What Would It Take To Solve The Student Debt Crisis?

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The possibility of a federal student loan forgiveness is making headlines. But experts say no single policy – not even wiping the slate clean for millions of borrowers – addresses the root causes of the $ 1.7 trillion student loan debt crisis.

This debt was fueled by decades of salaries that did not keep up with the rising cost of a university education. And unless salaries rise and study costs fall, students will still have to go into debt to get their degrees, and they’ll have a harder time repaying their loans.

“There is no silver bullet to the $ 1.7 trillion,” said Seth Frotman, executive director of the Student Borrower Protection Center, a nonprofit advocacy organization.

So what could work? It will take more than a headline-grabbing student debt write-off.

Frotman says that in addition to canceling debt, he would prioritize efforts to make college 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 access tool for students, but forgiveness and repayment programs should be easier to find. access and automated where 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 loan debt

A large discount – 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 loan. debt they incurred along the way.

Experts differ on whether there should be a broad pardon. But if that happens, they agree that future debt build-up needs to be addressed.

“Until someone can make a proposal on what happens on the second day and everyone starts borrowing again, that will be a major obstacle at any level of forgiveness,” said Carlo Salerno, vice president research at CampusLogic, a developer of university financial solutions. aid management tools.

Streamline existing forgiveness programs

There is too much paperwork inherent in existing forgiveness programs, experts say. Salerno calls this a “crisis of bureaucracy and red tape”.

These programs have low acceptance rates: As of November 2020, 6,493 civil service loan forgiveness requests, or 2.2%, have been approved, and so far only 32 borrowers in total have received an income-tested forgiveness (although that most will not be eligible until 2035).

Democrats in Congress have suggested making all federal student loans and repayment plans PSLF-eligible, lifting forgiveness restrictions, and automatically qualifying borrowers.

Lower or lower interest rates

Federal student loan borrowers haven’t had to make payments since March 13, 2020, and they won’t. 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 can 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 the growing interest.

“They say, ‘I feel like I should pay back (my loans), but I don’t feel like I’m on an equal footing because of the interest,” says Mayotte.

Condensing income-based repayment

Income-driven repayment plans, federal options that fix student loan payments at a portion of a 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 think tank on public policy, where she focuses on the economics 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 center-left public policy think tank, says automatic enrollment in an IDR plan could benefit defaulting or defaulting borrowers , but is worried about the 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.

“Even working full-time for minimum wage, you aren’t earning enough to touch your manager,” says Whistle, an expert on higher education policy. This could leave borrowers still paying off student loans in 20 to 25 years.

Make university free

College Tuition Free at Associate Degree Level, as President Joe Biden proposed, could particularly benefit low-income students who would otherwise not go to 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.

“I don’t think it’s a terrible idea, but I don’t think it’s a game-changer,” Akers says, adding that she thinks expanding existing Pell Grant programs could have a bigger effect on the company. affordability.

Develop 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.

“The program is very well targeted,” says Streeter of TICAS. “Even 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 great bipartisan support.”

Advocates also argue that eligibility should expand up the income scale to include students in the middle income brackets who are still in need of financial assistance.

This article was written by NerdWallet and was originally published by The Associated Press.

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