The Biden administration plans to erase hundreds of billions of dollars in student debt. His announcement could take place as early as next month.
Why would the federal government ease a lot of the loans it gives out?
These are some of the main reasons, according to experts.
1. A growing sense that the system is broken
With the cost of attending higher education skyrocketing and household wages collapsing in recent decades, more and more families have had to turn to loans to cover their college bills. children. The average student loan balance at graduation has nearly tripled since 1980, from around $12,000 to over $30,000 today.
The nation’s outstanding education debt now exceeds $1.7 trillion and is a bigger burden on households than credit card or auto debt.
Borrowers complain that the lending system is riddled with problems.
About 20% of federal borrowers attended for-profit colleges, many of which have been criticized for misleading students and failing to provide them with a quality education. Half of the students who leave these schools end up defaulting on their loans.
The US Department of Education has also failed to deliver on many of its promises, said Persis Yu, director of policy at the Student Borrower Protection Center.
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Millions of people enrolled in programs that are supposed to lead to debt forgiveness after a certain period of time have not received the promised help. This includes borrowers in income-driven repayment plans and the popular civil service loan forgiveness program, who have been stuck continuing to pay after being rejected for relief, often for technical and confusing.
Companies that handle federal student loans have also been accused of giving borrowers incorrect and incomplete information.
“There have been decades of mismanagement, abusive practices and general incompetence, which has resulted in millions of borrowers being deprived of many vital programs and benefits afforded by law,” Yu said.
2. Fear that much of the debt will not be repaid anyway
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One of the arguments for canceling student loans is that millions of borrowers will never repay their debt anyway.
According to a rough estimate by higher education expert Mark Kantrowitz, roughly half of federal student loan borrowers, or 20 million people, were in repayment before the pandemic. A quarter – or more than 10 million people – were in default or in default. Many others had requested temporary relief for troubled borrowers, including deferrals or forbearances.
These grim numbers have led to comparisons to the 2008 mortgage crisis.
Meanwhile, student borrowers face a myriad of consequences from having tens of thousands of dollars on their personal balance sheet, including difficulty buying a home and starting a business.
3. Mid-term reviews are approaching
The Biden administration has said its announcement on canceling student loans will come soon, meaning the news could come shortly before Americans vote in the midterm elections in November.
Supporters said canceling student debt would galvanize young voters to the polls, which is likely appealing to the president. It is losing popularity with demographics.
“It could make or break Democrats in battleground states,” said Astra Taylor, co-founder of the Debt Collective, a union for debtors.
Yet the sweeping cancellation of student loans will also likely anger many Americans, including those who have never borrowed for education or gone to college. Some Republicans have said they will try to block an attempt by the president to cancel the debt. Rep. Kevin Brady, R-Texas, a high-ranking member of the House Ways and Means Committee, recently called student loan forgiveness “a gift for highly qualified college graduates.”
Overall, however, the majority of voters (62%) support canceling student loans, according to a poll by Morning Consult.