It has now been something on the order of 26 months since anyone in the United States has been required to make payments their student loans.  As in Canada, these payments were suspended at the outset of the pandemic.  But whereas in Canada repayments re-started after about six months (Oct 1, 2020), in the United States they have yet to do so.  Understanding why gets us all a little closer to understanding the disfunction that is the American Higher Education system.

The reason why debt repayment in the US has yet to re-start has nothing to do with debtors’ ability to repay.  As in Canada, the shock of the initial months of the pandemic wore off quickly, and young workers’ wages rose quickly, remaining above their 2019 level even after the recent burst of inflation is taken into account.  Rather, it has to do with politics.  Specifically, the composition of the US Senate and the internal politics of the Democratic Party.

Much of the problem comes down to a question of whether one believes the President has the legal ability to unilaterally cancel debt.  If he does, reason some Democrats, then the only real question is how much to cancel.  If he does not, however, then it comes down to what kind of debt cancellation can pass the House and Senate, to which the answer seems to be – probably nothing very big, and possibly nothing at all.  There is no legal clarity on this; the Biden administration seems to believe it does not have the authority, while the left wing of the party believes he does (or at least believes there is no downside to acting as though he does).  While this debate plays out, the Biden administration figures the best it can do to sort of meet his campaign promise of limited debt forgiveness is to simply pause repayments indefinitely.

I’ve been through the pros-and-cons on debt forgiveness in the US before (see here) but to cut a long story short, at the outset of the debate the left tended to deploy a lot of not-very-convincing arguments about student loan cancellation being “progressive”, which it isn’t by most definitions of the term, and becomes ever-less so as the amount to be forgiven rises.  Increasingly, however, the debate is turning into something much more nakedly partisan, along the lines of “holy crap, if we don’t do something before midterms we’re going to get wiped out and an increasingly naked brand of fascism is going to take control of Congress”.  That is to say, having promised at least some debt forgiveness (Biden’s promise was a $10,000 blanket forgiveness, which was the least regressive posture among Democratic candidates in the 2020 cycle), it is now less an issue of policy than simply one of political credibility.

Complicating all of this are two other factors.  The first is how any debt forgiveness will play politically among those who do not have student loan debt.  The answer, broadly, seems to be that Americans aren’t for the most part opposed, provided the amount is not very large.  However, in the 24/7 outrageland that is modern American politics, those that are opposed are really opposed and are prepared to be quite loud about it.  Much of this will be simple Republican obstructionism, but the line they will follow will be about fairness, in the sense of “it’s not fair those college-educated young adults are getting handouts while working-class ones are just getting a big dose of inflation” (and to be fair, this argument is not without merit).  Biden might be on the side of angels here, but he needs to tread carefully.  One way he is trying to do this is to try to income-test the forgiveness, ensuring that graduates making over a certain amount ($120,000 seems to be the preferred threshold) do not receive assistance.  This might be good politics if adding the income-test doesn’t end up delaying the forgiveness payments past the midterms because of the difficulty of co-ordinating income data between the Department of Education and the Internal Revenue Service (and it’s not looking good on that score).

But perhaps the bigger problem is that if debt forgiveness can’t be done through Congress, then it’s unlikely that any broader changes could be introduced which would prevent all of this from happening again in a few years.  In the long-term, there need to be solutions that reduce borrowing – particularly for private for-profit institutions and for high-cost Masters’ programs – and reduce the burden of interest rates (the US, like Canada, allows low-income borrowers in repayment to suspend their monthly payments until their income rises, but unlike Canada, interest accrues and gets tacked on to the principal during these periods).  One of the most potent political arguments against debt-cancellation of any size is simply: are we just going to keep doing this every few years?  And for the moment, even though many Democrats would be quite happy to introduce ideas like free community college or doubling Pell, they simply don’t have the votes in Congress to pass those laws. 

Anyway, because the Democrats can’t cut through this tangle of issues, the only thing they can agree upon and put into place, given their tenuous hold on Congress, is this constant kicking the can on re-starting student loan repayment.  But this is not without its own dangers.  If we’re getting to the point where Democrats refuse to collect on student loans, it’s quite possible that the next Republican Congress might try to stop issuing them (see this very good Robert Kelchen piece on this here).   Which would leave the system in arguably a much larger mess.

Given all this, I suspect where we are headed is that before the midterms there will be a small, universal forgiveness enacted by executive order rather than legislation, which may then be subsequently rescinded by the courts, but not until well into 2023.  There is no clean ending to this.