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Why Is Student Debt Cancelation Such a Big Deal?

By Arthur MacEwan | March/April 2021

Dear Dr. Dollar:

Now that President Biden is in office, I’ve noticed news reports about the possible cancellation of student debt. Why has this become such a big deal recently? And would cancelling these debts actually help? —Betty Timmons, Lindenwold, N.J. 

At its core, the argument for cancelling student debt has arisen from the belief that higher education should be free, just like pre-K through high school education. Also, the extremely rapid growth of student debt since the early 2000s has made the issue a “big deal.” And, still further, the perilous state of the economy—which means the perilous state of many people’s lives—has brought a special urgency to the issue.

If High School, Why Not College?

Throughout the 19th century, high schools were not a substantial part of the public education provided to the majority of the population. Early in the 20th century, however, it became increasingly the case that this secondary education was important in preparing young people for employment, and states rapidly expanded high schools. Still, by 1940, only 38% of 25–29-year-olds held high school diplomas. By 2018, 93% of these young adults had completed high school.

But it is clear today that having only a high school diploma does not get one very far in the job market, and a college degree (at least) is considered necessary by employers for almost everything that would be considered a well-paying job. Indeed, in 2019, the average earnings of a person with a bachelor’s degree (and no higher degree) was 67% more than the average for a person with only a high school degree ($1,248 per week compared to $746 per week).

Implicit, then, in the argument for abolishing student debt is that those holding the debt shouldn’t have had to pay for college in the first place. Their attendance in college, like attendance in high school 100 years ago, was necessary for the economy to function effectively. As the whole society paid for high schools then, the argument is that the whole society should pay for college now.

Removing student debts would move things toward a more legitimate situation—which is to say that, since the students’ education is good for the whole society, the society as a whole should pay for it. Our current system does provide some aspect of less costly higher education, especially for low-come students, through partially funding public institutions, scholarships, and subsidized loans. But most students and their families still have to pay substantial amounts. Yet there is no more rationale for this approach than there would be if only the poor could go to elementary and high school for free. This position was, in effect, endorsed over 200 years ago, in 1785, by John Adams (who later became the second president of the United States):

The whole people must take upon themselves the education of the whole people and be willing to bear the expenses of it. There should not be a district of one mile square, without a school in it, not founded by a charitable individual, but maintained at the public expense of the people themselves.

Rapidly Rising Debt

Aside from this fundamental issue about how to pay for higher education, student loan debt is a “big deal” because it has been rising so rapidly. In 2003, total student debt outstanding in the United States was $246 billion, which seems like a lot of money, but it was less than 3% as large as the country’s total personal disposable income (PDI—what people have after paying taxes). By 2019, student debt had increased more than sixfold, to $1.54 trillion, and amounted to over 9% of PDI. (Interest payments on the debt amounted to about $90 billion annually.) In this period, all other categories of household debt grew by only 70%, while PDI rose by 92%. (These increases may seem large, but that is because all these figures are in current dollar amounts, that is, not adjusted for inflation. Data for 2020 are not available at this writing, but data for the first three quarters of 2020 show that the changes from 2003 to 2020 were pretty much the same as the changes from 2003 to 2019.)

As the figures above demonstrate, at the beginning of the 21st century, student debt was certainly a problem for some people, but it was not a major burden overall. Now it has become a more serious problem for many, many people and an overall burden on the economy. The debt falls heavily on people as they enter the paid labor force. They are forced to take jobs they would otherwise avoid, simply to pay their debts; by inhibiting movement in the labor force, the debt harms productivity. Also, heavy debt leads young workers to delay buying homes, having children, and creating stable lives. This situation tends to undermine aggregate consumer demand, and, of course, people with unstable lives are less effective economic actors.

Several factors account for the rapid increase of student loan debt: the rising cost of a college education; the reduction in states’ support for their public higher education institutions; the relative stagnation of incomes for a large segment of the population; the increasing need for a college degree to obtain good jobs; and the greater availability of government loans.

For the roughly 42 million people who owe on student loans, the average debt is about $36,500. (This average is for all demographic groups taken together—but see below.) The average, however, can be somewhat misleading. People with very large loan amounts pull up the average. Half of the people in debt for their student loans owe only about half of the average (around $17,000 to $18,000). That is, the median is far less than the average (mean). Any way we look at it, however, for tens of millions of people, paying off these student loans is a big burden.

The Impact

Whether we look at the average or the median, these figures are too simple to tell us what is happening to people. To appraise the hardships that lingering student debt is creating, more data on who owes the debt would be needed but is not readily available.

One thing we do know is that the debt burden falls disproportionately on African Americans. According to a 2016 Brookings Institution report: “Four years after graduation, black graduates have nearly $25,000 more student loan debt than white graduates: $52,726 on average, compared to $28,006 for the typical white graduate [emphasis in original].” While there are various explanations for this large racial debt gap, probably the major factor is the huge racial wealth gap. According to another Brookings Institution Report:

A close examination of wealth in the U.S. finds evidence of staggering racial disparities. At $171,000, the net worth of a typical white family is nearly ten times greater than that of a Black family ($17,150) in 2016. Gaps in wealth between Black and white households reveal the effects of accumulated inequality and discrimination, as well as differences in power and opportunity that can be traced back to this nation’s inception. The Black-white wealth gap reflects a society that has not and does not afford equality of opportunity to all its citizens.

To the extent that high levels of debt are strongly associated with low levels of family wealth, it is reasonable to infer than many other people who owe large amounts of student debt are from low-income families of all races. To be sure, there are people with heavy debt loads who have become doctors and others who are in a good position to pay off their debts. But, in the overall picture of things, these well-off people are more than offset by the roughly 40% of students who start college but never finish, many of whom take on debt but do not obtain the better-paying jobs that tend to come with a college degree. This is a group in which African Americans and, more generally, people from low-income families make up a substantial share.

It certainly appears that the system that has evolved for financing college, in which students take on large amounts of debt, regenerates the racial and class inequalities of our society.

The Proposals

Reduction or cancellation of most student debt could be accomplished by the president, without any act of Congress. Many progressive activists, as well as Senators Bernie Sanders and Elizabeth Warren, have argued for a general cancellation of student debt. President Joe Biden has called for cancelling $10,000 of debt for each student. A general cancellation of the debt can be justified because students never should have had to pay for college in the first place and because the debt places a severe burden on millions of people, especially people from low-income families. Nonetheless, it is important to recognize that even Biden’s more modest proposal would reduce the debt burden quite significantly for many people. After all, with the median debt at $17,000 to $18,000, the cancellation of $10,000 would mean eliminating more than half the burden for more than half the people who owe student debt. (A proposal by Chuck Schumer, the new majority leader of the Senate, calls for forgiving $50,000 of the student debt for each person. This would eliminate the debt for the substantial majority of student loan debtors.)

Whatever is done about the debt, a recent article in the New York Times offered a cautionary point: “…debt forgiveness alone would be like treating a contaminated river without stopping the source of the pollution.” The most straightforward and readily supportable way to eliminate the student debt problem is to make higher education free for all students and publicly supported, like pre-K through high school education.

is professor emeritus at UMass Boston and a Dollars & Sense Associate.

New York Fed Consumer Credit Panel, “Household Debt and Credit,” Federal Reserve Bank of New York (; Federal Reserve Bank of St. Louis, “Employed full time: Median usual weekly real earnings: Wage and salary workers: 16 years and over,” (; U.S. Bureau of Labor Statistics, “Median usual weekly earnings of full-time wage and salary workers by educational attainment,” (; Mel Hanson, “Student Loan Debt by Race and Ethnicity,”, Sept. 24, 2020 (; Kevin Carey, “Forgiveness of Loans Wouldn’t Tackle Roots of Student Debt Crisis,” New York Times, November 21, 2020 (; Zack Friedman, “Student Loan Debt Statistics In 2020: A Record $1.6 Trillion,” Forbes, February 3, 2020 (; Digest of Education Statistics, “ Percentage of persons 25 to 29 years old with selected levels of educational attainment, by race/ethnicity and sex: Selected years, 1920 through 2018,” National Center for Education Statistics, 2018 (; Judith Scott-Clayton and Jing Li, “Black-white disparity in student loan debt more that triples after graduation,” Brookings Institution, October 20, 2016 (; Kriston McIntosh et al., “Examining the Black-white wealth gap,” Brookings Institution, February 27, 2020 (

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