President Joe Biden gradually cancels debt for thousands of students after student loan debt reached a record high of over $1 trillion in 2020 and loans in forbearance or deferral have more than doubled.
Like those before them, this year’s crop of college graduates bounded onto stages or appeared in virtual graduation ceremonies all over the country. They proudly sported their caps and gowns, gratefully took their diplomas and shook hands with professors and other school officials.They walked from the stage, into the waiting arms of parents and relatives to take pictures of the happy occasion.
Also like many college graduates before them, they worried about how they would ever manage to pay back their student loans. They heard the stories of people who graduated 20 or more years ago and were still paying off loan debts while trying to balance other life expenses such as car notes, mortgages or rents, and grocery bills.
But President Biden has been working on cancelling student loans since he took office. On June 16, he cancelled $500 million in student loans. The amount affects 18,000 student loan borrowers under the borrower defense to student loan repayment rule. The rule covers students whose schools were closed due to fraud. Those who benefit from the $500 million student loan cancellation are students at the for-profit ITT Technical Institute, which closed five years ago. Students said the institute lied to them about prospective jobs and earnings with an ITT degree. One former student even said placing the institute’s name on her resume made it more difficult to find employment.
So far, Biden has also cancelled $1.3 billion for 41,000 students who are totally and permanently disabled. He cancelled $1 billion for 72,000 students. And he forgave 1.1 million students who defaulted on their Federal Family Education Loan Program (FFELP). Although the FFELP ended years ago, there are people who are still paying back money loaned to them through the program. Additionally, Biden used the borrower defense to cancel $500 million of student loan debt for 18,000 student loan borrowers and another $55.6 million of student loans earlier this month.
The loan cancellations do not apply to every student or former student who borrowed money to pay for college. Yet, some claim that if Biden forgave student loan debt for borrowers owing $50,000 each, everyone’s student loan debt would be erased. In a New York Times interview, former Treasury Department official Adam Looney said that cancelling $50,000 per person would add up to $1 trillion, placing it “among the largest transfer programs in American history,” comparable to the billions spent on programs like welfare or Pell grants, which don’t have to be repaid.
Critics, including some liberal Democrats, say more loans should be cancelled. In response to Biden’s original proposal to cancel $10,000 in student debt, Democratic South Carolina Congressman James E. Clyburn stated, “I’ve got people with $130,000 in student debt. What’s $10,000 going to do for that person?” Currently, more than 43 million people nationally owe $1.7 trillion in student loans.
Senator John Thune (R-South Dakota) introduced a bipartisan measure last year under which employers could contribute $5,250 tax free dollars toward relieving their employees’ student loan debts. It was included as a temporary fix in last year’s coronavirus relief package. The Senator said at the time, “There’s no question that student loan debt is a problem in this country, but simply forgiving student loans is not the answer.”
Other higher education experts feel that student loan forgiveness plans do no’t address the issue of why so many students are borrowing so much money. “The real problem is the cost of higher education,” said Betsy Mayotte, founder, and president of the Institute of Student Loan Advisors, in a New York Times interview. “Unless you’re going to solve the problem, forgiveness is just throwing away money.”
Less Money, More Problems
The student debt cancellation may benefit higher income students than those from low income households. A Brookings study found that 40 percent of the highest income households, which earn $74,000, hold almost 60 percent of the student loan debt and make two-thirds of the payments. The lowest earning 40 percent, hold 20 percent of the debt and make 10 percent of the payments. Middle and upper middle-income Americans can afford to attend college and pay off student loans. Individuals with college degrees earn more than those who only finished high school.
Among all borrowers of color, Black students have a harder time paying off student loan debt, according to studies by the Center for American Progress, a Washington, D.C.-based think tank, Brookings Institute, the Economic Policy Institute, the U.S. Department of Education, and the National Student Clearinghouse Resource Center. They found that often, Black students are the first in their families to enroll in college, having less generational wealth to finance a higher education or pay off student loans than whites. They are more likely to go to for-profit colleges, where their student loan default rate is 67 percent. Many drop out of college. If they remain, they are more likely to enroll in graduate schools when they cannot find employment, and that means taking out more loans to pay for graduate school. Black people who earn bachelor’s degrees make less money than their white counterparts. Black college graduates make $25.77 per hour, compared to white college graduates who make $31.83 per hour.
Many borrowers find themselves paying off student loans into older adulthood, long after they graduated from college. Former President Barack Obama and his wife, former First Lady Michelle Obama, had what the former President called “a mountain of debt,” with each having had $40,000 in student loans. Actress Kerry Washington, who played a publicist to political figures in the television series “Scandal,” was in her mid-thirties when she paid off her student loans. She cited the money she earned on “Scandal” as the reason she was finally able to get rid of student loan debts.
A much needed break
One thing that is helping student loan borrowers is the “pause” in paying the loans and interest, which was instituted via executive order by President Donald Trump in March 2020. Trump extended it to December 2020. Biden extended the “pause” during his first day in office until the end of September.
Sixty-four Democratic legislators have written a letter to Biden, asking him to extend the “pause” for a few more months. In the June 23 letter, they note that under the “pause,” individuals and families have been able to save the money they would have used to pay off student loans to pay off or pay down other debts. Black people and women who were struggling to pay student loans are benefiting from the “pause,” as they tend to borrow higher amounts of money than other groups.
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