On August 24, President Joe Biden announced up to $10,000 in student loan forgiveness for most borrowers. Borrowers who receive or received a Pell Grant are eligible for up to $20,000 in forgiveness. This announcement finally fulfills one of Biden’s campaign promises, but is it enough?
First, let us go over the student loan crisis. There is currently $1.7 trillion in outstanding student loan debt among over 48 million Americans according to the Federal Reserve. 45.4 million of those hold federal debt. The average monthly payment for borrowers was $300 a month before the payment pause.
According to The Washington Post, 5% of borrowers held less than $10,000 in debt, 8% of borrowers held debt between $10,000 and $20,000 debt, 17% of borrowers held debt between $20,000 and $40,000, 32% of borrowers held debt between $40,000 and $100,000, and 38% of borrowers held debt greater than $100,000 before Biden’s forgiveness. Only 13% of borrowers hold debt that could be completely forgiven by Biden’s program which contradicts a statement he made during a White House press briefing on August 25 that 45% of Americans could have their debt almost completely forgiven.
It is not just the young who hold debt as well. The Washington Post also reports that 39% of borrowers are older than 35.
It was not always like this. According to data compiled by Education Data Initiative, someone who graduated in 1970 held an average debt equal to $7,458 in today’s money with a debt-to-income ratio of 10.8% while someone who graduated in 2021 held an average debt of $31,100 with a debt to income ratio of 54.6%.
There are multiple causes for this explosion in student debt. As Biden explained during his press briefing on August 25, the cause is rising tuition and falling investment in higher education. The cost to attend a 4-year university has tripled over the past 40 years, states allocate much less funding to their public universities than they used to, and Pell Grants only cover 30% of the costs when they used to cover 80%.
“An entire generation is now saddled with unsustainable debt,” Biden said.
He added that middle class life is now unattainable for many as they cannot qualify for mortgage loans or cannot afford to start a family.
“The burden is especially heavy on Black and Hispanic borrowers, who on average have less family wealth to pay for [higher education],” he said.
Biden’s plan helps to alleviate this crisis by providing up to $10,000 in forgiveness for borrowers who make under $125,000 annually or for couples who make under $250,000 annually. Originally, this was only meant to apply to federal loans, but the Department of Education is looking into ways to relieve private loans as well. Students who receive or received a Pell Grant qualify for up to $20,000 in forgiveness.
Biden’s plan also cuts payments from 10% of annual income to 5% of annual income. The length of payment is capped at 20 years for most borrowers. This plan only applies to federal loans. Biden also plans to reform the Public Service Loan Forgiveness program to provide more relief. The PSLF program provides forgiveness for borrowers who work in the public sector.
Student loan payments that have been paused during the pandemic will resume on December 31, 2022.
Biden’s plan also punishes fraudulent institutions, such as ITT Technical Institute, and repays students of those institutions.
This is a good start. The problem is not that the forgiveness is unfair or will spike inflation, as many Republicans would say. Republicans are, of course, famous for being fiscally responsible and for caring about fairness. The problem is that it is not enough to address the crisis.
The plan does nothing to prevent the costs of higher education from continuing to rise. It also only forgives loans taken before June 30, 2022, so all future borrowers will receive no assistance. Many millions of Americans will still be straddled with debt both now and in the future. The plan also falls short of the $50,000 in debt forgiveness that Sen. Elizabeth Warren (D-MA) has called for and it falls much shorter than Sen. Bernie Sanders’s (I-VT) plan.
The only real solution to the crisis is to make public colleges and universities tuition free with a massive investment into higher education along the lines of Sanders’s plan. This would put the United States in the same league as countries like France, Finland, and Denmark which provide free or close to free higher education.
The reasons are three-fold. Firstly, education is a right for everyone with enough determination. Secondly, a highly educated population is required for a healthy and well-functioning democracy. Finally, modern economies require highly specialized skills that can only be acquired through higher education.
According to Sanders’s website, a small tax on stock market speculation could easily pay for the $48 billion a year required to make public colleges tuition free. This plan would not only correct the moral issue of blocking education behind a paywall, it would have a cascading effect on education and the economy. Private institutions would have to compete with public institutions that can provide a high quality and free education thanks to better funding. This would force them to lower their prices.
The time is long overdue for the United States to invest in its higher education and create a 21st century workforce. President Biden and the Democratic Party need to find the courage to argue and fight for this position. It is the practical and necessary position to take.
It is time for Biden to use the full capacity of government and help working Americans by solving the root issues.