Beyond Forgiveness: Addressing the Root Causes of Higher Education and Healthcare Debt

Higher education institutions and hospital systems are similar in many ways. Both provide important services to people. Both are mainstays of local economies and communities. Unfortunately, both situations often leave people deeply in debt.

While there are significant differences in the politics of debt relief in higher education and health care, both areas urgently need pragmatic approaches to address the high prices that drive widespread debt.

Approximately 45 million Americans have student loan debt, and 100 million Americans have medical or dental debt. Student debt burdens tend to be larger. Half of student loan borrowers owe $20,000 or less, while half of those with medical or dental debt owe $2,500 or less.

Student debt relief has always been controversial. The federal government holds about 92% of student loan debt, and the Biden administration lost a Supreme Court case in June 2023 over its attempt to forgive $400 billion in debt. The Education Department subsequently used other regulatory mechanisms to eliminate $127 billion in debt, but Biden faces legal challenges on further loan forgiveness.

One-third of Americans oppose forgiving federal loans for people with “excessive” student loan debt, including half of Republicans but only 14% of Democrats. Opposition to student loan forgiveness appears to hinge on the belief that there should be no “free lunch,” or that those who choose to earn a degree should not receive these financial benefits for free. People who get a degree do make about a million dollars more over their lifetime than people who don’t.

But only about 6 in 10 people who start a bachelor’s degree complete it, and even fewer complete an associate’s degree, leaving many facing the double whammy of debt and no degree.

Efforts to forgive medical debt have been much more limited, in part because the debt is spread among multiple private creditors, including banks, collection agencies and hospitals. Hospital systems often sell debts to collection agencies for a fraction of what patients owe. The nonprofit RIP Medical Debt has been able to buy some of the debt at very low prices and has forgiven about $10 billion in debt so far.

Medical debt relief is often selfless. Take Casey McIntyre, for example, who started fundraising before her death from cancer and raised nearly $700,000 as of November 27, 2023. RIP medical debt was forgiven $70 million with the money. Several local governments, including New York City, Denver, Philadelphia and Cook County, Illinois, have also begun purchasing and forgiving residents’ medical debt. I’m not aware of anyone who is against municipalities forgiving medical debt, perhaps because these cities spend relatively little money. But in theory, these efforts could conflict with opposition to government paying for people’s health care, building into opposition to the Affordable Care Act.

The bigger question, however, is why people take on so much debt in the first place. In health care, the primary driver of high spending is the price hospital systems charge—or as one of the most famous studies in health policy succinctly put it, “It’s price, stupid.” When Hospitals Merge or Acquire When visiting a doctor’s office (increasingly so over the past two decades), their prices will rise even further.

For years, policymakers have shown little interest in regulating hospital prices (except in Maryland, which regulates hospital price increases). But recently, Connecticut, Colorado, Texas and New York have begun taking small steps toward regulating prices by limiting fees at outpatient facilities. With strong bipartisan support for policy action to lower hospital prices, states may begin to consider more comprehensive regulation, but may face pushback from hospitals. In Indiana, an effort to simply make hospital prices more transparent to employers who buy insurance for their employees has drawn fierce opposition from the state’s hospital association.

In higher education, state policies have led to rising tuition fees. The vast majority of colleges and universities are public institutions. But it won’t be until 2022 that state higher education funding per student returns to pre-recession levels in 2008. With less funding from states, the public institutions where most students attend have to rely more heavily on tuition and fees, resulting in higher debt burdens for learners.

Debt relief improves the lives of beneficiaries. But forgiveness alone will not solve the price problem at the root of debt. Governments often step in to control the prices of public goods and services. Higher education is arguably a public good because our nation’s economy requires more people to earn college degrees. About half of hospitals are nonprofit (only about a third are for-profit, the rest are public), meaning they have committed to providing community benefits in exchange for significant tax benefits. Agreeing to more affordable prices seems like a reasonable way to ensure meaningful community benefits.

While the politics of debt relief in health care and higher education differ, both face a similar underlying problem: high prices. Policymakers can adopt strategies to address the high prices that contribute to increased debt in both sectors, whether through new payment models, direct regulation, growth caps, or other strategies. Policymakers who want debt relief may attract more support if they pair relief with realistic plans to prevent debt growth.

Dr. David Schleifer is Vice President and Director of Research at Public Agenda.

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