On August 24, President Biden announcement student loan forgiveness and extension of repayment break until the end of the year. For borrowers or their families earning less than $125,000 a year, up to $20,000 in federal student loans are forgiven. Despite this victory, it is simply not enough.
Average household with student loan debt in America owes $58,957, according to Financial Aid NerdWallet website. Loans can be owed to the government, private loan issuers, or a combination of both. Also, as interest accrues on these loans, the forgiveness of even half of the average amount owed will be reversed in a few years.
While it’s an old but important argument that the president should sign an executive order canceling all student loan debt, it’s not something that will happen under Biden or likely his successor, Democrat or Republican. Biden signing that pardon was really more of a midterm election strategy than anything else.
In the United States, there is a staggering total of $1.5 trillion in student loan debt already accrued from graduates and current students. In the richest country in the world, it is absurd that people who go to university to get a better education and expand their career opportunities do not receive any help after graduation.
Federal student loans aren’t the only way people can pay for their college education. Often, students turn to private lenders to finance their studies.
Private student lenders often affect poor minority college students who have little financial literacy but need to fund their education with loans. The difference between income and student debt owed is on average wider among blacks, Asians, and Latinos than among their white counterparts. Students are offered easy sales like pre-approval and quick decisions to lull them into a sense of security, despite piling up mountains of debt.
Additionally, after loans are disbursed, borrowers often receive emails and letters encouraging them to take out the maximum allowed by their school. For a student, an extra $2,000 seems like a good way to buy books and cover other expenses, but that money adds up and earns interest.
In January, Navient, one of the nation’s top student loan managers, settled a multistate lawsuit stemming from predator claims ready practices. Navient will cancel $1.85 billion in loans for more than 66,000 borrowers and pay $95 million in restitution. What’s unique about Navient is that they got caught, where other private lenders practice similar techniques to maximize profits. Common abusive or predatory practices include high interest rates, variable interest rates and prepayment penalties, among others.
Student loans are inherently predatory. Often borrowers are between 17 and 18 years old and agree to borrow money that they cannot conceptualize. Prospective students and current students would not be approved for personal loans of this size, but student loans are largely unregulated, meaning predatory practices are more likely to be carried out by a for-profit company.
While a co-signer is common for student loans, 9% of borrowers do not have co-signed loans. Also, most federal loans do not require a co-signer. Loans without a co-signer have higher interest rates and cost more in the long run, which is a benefit for loan servicers but a hindrance for borrowers.
The other argument against student loan forgiveness is that it’s not fair to people who have already repaid their loans, or it’s unfair to people who are repaying other loans they have applied for and have been approved. Although on the face of it this is a strong argument, the more you examine it, the less it holds up.
To begin with, the idea that because other people have suffered in the past, people must continue to suffer, is inhumane. If a cure for cancer were discovered tomorrow, would giving it to cancer patients be unfair to those who survived chemotherapy, or unfair to those who died fighting the disease?
On top of that, the government is canceling loans all the time. Recently, 10.2 million Paycheck Protection Program (PPP) loans were canceled by the government that were taken out during the pandemic. The loans were supposed to go to small businesses to cover the salaries of their employees while most industries were closed, but many (including members of Congress) took out PPP loans with apparently no reason. Almost every penny of these loans has been forgiven with no impact on the economy or on the people who removed them. The same can and should be done for student loans.
Let’s also not pretend that the government has never freely distributed money to corporations for misuse. Not just in 2008 with bank and Wall Street bailouts to ease the financial crisis, but with CARES Act funds in 2020. TIME Magazine reported that $1.7 trillion of cash was essentially doled out to corporations which, unsurprisingly, in turn kept the cash. Why do companies that continually need government bailouts to operate get unlimited help, but not people deeply in debt and in financial difficulty to get the necessary degrees to work for them?
Student loan forgiveness for all is the starting point. The end goal is to fix the higher education system to better protect students. This includes reducing or capping the cost of public higher education, setting a fixed low interest rate for all student loans, and eliminating predatory lending practices. There’s even a valid argument for nationalizing the student loan program and eliminating the private, for-profit companies that prey on teens and young adults. Unfortunately, there is little hope that big changes will happen in the near future, as the backlash against Biden’s meager loan forgiveness has been harsh and there is little political will to do more.
While the Biden administration’s cancellation of student loans is a big step in the right direction and is sure to score bonus points for Democrats in the midterm elections, that should be the floor, not the ceiling. higher education reform.
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