The staggering student loan debt in this country — estimated to be around $1.6 trillion — stymies much of its young population. Many borrowers are putting off having families because they can’t afford the expense of raising children. Nor are they buying houses or cars, which would boost the economy.
This has led some advocates to call for forgiving the debt, with President-elect Joe Biden vowing during his campaign to forgive up to $10,000 for each borrower. More liberal Democrats are fighting for up to $50,000, and the progressive wing says all existing debt should be canceled.
Such a bailout would be hugely expensive, though; forgiving up to $50,000 for each borrower would cost about $1 trillion. A disproportionate amount of that relief would go to higher-wage earners, who are more likely to attend college, especially private college. And the money would help only this crop of debtors. Future students would still be on the hook.
There are many ways of providing relief to borrowers, but across-the-board forgiveness would be the least equitable and least cost-effective. Instead, the government should help the neediest graduates, those who lost their incomes during the pandemic and those who took steps to keep their debt low by attending public colleges and working through their college years. And it should fix an existing payment-reduction program that hasn’t been working at all.
That’s why need-based relief, rather than broad loan forgiveness, is both prudent and warranted. But the Biden administration should also consider other ways of reducing the debt burden without breaking the bank.
Independent reporting for Pine Bluff & Jefferson County since 1879.
The existing Public Service Loan Forgiveness program cancels the debt held by students who go into government or nonprofit work and who make payments on their loans for 10 years. But the program has been a mess. People were paying off the wrong kinds of loans without realizing it; they were misled into thinking they had loans that could be forgiven; and in many cases their applications for relief were wrongly refused — in fact, only 1% were approved in the initial round. The first item of business should be to fix this.
Another program allows students to limit their loan payments to a percentage of their income, with any outstanding balance forgiven in 20 or 25 years. The biggest burden here isn’t the principal, it’s the way interest stacks up to perpetuate a borrower’s indebtedness. Lowering the interest rate would provide immediate, significant relief and reduce defaults.
Again, forgiving student debt is a short-term fix. Ultimately, the answer lies in preventing crushing debt in the first place.