Free college or federal student loans? These alternatives could help solve student debt crisis

  • If President Joe Biden forgives student debt, experts say college affordability remains a problem.
  • Some suggest getting the federal government out of student loans. Others pitch free college.
  • Some see reforms to the nation’s bankruptcy laws as a way to help families get rid of student loan debt.

As President Joe Biden mulls the possibility of widespread student loan forgiveness, a community college in New Mexico may offer insight to prevent the need for future mass cancelation. 

Just 1% of the college's student body borrows to pay for college, according to federal data, though it wasn't always that way. 

Leaders at the Santa Fe Community College say, among other measures, they've stopped automatically offering loans to students and require students to take a workshop before borrowing. That, along with support from state scholarships directed at local students and federal grants, have been key in reducing debt loads for students. 

“We want to make sure we’re a path of economic mobility rather than a path of economic obstacles,” said Yash Morimoto, a vice president overseeing planning at Santa Fe Community College. 

Student debt borrowers demand President Joe Biden cancel student loan debt during a demonstration outside The White House on Feb. 16.

College affordability experts on both sides of the student loan forgiveness debate warn more approaches such as what the Santa Fe Community College has embraced are needed to prevent new generations of higher education students from acquiring massive amounts of student debt. They are pushing for solutions such as increasing the aid provided to students either by states or individually, simplifying how borrowers pay back their loans and making it simpler for them to declare bankruptcy, or even getting the federal government out of student lending altogether.  

Want student loan forgiveness?:Millions of jobs qualify for this updated program — and yours might be one of them.

Stop offering new student loans? 

Since March 2020, the federal government removed the obligation for student loan borrowers to make payments and set interest rates at zero. The freeze, which affects nearly 41 million borrowers, is set to expire at the end of August, months before the midterms. Biden has suggested another extension-- and even cancellation-- might be possible as his administration continues to erase debt piecemeal through existing federal programs.

The freeze comes at a time when the conversation around student loans has grown louder as the overall debt grows. More than 43 million people have federal student loan debt, and the average borrower has about $37,000, according to federal data compiled by the Education Data Initiative. 

In light of the possibility of mass student loan cancellation, some right-leaning critics of the program have suggested it might be time to sunset the program.

Wayne Johnson, a top-ranking official overseeing the nation's federal loan system under former Secretary of Education Betsy DeVos, is one of those critics. He thinks the only way out is for the federal government to end the lending program altogether. 

“It’s a Gordian knot problem, and it needs to be cut like a Gordian knot,” said Johnson, the former chief operating officer of federal student aid, the office within the Department of Education that oversees federal student loans. 

Johnson, who is running for Congress as a Republican in Georgia’s second congressional district, said his plan for college affordability calls for some mass debt forgiveness as well as comparable tax credits for those who already paid off their loans. And moving forward, he proposed the government offer a similar credit to students getting ready to attend college. 

Supporters of The Debt Collective activist group walk past the U.S. Department of Education to demand full student debt cancellation on April 04, 2022, in Washington, D.C.

"Any plan that I have heard advanced has nothing that talks about how do we keep this happening from the future," he said. "And the only way you're going to keep it from happening in the future is stop it."

Though it would be unpopular, said Robert Kelchen, a professor of higher education at the University of Tennessee, Knoxville, limiting the number and volume of new federal loans issued is one of the few ways to reduce future debt loads. The other approaches call more for upfront aid for students or finding ways to reduce the cost of providing an education. 

That avenue, he said, is the most sustainable solution, but it’s also likely to be the least appealing to students and parents. It could mean larger class sizes, fewer academic or extracurricular opportunities for students, or older facilities.   

“The only way we don’t end up in this situation again is if we do something about it,” Kelchen said. “And none of the options for doing something about it are going to be popular.”  

If the federal government decided to curtail the number of new loans, Kelchen said some students might be able to turn to the private market for student loans. 

These loans may have interest rates lower than some federal student loans, but they don’t come with the same federal protections, such as the ability to enroll in payment plans tied to a borrower’s income. And those holding private loans have had to continue making payments during the recent freeze. 

President Joe Biden speaks about student loan forgiveness.

Kelchen also said some students would fare better based on what they choose to study. A STEM major, for example, would likely have an easier time securing a loan than someone in the humanities based on their potential future earnings.

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What about free college? 

Cutting the cost of college for students and their families is another often discussed solution to making college more affordable. But that would likely require additional government spending on higher education at the local and federal levels.  And previous efforts to subsidize college costs have faltered. 

Biden proposed making community college education free as part of the Build Back Better bill, but those efforts stalled. That has left it up to states, local governments and colleges to navigate the space. Ohio State University, for example, debuted a plan last year that allows students the opportunity to graduate without debt. And many local and state governments offer scholarships to help students get through college. 

Some private universities with large endowments can offer their students financial aid packages that don’t come with student loans. Williams College in Massachusetts is the most recent of these schools to offer no-loan financial aid packages. But while these programs are generous, their impact may be limited. The universities that offer these aid packages often have low acceptance rates and high academic standards, which can make it difficult for students from under-resourced high schools to attend. 

Underrepresented students in higher education already struggle the most to pay back their debts. Victoria Jackson, assistant director of higher education policy at the Education Trust, an education nonprofit, said Black borrowers graduate with more debt and take longer to pay back their loans compared to their white peers.  

Jackson said the current student loan landscape can be traced to declining state funding for public colleges. That dip, she said, led institutions to increase their tuition prices to cover the shortfall. What’s more, the Pell Grant, a federal award meant for low-income students, has not kept pace with inflation. In 1980, the Pell Grant could cover nearly half the cost of attendance at a public four-year university, but in 2021 it covered around just 28%, Jackson said. 

To prevent the need for financing higher education through loans in the future, Jackson said lawmakers should double the Pell Grant and index it to inflation so it doesn’t lose value over time. (Biden has called on doubling the Pell Grant by 2029, and Congress recently increased the award by $400 to a maximum award of $6,895)

Jackson said states and the federal government could partner to make attending a public university debt-free. She added the government should also create a fund focused on providing support services to students in college, so they can complete their education in a timely manner. That’s especially important given that students who stay in school longer are less likely to graduate and to incur more costs along the way. 

"Higher education helps our communities thrive," Jackson said. "Your life is improved by having access to that. Your life is even further improved by having the broadest and widest grouping of people who are able to access that." 

Could bankruptcy help struggling student loan borrowers? 

Biden has yet to say how much debt he would cancel. He has favored canceling $10,000 on the campaign trail, though progressive Democrats are pushing him to cancel up to $50,000 per borrower. Either level of cancellation will still leave many students and families on the hook for payments, and they'll have to rely on the federal government’s existing relief programs. 

Some see reforms to the nation’s bankruptcy laws as a way to address those struggling with their student loan debts. Though borrowers can discharge these types of loans via bankruptcy, it’s rare and requires additional work on top of normal bankruptcy proceedings.

From left to right, Clara McElfresh, 18, Elsa McElfresh, 15, and Ginny Mitchell, 18, protest to raise awareness of the cost of college tuition and student loan debt Thursday, April 14, 2022, at Shorewood High School located at 1701 E. Capital Dr., Shorewood, Wis.

Specifically, borrowers have to prove an “undue hardship,” which says their standard of living has suffered, that they have tried to pay back their loans and that their situation is unlikely to change. 

Sen. Dick Durbin, D-Illinois, has been pushing the federal government to reconsider the undue hardship standard and has introduced a bill that would allow borrowers to discharge their debt via bankruptcy after 10 years. 

Dalié Jiménez, a law professor and director of the Student Loan Law Initiative at the University of California, Irvine, said she favors canceling $50,000 in loan debt per borrower and also making it easier to clear student debts through bankruptcy. 

She added that filing for bankruptcy is already difficult and expensive, and if people reach that point their student loan debt shouldn’t be treated differently than, say, their credit card debt.

But even making student loans eligible for bankruptcy may turn off borrowers, Jiménez said. Some may be worried about how a bankruptcy on their record may appear to potential employers or property management companies. And others, Jiménez said, may fear the stigma associated with the practice. 

“It is there as an escape value for some people, but it shouldn’t be for everyone,” Jiménez said.

A 'clear demand' to help students 

Even in the best of circumstances, students may still need loans. Santa Fe Community College has low tuition and the state of New Mexico offers a variety of scholarships to help cover costs. 

New Mexico Gov. Michelle Lujan Grisham signs into law SB 140, expanding free college tuition to most residents, in a ceremony at Western New Mexico University in Silver City, N.M. on Friday, March 4, 2022.

These students still encounter costs not covered by their scholarships or grants like rent or childcare, said Nancy Durbin, the community college's financial aid officer.

To give even more support to some students, the community college and the city of Santa Fe announced a pilot program in 2021 in which 100 college students who are parents and under the age of 30 would receive $400 monthly. It was funded through Mayors for a Guaranteed Income, a group of city leaders pushing for universal income.

The results of that pilot are still forthcoming, Morimoto said, but more than 300 people applied for the limited slots. 

"There's a clear demand for something like this to help our students," Morimoto said.