Loan Forgiveness Not Enough to Solve Healthcare Labor Crisis

The announced student loan forgiveness is not enough for many healthcare workers.

Source: Jonathan Borba/Pexels

This week, the White House (2022) announced student loan forgiveness of up to $10,000 for some borrowers.

As many borrowers, especially in mental health and other healthcare fields, may have debt into the hundreds of thousands, such a modest sum will not address the crushing burden of accumulating debt many workers face. Nor will this action incentivize workers to enter healthcare fields, where, despite labor being in short supply, wages are still low, and the cost of qualifying education is high.

Looking at the impact on current borrowers, we know debt accumulation causes psychological harm. This is one reason why, for example, therapists are prohibited from allowing clients to accrue significant debt (Griffin, 2018). Healthcare workers may have to choose between paying loans and getting married, having children, or buying a house. Some may even need to choose between paying student loans and buying food.

On a societal level, it is in the interest of the healthcare field and the nation's well-being to address this issue of workers’ student loan debt more robustly. Recruiting future healthcare professionals to fill the ever-growing need for services will become increasingly difficult if not properly incentivized.

Incentivizing entry into healthcare fields is not “unfair.” It’s unfair not to do so. Jobs that add value—even great financial gain—to society are not monetized so that the worker can reap the full benefits of what they produce.

When a venture capitalist invests money in a company, they retain a stake in that company's outcomes. When a client who would otherwise have committed a destructive crime receives adequate mental health treatment, those professionals do not reap the financial benefits of their economic contribution. The mental health worker is a “value positive” producer of economic gain for society, but they do not directly reap those benefits, at least not financially.

Conversely, many higher-paying jobs are equally poorly monetized—but in the opposite direction, with benefits bestowed upon “value negative” parties at great cost to society. A factory that pollutes the environment may cause many times more financial liability to society than it produces, but until the factory is made to take financial responsibility for the damage it causes, the owners of that factory may enjoy financial success.

One clear real-world example is the tobacco industry. In their heyday, they were not producing net value but instead accumulating wealth by siphoning the value of health and productivity off a large segment of the population. The untold billions of dollars of costs they caused in diseases, loss of productivity, loss of quality of life, and more, would dwarf any positive economic contribution they could have made to the economy.

Lest anyone think that all such wrongs have been righted, we should remember that social media giants, for example, are not paying for the mental health treatment bills of billions of their customers, loss of wages when they are unable to work due to depression, or the wrongful deaths of those who die by suicide as a result of using their product.

The only difference is that the economic value of healthcare workers provides a “pay it forward” model. Forgiving student loans is a way to monetize the overall social contributions of those who serve others. In economic terms, the process of correcting these market errors in monetization is called internalizing the externalities, and it has been a known phenomenon since at least the 1920s. In addition to economics, many moral and political factors suggest that forgiving all student loans is in the interest of democracy and social justice (Young & Fattahi, 2021).

Despite all the reasons in favor of debt cancellation, parties from conservative groups to President Biden have voiced concerns regarding the fairness of debt cancellation. Many borrowers are perpetually trapped in a cycle of debt by the announced inadequate measures. This would remain true for large numbers of borrowers even if $50,000 were forgiven, as many healthcare students’ debt goes into six figures.

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More needs to be done to save the healthcare field. One solution which would address many of the objections to forgiveness would be to hold borrowers liable for only the principal they borrow. Any interest already accumulated or paid for existing loans can be retroactively forgiven and refunded. Future loans would be issued at zero percent interest. Borrowers will pay back what they borrowed. They will just not be trapped in a never-ending cycle of debt.

Like in a successful marriage, if both sides can approach the issue with empathy, a compromise can be reached that everyone can live with.