All the news coverage is focused on the potential for federal student loan forgiveness. However, analysts assert that no one solution, not even starting over for millions of students, can address the underlying problems causing the $1.7 trillion student loan debt crisis in the country.
For many years, incomes have not kept up with the escalating expense of higher education. Students will still need to take on debt to earn degrees, and they’ll have more difficulty repaying loans if incomes don’t rise and college costs don’t drop.
Seth Frotman, a former executive director of the nonprofit advocacy group Student Borrower Protection Center, asserts that there are no $1.7 trillion silver bullets.
What then might succeed? It will take more than just eradicating student loan debt to make headlines.
Frotman claims that in addition to eliminating debt, he would place a higher priority on initiatives to lower the cost of attending college and to restructure the borrowing and repayment processes. Student loans continue to be a crucial tool for helping students get into college, according to Michele Streeter, senior policy analyst at The Institute for College Access and Success, but forgiveness and repayment plans should be more accessible and automated whenever possible.
Experts offer their opinions on potential remedies as a new generation of students prepares to borrow money for education and several generations of borrowers struggle with debt.
Forgive Debt From Student Loans
The most vulnerable borrowers, those who never graduated and lack the larger salaries that generally go along with a degree to pay off the debt they accumulated along the way, could benefit from broad forgiveness, about $10,000, for instance.
On whether there should be a wide margin of forgiveness, experts disagree. However, they concur that if it does, future debt buildup needs to be addressed.
According to Carlo Salerno, vice president for research at CampusLogic, a provider of college financial aid management systems, “that will be one huge impediment to any kind of forgiveness unless somebody can come up with a concept for what happens on day two and everyone starts borrowing again.”
Streamline Current Forgiveness Initiatives
According to experts, existing forgiveness schemes have too much red tape built into them. It is a “bureaucracy and paperwork crisis,” according to Salerno.
These programs have typically had poor acceptance rates, but a restricted waiver that is only valid until October 2022 has increased the number of payments that many more borrowers can now qualify for. But the solution isn’t long-lasting.
Adapt Interest Rates Downward
Borrowers of federal student loans have not made payments since March 13, 2020, and they won’t have to do so until September 1. Zero interest is accumulating at this time. As a result, loans won’t increase in value and you can pay off your debt more quickly if you can afford to make payments.
According to Betsy Mayotte, president and CEO of The Institute of Student Loan Advisors, making zero interest permanent or cutting the interest rate on existing debt might assist borrowers pay off their debt without increasing the principle.
Many of the borrowers Mayotte speaks with complain the most about rising interest.
They state, “I feel like I should repay (my debts), but I don’t feel like I’m on an even playing field due to the interest,” Mayotte says.
Reduce Income-Based Repayment
A good safety net are income-driven repayment plans, which are federal choices that base student loan payments on a borrower’s income. However, experts believe that the three other government repayment schemes and the four income-driven options should be combined into a single new program. Some advocate for enrolling automation.
According to Beth Akers, resident scholar at the American Enterprise Institute, a conservative public policy think tank where she focuses on the economics of higher education, “there’s no rhyme or reason for the variety of programs that exist in this space other than the fact that they were developed over time.” “We must make the safety net for students as basic as possible so they can comprehend its existence and the advantages it can offer.
Democrats in Congress have proposed removing restrictions on forgiveness and automatically approving borrowers in order to make all federal student loans and repayment plans eligible for PSLF.
Automatic enrollment into an IDR plan, according to Wesley Whistle, senior advisor for policy and strategy at New America, a left-of-center public policy think tank, could help delinquent or defaulted borrowers, but he is worried about auto-enrolling students straight out of college and how that will affect their ability to repay the principal. Payments may not even cover interest for many people.
According to Whistle, an expert in higher education policy, “Even working full time at a minimum wage job, you’re not making enough to knock into your principal.” This might result in debtors having to continue making student loan payments 20–25 years from now.
Income-Driven Repayment Forgiveness Issues Fixed
The Department of Education stated on April 19 that millions of borrowers are anticipated to gain from one-time adjustments that count prior payments toward the 240 or 300 needed for income-driven repayment remission. A minimum of 40,000 debtors should have their debt forgiven as a result of the changes thanks to Public Service Loan Forgiveness.
Free up College Tuition
As suggested by President Joe Biden, tuition-free associate’s degree programs could notably help low-income students who would not otherwise attend college and help to lower overall borrowing. Advocates for lower tuition rates in higher education are now asking for tuition-free four-year programs.
To meet living expenses, whether on or off campus, experts agree that tuition-free programs will nonetheless force borrowers to take on debt.
Akers states, “I don’t think it’s a bad idea, but I don’t think it’s a game changer,” adding that she believes increasing the current Pell Grant programs might have a greater impact on affordability.
Increasing Pell Grants
According to The Institute for College Access and Success, Pell Grants used to cover around 80% of the cost of attending college but now only cover less than 28%.
Pell Grants, which are intended for low-income students and now have a cap of $6,495 on them, should, according to lawmakers and experts, be increased by a factor of two in order to better cover the expense of a student’s college education. (The maximum increases to $6,895 for the academic year 2022–2023)
In the words of Streeter of TICAS, “the initiative is extremely well-targeted.” “That targeting is still in place even if you double the maximum award, and I think that’s why it is so popular and has a lot of bipartisan support.”
Additionally, supporters contend that eligibility should be expanded to cover students in middle-class income groups.