Amid the debate over President Joe Biden’s plans for student loan debt forgiveness, a new research paper by experts at Wharton and elsewhere has recommended a rethink of an existing program that provides student loan waivers for teachers but has failed to deliver on its promise. The so-called “Teacher Loan Forgiveness” (TLF) program is designed to incentivize teachers to spend at least five consecutive years in low-income (or high-need) schools by reducing their student loans by between $5,000 and $17,500.

The paper, titled “The Value of Student Debt Relief and the Role of Administrative Barriers: Evidence from the Teacher Loan Forgiveness Program,” found that the TLF program did not attract teachers to high-need schools, nor did it make a difference to their tenure at those schools. Low awareness about the program may be a factor, as increased availability of information about it resulted in a slightly higher take-up, the paper stated. Bigger constraints include the complexity of the program and administrative barriers, such as frictions with third-party vendors who service the loans.

“The potential for debt relief didn’t seem to do enough to move the needle to influence where teachers were choosing to work,” Wharton finance professor Benjamin Keys said recently on the Wharton Business Daily radio show that airs on SiriusXM. (Listen to the full podcast above.) Keys co-authored the paper with Brian A. Jacob, a professor of public policy, economics, and education at the University of Michigan, and Damon Jones, a professor at the University of Chicago, where he teaches public finance and public policy.

Numerous programs offer federal student loan debt forgiveness or cancellation, but the paper’s authors decided that the TLF program is “an ideal test case” because of its “clear target population, straightforward forgiveness amounts, and shorter time horizons for forgiveness.” The study used the state of Michigan for its sample, where, as of 2018, only 66% of eligible teachers were aware of the TLF program, and fewer than 20% had participated in it. Since its inception in 1998, the TLF program has forgiven $3.4 billion in student loans for 203,000 teachers, according to the Education Data Initiative, a research organization.

The program aims to attract teachers to low-income or high-need schools, which are typically defined as those with more than 30% of their students from low-income families; Michigan defined them as schools that offer free or reduced-price lunches to 30% or more of their students. For eligibility, the program requires teachers to be “highly qualified,” which means they must have at least a bachelor’s degree and have state certification. The loan forgiveness starts at $5,000 and can go up to $17,500 for teachers specializing in mathematics or science, or in special education.

“The potentially limited take-up of this program is of particular interest against the backdrop of a long-standing challenge of recruiting and retaining teachers, especially in high-need school districts, and, more recently, amid a general teacher shortage that has been exacerbated during the COVID-19 pandemic,” the paper stated.

“The potential for debt relief didn’t seem to do enough to move the needle to influence where teachers were choosing to work.”— Benjamin Keys

Where the Student Loan Debt Forgiveness Program Fell Short

The study used a combination of quasi-experimental and experimental evidence on the TLF program, in combination with survey data and qualitative evidence. It compared outcomes for teachers with similar profiles who do and do not qualify for the program, and found “no difference in teacher retention” over five years of employment. It pointed out that during that period, other attributes of the school and teachers were “smooth” or unchanged, and concluded that “loan forgiveness eligibility alone is not sufficient to alter teacher employment patterns.” Its verdict: “The TLF program does not have a significant effect on retaining teachers or on attracting them to high-need schools to begin with.”

“You might think that if teachers care a lot about getting that $5,000 or [up to] $17,500 in debt relief, they would stick around longer at these high-need schools or that they would differentially sort into these schools,” Keys said. “We see no evidence of those [responses to the loan forgiveness program].”

Next, the study looked at whether informational barriers could explain the lower-than-expected take-up of the TLF program. The results of randomized mailers to more than 44,000 teachers at eligible schools in Michigan in two rounds (2015 and 2017) found an increase of 5 percentage points in the “likelihood” of qualified teachers who applied for TLF. The additional information had no impact on teachers who had not yet accumulated the years of experience required to qualify for the program.

“We were able to move the needle in terms of the understanding of the program,” Keys said of the results of those surveys. “Teachers who received this outreach from us were more likely to say they had a basic understanding of the rules of the program. We were also able to increase the take-up among those teachers who had already hit the magical five-year threshold [of consecutive experience].”

But that is where the needle stopped moving, so to speak. “More information [about the TLF program] didn’t change where teachers worked,” Keys continued. “Teachers didn’t change their decision about how long they stayed in the school or what type of school they taught in, or whether they stayed in a high-need school. We saw the same amount of [teacher] turnover in these high-need schools, which is quite high. These are very often stressful jobs.”

Barriers to Seeking Student Loan Debt Forgiveness

Is the loan waiver in the TLF program not attractive enough for teachers? The authors checked that out as well in their survey and found that teachers do want student loan debt forgiveness. “Our results suggest a non-trivial value of debt relief,” the paper stated. In the surveys, many teachers spoke of challenges they faced in making their monthly student loan payments and wanted options that would have some portion of their debts forgiven.

But if those pressures did not translate into a take-up of the TLF program, it may be because of “informational frictions and a variety of administrative barriers,” according to the paper. “Clear guidelines on how to navigate the enrollment process are difficult to find … and special attention must be paid to applicant-vendor relationships and levels of trust,” it added.

“Having a better understanding of ways to be able to make it easier for teachers [to enter the TLF program] becomes vital, especially when we’re looking at a potential teacher shortage right now in the U.S.”— Benjamin Keys

The teachers also pointed to concerns among teachers over the accumulation of student loan debt while in college, teacher salaries not keeping up with rising debt burdens, and “wavering trust in an education system that relies so heavily on debt to meet the requirements of being a teacher.” They also were skeptical of “offers that sound too good to be true,” and in some cases doubted the information materials they received on the TLF program, the paper stated.

According to the paper, influencing employment choices would require additional information and incentives above and beyond those provided by the current teacher loan forgiveness program. Added Keys: “Having a better understanding of ways to be able to make it easier for teachers [to enter the TLF program] becomes vital, especially when we’re looking at a potential teacher shortage right now in the U.S.”

Policy Takeaways for Other Student Loan Debt Forgiveness Programs

The paper breaks new ground on several fronts. It explores whether student loan debt forgiveness programs affect early career decisions, and how they might serve as a policy lever to incentivize employment in public-service-oriented positions. Specifically, it pointed to “non-trivial” take-up frictions in the TLF program. It also provided new insights into how teachers value different features of their job and loan forgiveness programs in deciding which schools to work at or how long they want to stay at those schools.

Keys also pointed to higher-level takeaways from the study. “It speaks to the need to go back a step and think about whether it’s sensible to require these kinds of very expensive programs for teachers to enter the profession, but also whether it makes sense for certain institutions and certain degree programs to be as expensive as they are,” he said.

Research shows that as government programs make student financial aid more generous, “tuition bills go up,” Keys said. “The schools themselves capture a lot of the benefits when we raise the limits on these loan programs. It means that those who are coming out of these very valuable professions are hit with a bigger debt burden and are going to have a tougher time finding a job that will ultimately make it feasible to pay back that debt.”

“We can go further and say that certain degree programs aren’t worth the money that’s being asked of students to pay for them,” Keys continued. “So, we need to be really clear about who’s eligible for federal financial aid. And those subsidies shouldn’t be going to schools or programs that don’t meet minimal cost-benefit trade-offs.”