Biden cancels $10,000 in student debt. Now the real work begins

President Joe Biden took executive action on Wednesday, stating that he will forgive $10,000 in federal student debt for most borrowers.

Additionally, Biden will cancel up to $20,000 for recipients of Pell Grants.

The relief will be limited to Americans earning less than $125,000 per year, or $250,000 for married couples or heads of households. The relief is also capped at the amount of a borrower’s outstanding eligible debt, according to the Education Department.

These announcements undoubtedly provide some relief for many Americans.

It’s a good start. However, unless we address the systemic problems that created the current $1.7 trillion pile of student debt in the first place, we’ll be back here in just a few short years with another generation demanding relief.  

Why are students graduating with unsustainable debt loads and unable to find jobs that pay enough to manage the burden? Why are colleges and universities raising prices while, on average, two out of every five students at four-year schools fail to graduate? Why are some of the schools that get the most taxpayer dollars the ones with the worst student outcomes? 

This is about more than individual students’ financial well-being. The unrelenting student debt crisis has the public starting to question the entire value of our higher education system. We need a true fix that prevents students from being stuck in this debt trap.  

More from Personal Finance:
Biden cancels $10,000 in federal student loan debt for most borrowers
Americans worry loan forgiveness will make inflation worse
75% of families don’t know a key date to get financial aid

The underlying problem is a dysfunctional system that allows students to take on unmanageable debt from schools and programs that fail to deliver on educational promises.   

Only robust action from the Biden administration and Congress can address the persistent problems of rising prices, low completion rates, and low-quality, unaccountable institutions. Until policymakers are willing to tackle these tough issues, the debt pile will just keep growing larger, matched by persistent demands for forgiveness.  

Congress already has a bipartisan, bicameral bill to vastly improve the availability of privacy-protected information students need to make the right decision for them. The College Transparency Act (CTA) will deliver information in a user-friendly format and simplify an often mysterious and intimidating decision process. Democrats and Republicans already agree on the bill — they just need to pass it. 

Second, policymakers should insist on greater accountability.

Roughly $150 billion is spent each year on federal student aid. Spending that taxpayer money on underperforming institutions essentially flushes it down the drain.

Congress can simply stop giving money to the worst schools that suck up cash and leave students with worthless degrees — if they graduate at all.

The Biden administration has smartly proposed imposing accountability rules that will help ensure taxpayer funds are only spent at schools that can prove their value for students. For example, the gainful employment rule will end federal funding for any career program whose graduates don’t earn enough to repay their loans. And the borrower defense rule will help compensate students who are defrauded by predatory institutions.

These policies will provide critical protections for students and taxpayers, and should be at the top of the priority list. 

Congress can also build on those policies by mandating an expanded accountability system for all institutions and programs, based on critical outcomes like graduates’ earning potential, new skills and ability to secure a family-sustaining job.  

Finally, policymakers should prioritize completion.

For far too long, federal policies have rewarded enrollment, not graduation rates. Only 63% of first-time, full-time college students earn a degree in six years. Among for-profit colleges, the rate drops to 26%. 

Students who fail to earn degrees or certificates from reputable institutions or programs accrue debt without improved job prospects. We need policies that reward college completion.

Biden is already on the right track with a new College Completion Fund to invest in evidence-based completion and retention efforts at colleges serving large numbers of low-income students. Disappointingly, it received only $5 million in appropriations in 2022. The final budget for next year should include the full $200 million proposed by House Democrats.    

The student debt burden is a symptom of a broken higher education system. We need to treat the actual disease. This means mandating accountability and transparency in colleges and universities. Students deserve to know they’re not wasting time and money on broken promises. Taxpayers deserve to know we’re getting the highest return on our public investment in higher education.  There’s no quick fix that will solve the underlying problem.

But there is a solution available. Policymakers just need the courage and determination to seek it.  

— Laura Arnold is co-founder and co-chair of Arnold Ventures

Subscribe to CNBC on YouTube.