To forgive or not to forgive, that is the question. But the student loan forgiveness discussion is complicated and compelling—on both sides of the argument. Thankfully, David Linton is here to offer persuasive evidence to support …

Both sides of the argument. In fact, he doesn’t support a blanket forgiveness program on the federal level.

Even so, he points a very, very incriminating finger at the predatory role colleges and universities have played in burying their students in debt. But what he’s most angry about is the fact that Black students get the short end of the stick on all the consequences we, as a society, are hoping to avoid: by percentage, Black youngsters are least likely to go to college and least likely to earn a degree if they do go. Furthermore, black students depart college with the highest level of student debt and are most likely to default on that debt later in life.

Everyone involved in loan-forgiveness legislation should hide their faces in shame at those stats.

David’s Crushed: How Student Debt has Impaired a Generation and What to Do About It was recently reviewed by Jeana Jorgensen—and she quickly followed up with eight penetrating questions to help us better decide what might be done to resolve the issue.

What led you to become so interested in this topic?

I graduated from the University of Southern California in 2004 with a bachelors degree. Fifteen years later, I had the opportunity to return to campus, this time as an adjunct professor. As an undergraduate student, I thought the USC campus was immaculate and the education excellent. But, when I returned and conducted an on-campus tour, I was shocked by the opulence I witnessed. My favorite new facility was a dining hall that was inspired by Hogwarts (Harry Potter), complete with long wooden tables and gothic arches.

Speaking with other faculty, USC wasn’t unique. Colleges all across the country were engaging in an “arms race” to attract the most promising undergraduate students; and the tools used to attract students weren’t with the best possible education at the lowest possible price. Rather, it was the best possible college experience, which came with lavish gyms, lazy rivers, ornate libraries, and fine dining on campus. And as I looked around, I started wondering … Why are universities becoming country clubs? Why are they so expensive? How can I possibly afford to send my three children to college? Is sending children to college a sensible financial decision? And what can be done to improve the situation?

About a year later, as I lay in bed my mind raced (that happens occasionally). Around 2:00 AM, I opened my laptop and composed a draft table of contents—which was constructed to answer the before mentioned questions. I then pitched the idea of a book on student debt to my publisher, and the rest is history.

In the US, we’re (still) experiencing a lot of backlash to the suggestion that racial disparities and white supremacy even exist. You have a whole chapter on the disparities Black students often experience in higher education, so what would you say is the most compelling evidence to bring to a conversation with someone who may have a rather different perspective on the topic?

Great question. For full disclosure, when I began my research on the topics of student debt and postsecondary education, I didn’t anticipate writing a chapter on racial disparities. In fact, I was completely ignorant of racial disparities in postsecondary educational outcomes. But when I dug into the data, what I found was both shocking and saddening. So, in hopes of bringing attention to an area that should be addressed, and with the goal of inspiring policymakers to act to address inequities, I felt compelled to write this chapter.

The most compelling evidence that demonstrates racial disparities in postsecondary education is that all races are not equally represented in adverse outcomes. Said another way, Black students are significantly overrepresented in every outcome we, as a society, want to avoid. This includes not going to college, going to college but failing to earn a degree, leaving college with significant student debt, and defaulting on that student debt later in life.

Regardless of where people fall on the political spectrum, I think a vast majority of Americans can all agree that it’s not good for our country that one group of people have significantly more adverse outcomes in their education. Hopefully this acknowledgement will assist in its being addressed.

Of the extensive research you conducted, was there anything you found truly surprising? Or that you wish you could have spent more time on in the book?

I was shocked (and horrified) by how predatory for-profit schools were in the past. In the 1970s and 1980s, for-profit institutions sent recruiters to unemployment lines, welfare offices, and low-income housing projects in search of “students.” These recruiters assured people that they could get a degree or certificate, and then land a great job. These prospective students simply had to enroll in a program, and if the student couldn’t afford it, no problem—an administrator would facilitate a student loan. By 2014, students at for-profit colleges represented only 11 percent of the total higher education population but 44 percent of all federal student loan defaults.

Fortunately, enrollment in for-profit schools has declined, and the worst for-profit institutions have closed. Nevertheless, it was pretty awful.

The activists who want to forgive student debt entirely are finding many outlets on social media for sharing their views, and yet you don’t believe this is a wise course of action. For readers who may have already encountered the proposals to forgive student debt, what would you provide as a counter-argument?

I am very sympathetic to the millions of people with student debt. Many young Americans were encouraged to attend college, and they were told by parents, counselors, teachers, university administrators, and even politicians, that a college degree is a ticket to the middle class. However, once enrolled, many students found they couldn’t afford college, and after they left college (some without a degree), many people discovered that repayment of college loans was a tremendous burden. This adverse outcome, which holds true for about a third of people who enter college, is rarely discussed at length with high school students and their parents.

So, many debtors feel tricked—and rightly so! So, the question is, what can we do to make the situation better?

Student debt forgiveness is certainly one tool. The problem is that many people who can repay their loans will get forgiveness, while other former students who repaid their loans view debt forgiveness as unfair. Also, student debt forgiveness will not address the foundational problem with post-secondary education, which is college is too damn expensive. In fact, student loan forgiveness will give administrators reason to continue inflating tuition as future cohorts of students will assume debt assuming that their debt will also be forgiven.

I believe bankruptcy reform is a much more appropriate, and targeted, policy for alleviating the suffering of the most adversely impacted student debtors. Student debt is exceptionally difficult to discharge in bankruptcy court. I believe the treatment of student debt should be similar to any other debt (with only minor caveats).

Part of the overall problem is that student debt is treated differently than any other form of debt in the US; can you talk a bit more about this, and some solutions you might want to see implemented?

Sure. In the early 1970s, members of congress asked the question: if the government starts offering subsidized student loans, will students take out loans and then immediately declare bankruptcy at graduation? While that wasn’t occurring, it was a reasonable question to ask.

So, in 1976, congress amended the Higher Education Act to state that student debt could only be discharged in bankruptcy under one of two conditions: 1) repayment would cause undue hardship, or 2) greater than five years had passed since the student graduated college.

Unfortunately, congress never defined undue hardship, which was later done by a court. Separately, in 1998, an amendment to the Higher Education Act eliminated the five year period during which student loans could be discharged. After this amendment to the bankruptcy law, student debt could only be discharged if it caused “undue hardship.”

Who lobbied to amend this law, and why? At the time, Sallie Mae (a government agency with private investors) was rapidly expanding, was deeply entrenched in Washington DC, and was wildly profitable. Sallie Mae had a vested interest in the growth of student debt, as their earnings were tied to the size of their holdings of student debt. So, they lobbied congress to expand student loan programs (both breadth of borrowers and the amount that could be borrowed). By removing the ability to discharge student loans in bankruptcy, Sallie Mae’s profitability would grow as the stock of student debt would grow even more rapidly.

Your suggestion to tie student job placement outcomes at a given university to the amount of student debt assumed at that university is quite novel; I’ve never seen anything like it before, and I’ve spent my whole adult life in higher education! Could you explain this idea in a bit more detail, and talk about what we might need to achieve to start making progress on this policy?

Sure. I think you’re referencing the policy suggestion that universities and colleges buy a portion of the debt that originated at their schools. The foundational concept is incentive alignment. If colleges have some “skin in the game,” and they are financially hurt if their students are defaulting at high rates, then the colleges will address the issue themselves. Some colleges will offer fewer degrees with low economic benefit, or the colleges will admit fewer students that are statistically likely to take out debt and fail to earn a degree.

To implement this, congress would have to enact a law requiring colleges to purchase student loans from their school. The Department of Education could then assign a portion of the newly originated debt from each school to that school. The schools would be required to buy the loans. If the colleges don’t have the money to buy those loans, then they could take a loan from the US Treasury. This all seems very convoluted, but the idea is that college will suddenly care A LOT about student default rates, and colleges will enact policies organically to minimize ensure adverse student outcomes.

Endowments are another complicating factor in the issue of student debt, with Ivy League universities using the tax benefits of endowments to stash away lots of money that will only benefit their students. You suggest tax reform to incentivize these schools to expand their student body; why would that end up benefiting more people?

If the most heavily endowed schools are faced with a choice—educate more students or pay taxes—then everybody benefits. The Ivy League schools have sufficiently large endowments that they can educate their student bodies without charging tuition, and that’s great. That’s what was originally intended when endowments became tax exempt. But the problem is that these schools now generate investment income well in excess of what they need to educate their student bodies. Despite this, many still charge tuition, the schools aren’t growing their student bodies, and they’re certainly not paying their “fair share” in taxes.

Limiting the tax-exempt status of endowments, and tying that to the number of students, realigns incentives. If the Ivy League collectively generates ten times as many graduates, then this is a great outcome as Ivy League graduates add both to society as well as the tax base. Conversely, if the Ivy Leagues begin paying tens of billions of dollars in taxes each year in the form of income and capital gains taxes, then this is also a great outcome as tax receipts can be redirected toward underinvested and minority communities.

What can everyday people do to help move this conversation forward?

I appreciate that question. A self-serving answer is that people can buy the book, leave a positive review, and suggest their friends to the same.

I approached the topic of student debt not a politician, banker, or university president; I have no axe to grind. I’m just an informed person that knows a bit about how systems work. I don’t have a huge social media following, or a massive platform to share my ideas; so, I’m hoping that as people talk about my book, and see me on podcasts, politicians take note of my commonsense and nonpartisan ideas.

Outside of that, voting for candidates that put forward solutions to the student debt issue would be terrific. With 435 members of congress, and 100 senators, I’m sure some of our political class have the willingness and ability to advance thoughtful solutions to address tuition inflation and the student debt crisis. Vote for them (regardless of their political party).

Jeana Jorgensen
August 18, 2023

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