: Behold, a different kind of student-debt cancellation

United States

For years, student advocates and some higher-education leaders have worried about the ways in which even small debts that students owe to their schools can hold them back from continuing college and completing their degree. 

Over the past few months, it’s become clear that some schools needed to mitigate this problem was something simple: More money. 

In May of this year, the Department of Education announced that colleges could use funds they received from the American Rescue Plan — the coronavirus relief measure Congress passed in March — to wipe out institutional debt or funds students owe to their schools.

The next day Delaware State University, an HBCU, announced it would discharge up to $ 730,655 in debt for recently graduated students. 

‘We wanted to the fullest extent possible to use this funding during the pandemic to address the removal of barriers and to help students stay enrolled.’

— Christopher Reber, president of Hudson County Community College

In the months since, many other Historically Black Colleges and Universities have done the same. In recent weeks, the trend has extended to other types of schools with large populations of low-income or underserved students, like community colleges and four-year regional public universities. 

At Hudson County Community College, officials had been thinking “for a long time” about how the debt can pose challenges to students trying to complete their degrees, said Christopher Reber, the school’s president. The flexibility of the rescue plan funds allowed HCCC to address the debt “in a very bold way,” Reber said. The school wiped away $ 4.8 million in outstanding student-loan balances for 4,800 students. 

Already, HCCC serves a population of students that’s at high-risk of not completing. Roughly 72% of HCCC’s students receive a Pell grant, the money the government provides to low-income college students. What’s more, many students are immigrants and may not speak English when they first enroll at HCCC, Reber said. Owing a balance to the school can exacerbate those challenges. 

“We wanted to the fullest extent possible to use this funding during the pandemic to address the removal of barriers and to help students stay enrolled,” Reber said of the pandemic-era funds the government sent to colleges. 

$ 15 billion in institutional debt

Last year, before the government allowed colleges to use the relief funds to cancel institutional debt, Ithaka S+R, a non profit focused on educational research, estimated that students across the country owed up to $ 15 billion in debt to colleges and universities. 

These outstanding bills are different from the $ 1.7 trillion in federal and private student loans held by more than 40 million borrowers. Instead, they’re related to things like overdue tuition bills, parking or library fines. In some cases, the debt is the result of a college holding a student liable for federal financial-aid funds — including grants — the school had to send back to the government because of the timing of a student’s withdrawal.

Often the debts are relatively small, but they can have big consequences. In some cases, students may not be able to enroll in classes until they settle the bill. It’s also not uncommon for schools to hold transcripts as collateral for the debt, making it difficult for students to transfer elsewhere, or, if they’re graduating, to have that official documentation. 

Some schools also use traditional debt-collection tactics, including referring the debt to collection agencies, to recoup the funds. Even so, the schools often don’t collect the full value of the debts. Recognizing the challenges these debts pose — and the revenue schools are losing by blocking a student from continuing their education — some colleges have launched programs that cancel at least a portion of students’ outstanding debts if they return to the school.  

COVID challenges make it hard to reach the finish line

At Delaware State University, which was the first to announce it would use American Rescue Plan funds to discharge some institutional debts, officials already had some experience with the idea. They discharged the outstanding balances of students who graduated in 2020, using funds the school raised through private philanthropy. 

Officials knew they wanted to do the same thing for the class of 2021, and the increased flexibility in how colleges could use the federal-relief funds, “allowed us to do that even to a greater degree,” said Tony Allen, Delaware State’s president. 

“Students come to HBCUs to get a high-quality education but they’re also coming to change the economic trajectory,” of their lives, of their families and of their communities, Allen said. “When COVID hit, their attempt to get to the finish line was not going to be easy.” 

Tony Allen, the president of Delaware State University.

Wiping away even relatively small amounts of debt, takes that burden “off of that student who has probably worked their way through college and/or their parents, many of which come from these very low-resourced communities,” Allen said.

Coming up with, say, $ 1,500 “is not an easy feat,” he added.

Alynnda Williams, a recent graduate of Delaware State, said having her roughly $ 12,000 bill wiped away by the school “felt like stress lifted off my shoulders, a stress lifted off my mother’s shoulders.” 

Williams, 22, said she was so surprised to see her balance had been zeroed out that she logged out of her account portal with the school, and then logged back in to make sure it was real.

And then? She called her mom to break the news. “That was really a great Mother’s Day gift for her,” said Williams, who found out about the debt cancellation on Mother’s Day. 

Having her bill wiped out also made Williams feel confident in her decision to choose Delaware State and to be so involved on campus during her time there. She was a recruiter in the office of admissions, worked with incoming freshmen, was a manager at the gym, joined the Alpha Kappa Alpha sorority and more. 

“I always did whatever I could, especially when it came to the incoming students,” she said. “I’ve done good, and good was done back to me.”  

HBCUs lead the way

HBCUs were the first to cancel institutional debts once the federal funds were made available to do so — and that is indicative of how in touch the institutions are with the population they serve, said Lodriguez Murray, senior vice president, public policy and government affairs at the United Negro College Fund, which has 37 member HBCUs.

Students from HBCUs are more likely to come from households with fewer resources — more than 70% of HBCU students receive a Pell grant — than those at predominantly white institutions. 

“We’re very proud that our institutions have led the sector in doing this,”  Murray said of the recent spate of debt cancellation. It shows “that when resources are given, whether they be federal, philanthropic, or otherwise, that HBCUs are amongst the most innovative institutions in the sector. They definitely are second-to-none in terms of caring about the outcomes of students.”

‘We need to get more resources to the schools that are doing most of the heavy lifting.’

— Catharine Bond Hill, managing director at Ithaka S+R

Though the pandemic-era relief will certainly help those students who received it, Catharine Bond Hill, managing director at Ithaka S+R, said it’s a one off event that likely won’t do much to impact college affordability and the obstacles students face to completing school in the long-term. The recent spate of debt cancellation by schools serving under-resourced students with limited funding themselves did highlight one possible solution to these challenges, Bond Hill said. 

“We need to get more resources to the schools that are doing most of the heavy lifting,” she said. 

In the meantime, the funds provided by the federal government allow educators, policymakers and others to see how wiping away students’ balances could impact them. “This is almost like a natural experiment to see what happens when you help students that have debt,” Bond Hill said. 

Monitoring the impact

Indeed at Hudson County Community College, officials will be monitoring the effect of cancelling the debt to see if it’s a program they might continue in some way through their own operating funds, Reder said. 

“By removing that significant barrier hopefully we can keep more of those students enrolled,” Reder said. Not only would that help the students get closer to a degree and the economic benefits that go along with it, but in addition, he said, “If you spend money to help more students persist, that also returns revenue to the bottom line.” 

The opportunity to wipe away some debt benefits schools in other ways too, said Walter Kimbrough, the president of Dillard University, an HBCU in New Orleans. By cancelling the debt and keeping students on track, colleges could help avoid having their graduation rates slip. 

“It’s good for the student, it’s good for the institution,” he said. “You don’t have the debt that’s out there that you have to write off.” 

Officials were careful how they couched the debt relief to make sure students understood that the discharges applied to money owed to the school — not federal or private student loans.

Many of the schools that have cancelled debt, including Dillard and HCCC, saw the opportunity to wipe the funds away as part of larger efforts that predated the pandemic, but intensified during it, to fill gaps — whether through emergency grants, food pantries or other means — that create obstacles to students getting through college. 

“We know that quite often it’s not the academic issues that get students in trouble, it’s something that happens in their lives, in their families — the car breaks down,” said Ashish Vaidya, the president of Northern Kentucky University. “Over time, it starts accumulating and at some point it can be pretty difficult to get out of that.” 

That dynamic was always in the back of NKU officials’ minds, but the flexibility of the rescue-plan funds helped them be able to act on it. The school wiped away $ 600,000 in debt students accumulated between the spring 2020 and spring 2021 semesters.  “It’s one-time stimulus money, we know that this is not always what we can do,” he said.  

Officials were careful how they couched the debt relief to make sure students understood that the discharges applied to money owed to the school — not federal or private student loans. Much of the coverage surrounding colleges cancelling institutional debt has had the public confused about what that cancellation would actually mean for students. 

For the students who received the funds, “it’s a great unexpected gift that I hope all of them appreciate,” he said.