What Would It Take to Solve the Student Debt Crisis?

The possibility of federal student loan forgiveness grabs all the headlines. But experts say no single policy — not even wiping the slate clean for millions of borrowers — solves the root causes of the nation's $1.7 trillion student loan debt crisis.

That debt has been fueled by decades of wages not keeping up with the rising cost of college. And unless wages increase and college costs decrease, students will still need to take on debt to complete degrees, and they’ll face greater difficulty repaying loans.

“There are no $1.7 trillion silver bullets,” says Seth Frotman, the former executive director of the Student Borrower Protection Center, a nonprofit advocacy organization.

So what could work? It’ll take more than a headline-grabbing wipeout of student debt.

Frotman says, in addition to canceling debt, he would prioritize efforts to make college more affordable and to reform the borrowing and repayment systems. Michele Streeter, senior policy analyst at The Institute for College Access and Success, says student loans remain an important college access tool for students, but forgiveness and repayment programs should be easier to access and automated whenever possible.

As a new crop of students gets ready to borrow for college and multiple generations of borrowers grapple with debt, experts weigh in on possible solutions.

» MORE: Student loan debt statistics 2023

Forgive student loan debt

Broad forgiveness could help the most vulnerable borrowers: those who never graduated and lack the bigger paychecks that typically come with a degree to pay off the debt they acquired along the way.

Experts diverge on whether there should be broad forgiveness, and President Biden's plan to forgive up to $20,000 in student debt per borrower remains frozen amid legal challenges. But if it does happen, they agree future debt accumulation must be addressed.

“Until somebody can come up with a proposal for what happens on day two and everyone starts borrowing again, that will be one major hurdle to any level of forgiveness,” says Carlo Salerno, vice president for research at CampusLogic, a developer of college financial aid management tools.

Streamline existing forgiveness programs

There’s too much red tape inherent to existing forgiveness programs, experts say. Salerno calls it a “bureaucracy and paperwork crisis.”

These programs have had low rates of acceptance historically, but a limited waiver available through October 2022 broadened the number of payments that qualified for many more borrowers. The fix wasn't permanent, though.

Democrats in Congress have suggested making all federal student loans and repayment plans eligible for PSLF, waiving restrictions for forgiveness and automatically qualifying borrowers.

Cut or lower interest rates

Federal student loan borrowers haven’t had to make payments since March 13, 2020, and they won’t again until the summer of 2023 at the latest, under current government guidance. During this pause, zero interest is accruing. That means loans won’t grow and, if you can afford to make payments, you can pay off your debt faster.

Making zero interest permanent or lowering interest on existing debt could help borrowers pay off their debt without growing the principal, says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors.

Many borrowers Mayotte hears from say their biggest gripe is growing interest.

“They say, ‘I feel like I should pay (my loans) back, but I don’t feel like I’m on a level playing field because of the interest,’” Mayotte says.

» MORE: When will student loan payments resume?

Condense income-driven repayment

Income-driven repayment plans, federal options that set student loan payments at a portion of a borrower’s income, are a strong safety net. But experts say the four income-driven options — in addition to the three other federal repayment plans — should be streamlined into one new program. Some suggest automating enrollment.

There's hope in a newly revised IDR plan, details of which the Education Department announced in January 2023. The plan would reduce monthly payments by at least half for participants, and eventually replace the other existing IDR plans. Borrowers at risk of defaulting would be automatically enrolled.

“There’s no rhyme or reason for the variety of programs that exist in this space other than they were developed over time,” says Beth Akers, resident scholar at the American Enterprise Institute, a conservative public policy think tank, where she focuses on the economics of higher education. “We need to simplify the safety net for students and make it so simple that they can understand it exists and what benefits it can provide for them.”

Wesley Whistle, senior advisor for policy and strategy at New America, a left-of-center public policy think tank, says automatic enrollment into an IDR plan could benefit delinquent or defaulted borrowers, but is concerned about auto-enrolling students right out of college and its effect on their ability to repay the principal. For many, payments may not even cover interest.

“Even working full time at a minimum wage job, you're not making enough to knock into your principal,” says Whistle, who specializes in higher education policy. That could leave borrowers still paying student loans 20-25 years into the future.

Fixes to income-driven repayment forgiveness

Millions of borrowers are expected to benefit from one-time fixes that count past payments toward the 240 or 300 needed for income driven repayment forgiveness, the Department of Education announced in April 2022. The fixes are also expected to cancel debt for at least 40,000 borrowers through Public Service Loan Forgiveness.

Make college tuition-free

Tuition-free college at the associate’s degree level, as Biden has proposed, could particularly benefit low-income students who otherwise wouldn’t attend college and could reduce overall borrowing. College affordability advocates are calling for tuition-free four-year programs as well.

However, experts agree tuition-free programs will still require borrowers to take on debt to cover living expenses — on or off campus.

“I don’t think it’s a terrible idea, but I don’t think it’s a game changer,” Akers says, adding she thinks expanding existing Pell Grant programs could have a stronger effect on affordability.

Expand Pell Grants

Pell Grants originally covered around 80% of college costs, but today they cover less than 28%, according to The Institute for College Access and Success.

Lawmakers and experts say Pell Grants, targeted to low-income students, should be doubled from their current maximum of $6,495 to better meet the cost of college for students with financial need. (The maximum rises to $6,895 for the 2022-23 academic year.)

“The program is super well-targeted,” says Streeter of TICAS. “Even if you were to double the maximum grant, that targeting is still in place, and I think that’s why it is so popular and has a lot of bipartisan support.”

Advocates also argue eligibility should extend up the income ladder to include students in middle-income brackets who still need financial aid.