Will he or won’t he? And how much? That’s what everyone has been asking about President Biden and student debt forgiveness. When news leaked that the Biden administration was planning $10,000 of loan forgiveness, many argued it wouldn’t go far enough. Yet Biden has said he is not considering canceling it all and wants Congress to address student debt through legislation.
A legislative proposal would temporarily allow those with student loans to refinance them at 0 percent interest. Congress should not only pass this, they should expand it and make it a permanent policy.
To make a difference in the college debt crisis, Congress should apply all interest payments already made towards the principal for each borrower, set public loans at a permanent interest rate of 0 percent going forward, and allow those with private loans to convert their debt to public loans, also at a 0 percent interest rate.
Our research suggests that eliminating interest would allow those who graduate college with student loans to contribute more fully to the economy, attain financial stability and security, build families, and live fuller, happier lives. Removing interest would mean that people would still repay the loans they borrowed—just without the government or private companies profiting off of them.
For many, the interest on their debt creates a situation that feels like quicksand. Payments often don’t even cover the interest, so as people repay their loans, they see their balances increase.
Setting interest rates at 0 percent for all public student loans, forgiving interest, and applying past interest payments towards the principal would allow people to actually pay off their debt. Biden’s $10,000 loan forgiveness would certainly also help some of these borrowers, but it wouldn’t solve the problem of compounding interest on remaining student debt for everyone.
Then there is the 13 percent of borrowers who use loans from a private source. For the past six years, a participant in our research study has paid approximately $1,200 each month on their $105,000 private loan, a total of over $86,000 so far. High interest rates mean they somehow still owe $78,000. Private loan holders should be able to refinance their loans under a 0 percent interest public loan program. Then when they make payments, they’ll see their balances meaningfully decline.
Applying all past interest paid to principal would mean instant loan cancelation for those who have already repaid much more than they ever borrowed. It would also allow anyone balking at the notion of loan forgiveness to see that many of those with loans have paid them back — and then some.
We’ve been studying the experiences of college graduates with loans for over six years, and this type of cancelation would be a game changer for them. In the spring of 2016, we interviewed a small number of graduating seniors with loans, and we’ve interviewed them again almost every year since, following them as they dealt with student loan repayment, job changes, living with their parents to make ends meet, and serious health problems.
We also interviewed a larger group of students and graduates and asked them what they would do if their student loans were forgiven. Most told us they would save and invest for the future, buy homes, and pay off medical and credit card debt. Some would get married or have children. In recent interviews, we saw how the pause on student loan payments helped borrowers finally accomplish some of these goals.
One woman in our study, now in her late 40s, started college at 18, but was only able to go back to finish her degree when she was older. Her nearly $700 monthly loan payment never seemed to make a dent in what she owed, but paying it meant she and her husband couldn’t cover all their expenses, even though they have both been employed full-time for decades. Delinquent on bills, borrowing against retirement savings, and racking up credit card debt simply felt like how it would always be. It was only after the federal student loan pause started that she was able to pay off her other debts; she is now current on her bills.
But when debt payments resume in just over a month, many young adults with debt will again fall behind on other payments or have to postpone important milestones, like buying a house or getting married, preventing them from fully enjoying the adulthood they believed would improve by pursuing a college degree.
The people we’ve been following for the past several years understand they chose to borrow money to pay for college. But they didn’t make that choice lightly. They followed widespread guidance to pursue higher education to position themselves for better-paying jobs. None of them were wealthy, and most were first-generation college students. So, they took out loans — often for much higher amounts than what prior borrowers needed.
That’s because college costs have grown substantially, and the burden for paying for higher education has fallen more on individuals and their families as state funding stagnated. Cuts after the Great Recession made things worse, and budget woes due to COVID-19 will likely lead to further increases in tuition in the coming years. College aid used to be more in the form of grants, but today, most people have to fund their college education through loans.
Something must be done to reduce the cost of higher education. Something also must be done to address the over $1.75 trillion in existing student debt. Eliminating interest would take a meaningful step in the right direction.
Our research has made clear that canceling student debt — in whole or in part — would have positive effects on individual borrowers, their families, and the economy. Fulfilling the “American dream” of getting a college degree cannot come at the cost of family and financial security; otherwise, the dream remains out of reach.
If loans remain necessary for some to earn a college degree, removing interest would at least make student debt less insurmountable and less predatory, and allow millions of young adults to start making meaningful progress towards future stability.
Joan Maya Mazelis is an associate professor of Sociology and director of Gender Studies at Rutgers University-Camden. Follow her @JoanieMazelis. Arielle Kuperberg is an associate professor of Sociology and Women’s, Gender & Sexuality Studies at UNC Greensboro, and chair of the Council on Contemporary Families. Follow her @ATKuperberg.