Forgive Us Our Debts

Over half of college graduates in America carry student loan debt, an average of $28,950 per person, according to a recent Forbes article.

Many graduates land good jobs and work hard to pay off their student loans over the course of years. Many others with less employment success find it difficult or impossible to make the minimum payments. The moratorium on federal student loan payments and interest, which began in March 2020 as the Covid-19 pandemic began and at press time was expected to be extended for the seventh time at least into 2023, only forestalls the inevitable.
 
President Biden and other policymakers have pushed to go beyond these measures and forgive some or all federal student debt. Some Americans praise this effort, but others believe that canceling student loans will unjustly burden taxpayers, unduly relieve students of their contractual obligations, be unfair to those who have sacrificed to pay their debts, and fail to address the root problem: runaway costs in higher education.

What moral and ethical guidance can Church teaching and tradition offer in the student loan crisis?
 
A DUTY TO REPAY

The Catechism of the Catholic Church teaches that borrowers should generally pay their debts: “Promises must be kept and contracts strictly observed to the extent that the commitments made in them are morally just.” This is commutative justice, which governs exchanges between individuals (n. 2410-2411).

In the case of government loans, legal justice—which governs a citizen’s duty to his community—is also relevant because the community is the lender.

“Forgiving a debt could be a morally virtuous act, but forgiveness, by definition, can only come from the one to whom the debt is owed,” said Rachel Greszler and Lindsey M. Burke of the Heritage Foundation in a June 2022 report. “In the case of federal student loans, that’s the taxpayer.”

John Buchmann, moral theologian and director of development at the Chicago-based Lumen Christi Institute, acknowledged this difficulty: “The nation loaned, so in theory the nation forgives,” he said. But in the case of federal student debt forgiveness it’s the government and politicians, and not the people they represent, who make the decision.

“Maybe the agent [policymaker] is not adequately representing [the people],” explained Buchmann. “So then you could have an instance where, in theory, an act of charity becomes an act of injustice.”

A DUTY TO BE CHARITABLE

The Catechism also acknowledges that God, in His law given to Israel, instituted a periodic nationwide forgiveness of debts, the “jubilee year.”
“God commands an act of charity,” said Buchmann. “A lot of people think of charity as merely going above and beyond. As Christians, we are called to live out our lives of charity.”

A one-time cancellation of federal student loans could reflect this jubilee today. So could a declaration of bankruptcy by individual borrowers with genuine need.

Getting federal student loans discharged in bankruptcy is difficult, however. Unlike with most other types of debt, student loan borrowers must file a separate lawsuit within their bankruptcy proceedings to prove that repaying the loans would cause an “undue hardship.”

“Is there really any good reason for making it so much more difficult to discharge student loans than to discharge other kinds of debt? Or is it just a misplaced moral censure?” asked Joseph Simmons, a Yale Law School graduate who specializes in bankruptcy law.

“Bankruptcy law exists because in a world with interest-bearing debt, people will sometimes find themselves unable to pay,” said Simmons. “This is part of the risk creditors get paid to bear.”

The Catechism also notes that the ancient Israelites were not allowed to lend to each other at interest (Exod 22:25; Deut 23:19). But whether and how this prohibition on usury, as it is called, carries over into Christian tradition is debated.

“There is no clear teaching on usury,” said Buchmann.

“[Saint Thomas] Aquinas draws on both biblical tradition and Aristotle, so his position is that you cannot charge interest on a loan,” he explained. “So that’s very straightforward: no interest whatsoever.”

In more recent times, however there’s been a movement away from that very strict notion to say instead that it’s immoral to charge exorbitant interest, continued Buchmann. “And people have debated about what that means.”
Buchmann’s own view is based on that of 20th-century Catholic thinker Hilaire Belloc: the lender gets to share in the profit from a productive loan but also shares in the loss from an unproductive loan.
 
“Today, it turns out that many student loans were bad investments, and many graduates are left with lots of debt and little ability to repay it,” Simmons said. “These loans, it seems to me, should be discharged.”

Buchmann agreed. “[If borrowers are] not making any money, they’re woefully indebted, and they have no future. And this is what we see happening with a decent number of people.”

Buchmann also suggested a middle road policymakers might take, aligned with the older view of usury: “We could allow people to pay back principal, but not charge interest.”

THE ROOT OF THE ISSUE

Why do students borrow so much in the first place? In other words, why is college so expensive? A 2017 study by the Federal Reserve Bank of New York found that federal student aid programs actually caused college tuition to increase by about 60 cents per dollar over the previous 15 years.

“In some ways, we’re dealing with the fruit of a bad tree,” said Buchmann.

The government “shouldn’t be making these loans,” Buchmann said. “We should get out of this business of giving loans to people who are probably going to be unproductive with them.”
 
Instead, he added, we should look for other ways to make sure poverty doesn’t stand in the way of a good education. “[Policymakers] could’ve invested in schools,” he said. “They could’ve funded [more] scholarships.”
 
Simmons agreed. “If the student debt system can’t function without making it extremely difficult to discharge for the rest of the borrower’s life, we should think about other ways to finance higher education.” 

RACHEL HOOVER is a contributing writer for Legatus magazine.