all borrowers? There used to be a time I would say that would require congressional authority. I’m not so sure it does anymore,” said Draeger.

It is still unknown what the Biden administration plans to put forward along with its debt relief plan, if any reform at all.

Debt Relief