“I have paid off about $ 48,000, but the balance appears to be frozen,” Orth, a master’s in visual rehabilitation therapy, told Al Jazeera. “I would love to have my $ 48,000 credited to my principal. Eliminating the interest would be huge. ”
For now, Orth’s student loan payments are on hold. The passage of the $ 2.2 trillion coronavirus aid, relief and economic security act in April temporarily froze federal student loan payments and accrued interest, a measure that has since been extended by the Trump administration until January 31, 2021.
But payments and interest on private student loans have not been suspended, and federal student loan bills from borrowers will eventually fall due when the forbearance ends.
For many student loan holders, this temporary pause on collection activity is simply not enough – which is why the movement to write off student loan debt is gathering momentum, driven by the impending launch of the Democratic President-elect Joe Biden and the perspective he might take. executive action on the matter.
An open letter (PDF) signed by 238 advocacy organizations called on Biden to cancel federal student debt, and US Senate Minority Leader Chuck Schumer has publicly called on the president-elect to use his executive powers to cancel up to $ 50,000 in federal student debt for an individual. borrowers.
This is a critical relief for some. People are being overwhelmed by student loans.
Biden has not indicated what he will do to tackle the crisis when he takes office on January 20, but student debt reform was at the heart of his presidential campaign.
As part of his coronavirus relief aid plan, Biden proposed to immediately write off a minimum of $ 10,000 in federal student loan debt for borrowers. Longer-term, he proposed forgiving federal undergraduate student debt tied to public college tuition fees for people earning up to $ 125,000 a year.
Supporters said such action would go a long way in helping struggling Americans during and after the COVID-19 crisis. It could also inject much-needed liquidity into the struggling, consumer-driven US economy.
Proponents have argued that since consumer spending accounts for about two-thirds of U.S. economic growth, money that doesn’t have to be spent on student loan repayments could instead be spent on things like l buying a home or stimulating the retail industry.
“The time has come for a bold and ambitious solution to student debt,” said Cody Hounanian, program director for Student Debt Crisis, a nonprofit advocating for loan reform. “We believe that canceling student debt can provide an economic stimulus, create a more level playing field on the racial level and clean the table for future reforms,” he told Al Jazeera.
1.7 trillion dollar problem
It’s a big slate to clean. Collectively, Americans owe $ 1.7 trillion in student loans, according to data from the Federal Reserve. And that’s not surprising given the high cost of American higher education.
The average annual tuition fee for undergraduate students at private universities is $ 29,500 – more than three times the tuition fees at public universities – and 89% of US students use public loans, grants, or both to help pay for their undergraduate degrees, according to a 2019 OECD report (PDF).
But many students who sign on the dotted line later find themselves struggling to repay their loans for decades, which is why Orth believes student loan companies are preying on vulnerable and naive students.
“When I was 17, I remember getting advice on student loans where loans seemed manageable. The example they gave was that I would pay around $ 50 per month. They didn’t explain the interest at all, ”Orth said.
The problem is worse for students of color. Hounanian cites research from the Brookings Institution that found that black graduates of undergraduate programs default on their student loans at five times the rate for white students.
Default rates are also the highest among those who borrow relatively small amounts, Brookings found, which is why advocates have said any debt forgiveness could go a long way.
“It’s a critical relief for some. People are overwhelmed by student loans, ”Hounanian said.
Why would I have to pay taxes to forgive the daily student coffee groceries and spring break when we were working hard to pay for our own children’s education? Will I be forgiven for my mortgage or my car?
And while the concept of forgiving student loans has been championed by progressives, the idea is gaining traction with Americans of all political stripes.
A 2019 poll by Quinnipiac University found that 57% of voters supported the federal government to write off $ 50,000 in student loan debt for people with household incomes below $ 250,000.
But the idea of canceling student debt also has its detractors. Some borrowers who have paid off their student loans want to forgive everyone’s flies about their personal liability.
Amy Hertel is a mother of four living outside of Madison, Wisconsin. Now in her 50s, the business owner has helped her sons pay for their undergraduate degrees so they can graduate debt free.
“Why should I pay taxes to forgive the daily student coffee groceries and spring break when we’ve worked hard to pay for our own children’s education?” Hertel told Al Jazeera. “Am I going to be forgiven for my mortgage or my car?”
Research also shows that debt cancellation would benefit people who took out larger loans, such as for graduate degrees, more than those who took smaller ones, which could increase inequality. .
I have repaid about $ 48,000, but the balance appears to be frozen. I would love to have my $ 48,000 credited to my principal. Eliminating the interest would be huge.
For example, a study (PDF) by researchers at the University of Chicago published this month found that “forgiveness would benefit both the top decile and the bottom three deciles combined.”
Their study also found that black and Latino students would benefit less from widespread forgiveness programs and that borrowers who took out loans to earn graduate degrees could now work in higher-paying professions with enough income to comfortably cover their expenses. repayments, even though their loans were larger.
This is why some experts believe that student loan policies should focus on reforming the repayment system rather than on debt cancellation.
“The current system is a disaster and an embarrassment,” Douglas Holtz-Eakin, former director of the Congressional Budget Office and chairman of the American Action Forum, a center-right think tank, told Al Jazeera. But he believed that canceling the debt would not solve his structural problems.
Instead, Holtz-Eakins hoped the Biden administration would reform income-driven repayment programs and create more opportunities for grants, which don’t need to be repaid, rather than loans.
“Right now, there are few checks and balances for loan seekers,” he says. “More grants could create incentive programs where money depends on academic performance. With loans, there is no incentive, so people end up with loans that they cannot pay off for a degree that they may not have been able to complete.