Student Loan Debt Relief Plan Is Cause for Celebration, But Not a Long-Term Fix
October 13, 2022
8 minutes to read
In late August, President Joe Biden announced a national student loan debt relief plan that will wipe out at least $10,000 in loans for millions of people, including an estimated 72,000 Vermont residents. A good portion of recipients will qualify for even more relief—up to $20,000—because they grew up in low- and moderate-income families and received federal Pell Grants.
To better understand what this program means for Vermont borrowers, and why charitable individuals need to keep giving toward the goal of long-term college and career training affordability, the Vermont Community Foundation’s Insight Hub sat down with two leaders from its own ranks.
Carolyn Weir is executive director of the J. Warren and Lois McClure Foundation (McClure Foundation) and Shana Trombley is executive director of The Curtis Fund (Curtis Fund). Both are supporting organizations of the Vermont Community Foundation that expand access to college and career training and in the process help individuals reach their academic and economic goals.
Biden’s plan generated big headlines. The response from Vermont residents who are eligible? Excitement and relief, in many cases.
An informal survey of Curtis Fund scholarship recipients found that three-quarters of them will qualify for relief and just over half will have all their student debterased because of the program, Trombley said. “That’s just incredible news for Vermonters and Curtis Fund scholars.”
The impact isn’t limited to individuals alone. The program could free up more than $720 million that Vermont recipients would otherwise have owed for loan repayment, creating the potential for other types of spending that could have a broad economic impact. “I think it’s going to have a ripple effect in the economy,” Trombley predicted.
For starters, recipients may be better positioned to save and spend in line with their life goals. About 62 percent of Curtis Fund scholarship recipients said in the recent survey that they planned to open their first-ever savings account, or add to existing ones, for example. Others said they would save for a house, save for the education of their children or future children, or pursue further education such as graduate school.
One first-generation college student said the relief will help him reach financial equality with fellow classmates from middle- and upper-income families who did not have to work full-time through their undergrad and graduate programs.
The debt relief program will bring life-changing economic relief, said Weir at the McClure Foundation. The fact that it is coming at a time of economic uncertainty and high inflation is good news as well, she added.
“This announcement from the federal government is a big deal and it's a cause for celebration,” Weir said.
But long-term challenges in higher education funding and accessibility of postsecondary education will not be fixed by the debt relief program, both Trombley and Weir cautioned. Steep increases in tuition and inadequate state funding have resulted in rising student loan debt across the country. In Vermont, average student loan debt runs around $30,000, about triple what it was in the 1990s.
It's important to recognize that debt cancellation on its own is not a silver bullet or a systemic strategy for college affordability, Weir continued. “It's a short-term, necessary response to a student debt crisis in America. And that student debt crisis looks like $1.7 trillion owed by American families in higher education loans.”
Watch Video Clip: Why Funding College Through Individual Debt Is Bad Policy
Four decades of inadequate state funding for public higher education in Vermont are playing out in troubling ways, Weir added, including in-state tuition rates that are among the highest in the country, and the lowest college continuation rate among high school graduates in New England. “And we connect those dots to the fact that Vermont also has the highest rate of poverty among 18- to 25-year-olds in New England,” Weir said.
One bright spot is a recent announcement that Vermont State University will cut its tuition by 15 percent next year. A new base tuition of $9,900 for Vermont students will be set at the three schools merging to form Vermont State University: Castleton University, Northern University, and Vermont Technical College.
On the national front, the Biden administration is expected to open applications for the relief program any day. But in a move that was criticized by supporters of the initiative, in September, Biden’s team quietly reduced eligibility for certain borrowers with privately held loans. The move is not expected to affect the majority of the estimated 72,000 Vermonters eligible for relief, but those who have been excluded have expressed frustration and disappointment.
For students who are expected to qualify, such as 47-year-old Moussoumakan Diallo of Brattleboro, the relief program is cause for celebration. Diallo is juggling courses toward a bachelor’s degree in accounting at Northern University with a job in social work, helping people with mental health challenges find housing and other supports. In addition to her current studies, she earned a degree in medical assisting from the Community College of Vermont several years ago and has about $16,000 total in student loan debt.
She believes all of that could be wiped out by the student loan debt relief program. “It would be unbelievable,” Diallo said. When she learned of the program, she literally started dancing. “I danced…I said, ‘is this real?’”
The relief would make it easier for Diallo to finance her current studies without resorting to expensive private loans. It would also go a long way toward reducing her total debt load when she completes her current degree. Diallo, a Curtis Fund scholar, immigrated to Brattleboro from Mali in West Africa in 2008. One of the motivations to come to the United States was to have better access to education, including for her son, she said. He has since graduated from Brattleboro Union High School, earned his bachelor’s at Bentley University, and launched his career.
She’s thankful for the scholarship support she has received but noted that many students who receive scholarships still need to take out loans. Even so, Diallo said, for her the big lesson is that education is worthwhile. It’s important not to give up when challenges appear. “Don’t let those things stop you. They will happen. You have to find a way to go above it,” Diallo said.
Philanthropic giving is needed as much as ever to make college and career training possible for students who cannot otherwise pay the cost, even with loans. Many donors understand the complexity of the problem and the need to continue giving even in the wake of Biden’s announcement, Trombley said.
Watch Video Clip: How Philanthropy Helps Expand Access To College
Support from charitable individuals for scholarships is vital but it’s important to remember that philanthropy can also help stimulate systemic changes. By funding pilots and programs that test innovative solutions to expand college and career access, philanthropy can build research and momentum for government policy changes.
For example, through The Curtis Fund's Credentials of Value Scholarship Program, students pursuing careers in early education will receive grants to cover the full cost of their education. The pilot effort is designed to help students and respond to a shortage of child care teachers. As Trombley puts it: “How can we have a child care system that meets our economic and societal needs when we’re not paying child care workers adequately and when they’re graduating with tremendous debt?”
The program serves as an example of something that couldn’t happen without philanthropy, Trombley said.
Watch Video Clip: How Philanthropy Fuels Solutions
Another example of philanthropy igniting innovation is the McClure Free Degree Promise through the Early College Program at the Community College of Vermont. It could translate to a free associate degree for thousands of Vermont students and set them up for a more affordable four-year degree if they decide to transfer credits.
The response to the Free Degree Promise has been strong, and the McClure Foundation will carefully study the results, Weir said.
Watch Video Clip: Free Degree Promise Boosts Hope
Details on the Biden Plan
Extends pandemic-era repayment pause to December 31, 2022
Provides loan forgiveness up to $10,000 for many borrowers with federal education loan debt
Provides loan forgiveness up to $20,000 for borrowers who received Pell Grants, a program that assists low- and moderate-income students
Makes relief eligible to borrowers with individual income less than $125,000 and household income less than $250,000
Applications accepted at studentaid.gov in mid-October and running through December 31, 2023
Students who do not have current accounts at studentaid.gov are urged to create them before the application period goes live
An informal survey of Curtis Fund scholars revealed an array of comments about the student debt relief plan. Here’s what some of the people surveyed said:
“Being a first-generation college student from a low-income family, the loan forgiveness program is an opportunity for me to reach financial equality with fellow classmates and peers my age who have come from middle- and upper-class families and have not worked full-time through their undergrad and graduate programs.”
“Having it eliminated will allow me to juggle the other living costs for a family household.”
“I know many people where this isn't going to help them at all. They have far too much in student loans that 20k is just a drop in the bucket…”
“For me it cuts my student loans almost in half, potentially allowing for me to return to school and receive my PhD.”
“It will make it SO MUCH easier for me to go to graduate school right after graduation.”
“Thanks to this program I will only be left with $1,500 of loan debt. This is amazing because it allows me to focus on saving for important things like a house instead of paying back loans.”
“Student debt has been a yoke on so many. Even though I do not have any student debt I think it will provide some freedom for so many to pursue what they want in their lives.”
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