Three Reasons to Worry about the House Democrats’ New Student Debt Proposal

1. “Cost Concerns” Signal Broader Hesitance to Fully Meet the Scale of Our Country’s Crisis

As the Roosevelt Institute and many other economic experts have argued, doing too little now is far more dangerous for our economy than doing “too much.” Substantial and bold action will ensure that our government meets both the public health and economic crises ravaging our country right now—and crucially, bold action now will mitigate the severity of the crisis and pay off over the long run. The congressional response to COVID-19 has been mixed—bold in some places and paltry in others. It was promising to see that House Democrats included vital investments in state and local governments in this package, but their about-face on student debt suggests that their commitment to making investments that meet the scale of the country’s crisis may be flagging already.

2. Congress Still Has Not Adequately Addressed Consumer Debt

Consumer debt is a serious area of vulnerability for the economy, and it’s one that has largely been ignored by the federal response. Even before the pandemic hit, individuals and businesses were carrying record levels of debt. Consumer debt, not counting mortgages, has climbed past $4 trillion—higher than it has ever been, even after adjusting for inflation. Auto debt is at $1.3 trillion, up nearly 40 percent after adjusting for inflation. And most striking, student debt totaled about $1.5 trillion last year, exceeding all other forms of consumer debt except mortgages. Not only is student debt a significant portion of outstanding consumer debt, it is also a piece that is strikingly precarious: Student loans have higher percentages of balances that are 90+ days delinquent or severely derogatory than other types of consumer debt.

Experts like Roosevelt Chief Economist Joseph E. Stiglitz have warned that the failure to address debt can create long-term spirals and bankruptcy cascades that deepen Americans’ suffering and lengthen the path to recovery. The original HEROES Act suggested that the House was responding to this urgent need to address consumer debt by using its most direct federal lever: the student loan program. Although addressing individuals’ ability to meet other debt obligations is equally critical, the federal government can mitigate student loan debt far more easily than other types of debt simply because the government owns nearly all of it. It’s critical that policymakers understand the magnitude of our country’s debt problem and the challenges it poses both now and in long-term recovery—and take whatever steps are at their disposal to address it.

3. Narrow Criteria for Relief Suggest that Congress Is Out of Touch with Who’s Affected by the Economic Crisis

The amended House bill creates a very narrow category of “economically distressed” borrowers who will see their student loan balances go down, including those who, as of March 12:

• qualified for a zero dollar monthly payment under an income-driven repayment program;
• were in default;
• were 90 days delinquent; or
• were in forbearance based on certain types of hardships.

The framing of “economically distressed” and the narrow criteria used to establish distress suggest a cramped view of which Americans need assistance in the current moment and why they need it. According to estimates, the House’s new approach would leave out some 25 million borrowers. As we have previously argued, the burdens created by student loan debt, shouldered both by individuals and the economy as a whole, are far broader than what most experts have realized, and they are not confined to borrowers who are significantly behind on their payments.

Without relief, outstanding debt liabilities for millions of borrowers could have reverberating effects on the economy. Scarce stimulus payments will go toward paying down debts instead of back into the economy as intended. As the crisis wears on and short-term forbearances end, borrowers who are already in financial free fall will slip deeper into debt. Missed payments and rising balances could drag down credit scores, putting affordable credit out of reach. In this and other areas of response to our economic crisis, Congress must take a broader, evidence-based view of the harm this crisis is causing and craft policies that are tailored to their scale rather than arbitrary cost limitations.

The debate we will have over the next few weeks may determine the shape of our economy for years, or longer. The decision to narrow student debt relief is a worrying sign for the debate to come.