The possibility of a forgiveness of federal student loans is in the headlines. But experts say no single policy – not even clearing the list of millions of borrowers – addresses the root causes of the country’s $ 1.74 trillion student debt crisis.
That debt has been fueled by decades of salaries that don’t keep up with the rising cost of college education. And unless salaries go up and college costs go down, students will still have to go into debt to get a degree, and they’ll have a harder time repaying their loans.
“There are no $ 1.7 trillion silver bullets,” says Seth Frotman, executive director of the Student Borrower Protection Center, a nonprofit advocacy organization.
So what could work? It will take more than the headline-grabbing student debt relief.
Frotman says that in addition to canceling debt, he would prioritize efforts to make the university more affordable and reform borrowing and repayment systems. Michele Streeter, senior policy analyst at the Institute for College Access and Success, says student loans remain an important college entry tool for students, but forgiveness and repayment programs should be made easier to find. access and automated as much as possible.
As a new generation of students prepare to borrow for college, and generations of borrowers grapple with debt, experts reflect on possible solutions.
FORGIVE STUDENT DEBT
A general rebate – around $ 10,000, for example – could help the most vulnerable borrowers: those who never graduated and don’t have the biggest paychecks that usually come with a degree to pay off the debt they’ve got. ‘they have learned along the way.
Experts differ on whether there should be a blanket forgiveness. But if that happens, they agree that future debt build-up needs to be addressed.
âUntil someone can come up with what will happen on day two and everyone starts borrowing again, that will be a major obstacle to any level of forgiveness,â says Carlo Salerno, vice president of research at CampusLogic , a developer of university financial services. aid management tools.
Streamline existing forgiveness programs
There is too much paperwork inherent in existing forgiveness programs, experts say. Salerno calls this a âcrisis of bureaucracy and red tapeâ.
These programs have low acceptance rates: as of November 2020, 6,493 utility loan forgiveness requests, or 2.2%, have been approved, and so far only 32 borrowers in total have received a utility loan forgiveness. income-tested reimbursement (although most are not eligible until 2035).
Democrats in Congress have suggested making all federal student loans and repayment plans PSLF-eligible, waiving forgiveness restrictions, and automatically qualifying borrowers.
REDUCED OR REDUCED INTEREST RATE
Federal student loan borrowers haven’t had to make payments since March 13, 2020, and they won’t do so until October 1. During this break, no interest accumulates. This means that the loans will not increase, and if you can afford to make payments, you will be able to pay off your debt faster.
Making zero interest permanent or reducing interest on existing debt could help borrowers pay off debt without increasing principal, says Betsy Mayotte, president and founder of the Institute of Student Loan Advisors.
Many borrowers in Mayotte have heard that their biggest gripe is growing interest.
“They say, ‘I feel like I should pay back (my loans), but I don’t feel on an equal footing because of the interest,'” Mayotte says.
CONDENSED REIMBURSEMENT BASED ON INCOME
Income-based repayment plans, federal options that fix student loan payments at a portion of the borrower’s income, provide a strong safety net. But experts say the four income-oriented options – in addition to the other three federal repayment plans – should be streamlined into a new program. Some suggest automating registration.
“There is no rhyme or reason for the variety of programs that exist in this space other than they have been developed over time,” says Beth Akers, resident researcher at the American Enterprise Institute, a group Conservative reflection on public policy, where she focuses on the economy. of higher education. “We need to simplify the safety net for students and make it so simple that they can understand it exists and what benefits it can bring them.”
Wesley Whistle, senior policy and strategy adviser at New America, a left-wing public policy think tank, says automatic enrollment in an IDR plan could benefit delinquent or defaulting borrowers, but is concerned automatic enrollment of students upon leaving university. and its effect on their ability to repay principal. For many, the payments may not even cover the interest.
âEven working full time with a minimum wage job, you aren’t earning enough to call on your manager,â says Whistle, who specializes in higher education policy. This could leave borrowers still paying student loans 20 to 25 years from now.
Make college tuition FREE
A tuition-free college at the associate degree level, as proposed by President Joe Biden, could particularly benefit low-income students who otherwise would not attend college and could reduce overall borrowing. College affordability advocates are also calling for tuition-free four-year programs.
However, experts agree that tuition-free programs will still force borrowers into debt to cover living costs – on or off campus.
âI don’t think it’s a terrible idea, but I don’t think it’s a game-changer,â Akers says, adding that she thinks expanding existing Pell Grant programs could have a bigger effect on the company. affordability.
EXTEND PELL GRANTS
Pell Grants originally covered about 80% of college costs, but today they cover less than 28%, according to the Institute for College Access and Success.
Lawmakers and experts say Pell grants, aimed at low-income students, should be doubled from their current maximum of $ 6,495 to better cover the cost of college education for students with financial need.
âThe program is very well targeted,â says Streeter of TICAS. âEven if you were to double the maximum grant, that targeting is still in place, and I think that’s why it’s so popular and has wide bipartisan support.â
Supporters also argue that eligibility should increase the income scale to include middle-income students who still need financial aid.
NerdWallet: Student Debt Statistics 2021 http://bit.ly/nerdwallet-student-loan-statistics
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