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  • Writer's pictureKaren Herbert

Student Loans - Relief on the Way?

Updated: Apr 29, 2023

College costs have risen higher than income and left over 45 million borrowers with a $1.6T debt. What is being done to provide relief, if any, to the borrowers?

Democratic Senators Elizabeth Warren and Chuck Schumer have introduced a proposal to immediately cancel $50,000 in federal student loan debt. From MarketWatch (Berman September 18, 2020):

“America is facing a historical economic and public health crisis,” Warren said on a conference call with reporters. “We have a responsibility to act, broadly canceling student loan debt will improve the lives of tens of millions of Americans,” as well as boost the economy and help curb the racial wealth gap."

The Warren and Schumer proposal would apply only to federal student loans, not private student loans. This is only a proposal, not a law. They introduced it to get the issue out in the open so Congress can act in 2021. Senator Bernie Sanders is touting the idea of canceling all $1.6T of the US federal student debt.

For a more detailed and thoughtful analysis, read the Roosevelt Institute Working Paper "Student Debt Forgiveness Options: Implication for Policy and Racial Equity (August 2020)

The research found that debt forgiveness of $10,000 up to $50,000 would make a difference in most households. For half of the borrowers, canceling $20,000 would leave them completely free of student loan debt; $40,000 would do the same for 75% of borrowers.

This is due to the fact that borrowers with the lowest student loan borrowers have the highest rates of default. These are likely students that obtained loans but were unable to finish a degree program. Or a nontraditional student taking out a loan to retrain after a lay-off, but unable to find a job that utilizes the higher-value skills learned. I've met many of these students during my tenure as a community college science tutor.

The working paper also found that the student debt system has become more like "big business" than the original intent of helping young people attend college who otherwise would not be able to do so. There are loan servicers, collection agencies, and private lenders who all benefit from the business of student loans. Carrying this debt prevents younger people from making other investments like buying a home.

President-Elect Biden has recommended plans for student debt relief, among them an income-based repayment program, and forgiveness of the first $10,000 of debt. He supports the 100% forgiveness program after 10 years (120 payments) as well. He has indicated that Congress should pass the laws enacting the changes instead of utilizing Executive Orders.

Qasim Rashid, attorney and former candidate for U.S. Congress, poses the question:

"What if there was one single policy initiative that could help our economy, while positively affecting the racial wealth and income inequality gaps, local businesses, and car and homeownership?" Source There has been a backlash to these proposals asking "Who will pay?" Isn't it better to pay the citizens of this country who will put that money right back into the economy? Senators Warren, Schumer, and Sanders all recognize the positive effect that relieving the burden of student loan debt will have on the faltering economy versus tax breaks for multimillionaire individuals and corporations. I hope the President-Elect follows through and is able to put some money back in Americans' pockets.

For background on this article, I found reading columns in Forbes Magazine online by Zack Friedman to be invaluable.

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