Opinion: Biden’s loan forgiveness plan fails to fix the student loan system
(Ashley Ko/Daily Bruin Staff)
The student loan industrial complex systemically preys on the vulnerable.
On Aug. 24, the Biden administration announced a new federal student loan forgiveness program, under which $10,000 of student loan debt for lower- and middle-class borrowers and $20,000 for Pell Grant recipients will be forgiven. The announcement comes after multiple extensions of the pandemic-era moratorium on loan repayment.
It’s a start.
Although President Joe Biden has finally delivered on his 2020 campaign promises to cancel some student debt – and that is admirable – this approach fails to meaningfully address the roots of our country’s exploitative and destructive student loan system.
According to Forbes, 45 million borrowers owe over $1.7 trillion in student debt. California residents alone owe $141.8 billion – the highest debt total among all the states. In addition, California borrowers owe, on average, approximately $37,000 in student loan debt. Biden’s program to cancel $10,000, or potentially even $20,000, may therefore provide some critical, much-needed relief for those who are struggling.
However, for many borrowers, this level of relief is simply not enough to keep pace with the compounding effect of high interest rates on their loans. After all, 2.9% of California borrowers owe more than $200,000 of student debt.
“$10,000 really doesn’t even touch the interest for borrowers who hold much larger balances,” said Lisa Ansell, UCLA alumnus and the president of the California chapter of Student Loan Justice.
Additionally, the program – although beneficial to past borrowers – is a missed opportunity to help current and future students, who are likely to pay even higher costs for higher education. While the Biden administration is claiming to alleviate the burden of paying for college and call out those who increase tuition rates, the student loan relief program itself does little to actually reduce costs – nor does it encourage future students to pursue higher education.
The cost of attending a 4-year public college has increased 179.2% since 2002, according to the Education Data Initiative. At UCLA, where annual in-state tuition in 1997 was about $7,500, adjusted for inflation, it is now about $17,000 for incoming students. The rise in tuition is even more dramatic for out-of-state students who presently pay an estimated $24,000 more per year in 2022 than they did 25 years ago.
Ricardo Vazquez, a spokesperson for UCLA, said when factoring in financial aid, the average yearly net cost of attending UCLA in-state has decreased since the 2015-16 academic year by about $1,500. Through institutional scholarships and grants, such as the Bruin Success Scholars program, UCLA is continuing its efforts to make college more affordable for lower-income students, added Vazquez.
“We are optimistic that UCLA’s philanthropic efforts will also increase the campus’s need-based scholarship opportunities in the near future,” Vazquez said in an emailed statement.
While tuition costs for many students have not increased as substantially as the official fees would suggest, they are still far higher for most students than even a decade ago. Ultimately, these rising costs are reflected in much larger student loan balances. This generation of current students, therefore, will be even more vulnerable to the compounding economic burden of student loan debt than their predecessors.
Ireland Larsen, a second-year law student and co-chair of the First Gen Law Students Association, said neither public nor private colleges should have ever been allowed to charge what they currently do, adding that she considers it predatory charging.
“There needs to be legislation around how much universities can charge, and I think that really needs to correlate with the outcome of our economy and how much people are making when they come out of college,” Larsen said.
While the United States is currently in dire financial straits, California has found itself with a budget surplus of $97 billion, some of which will be allocated toward the UC system under the 2022-2023 state budget passed this summer. At the same time, the University of California Board of Regents have further increased tuition fees and tied their value to inflation.
“Why is it that the universities are not reducing tuition if we are in a current state of surplus?” Ansell said. “I think it’s horrible and does not bode well to keep people in the state.”
Unlike most other loans, student loans are not discharged in bankruptcy except under very limited circumstances.
These debts are effectively chained to students for their lives unless they are fortunate enough to be able to pay them off.
“Student loans are the only type of loan in our nation’s history to be uniquely stripped of bankruptcy protections,” Alan Collinge, the founder of Student Loan Justice, said. “This is the core of the problem.”
Because student loans are immune to bankruptcy protections, they have become a lucrative source of revenue for debt collection agencies and lenders who turn these loans into student loan asset-backed securities and then sell them to investors and other financial institutions.
These firms have been undermined by the lengthy pause on debt collection during the COVID-19 pandemic. The reinstitution of bankruptcy protections, however, would represent a direct challenge to this system, which has relied so heavily on profits guaranteed by federal insurance and students’ inability to discharge their debts.
“The entire student loan program needs to be ended and replaced with something that’s fair and equitable,” Collinge said.
This is especially true considering how costly Biden’s proposal is. According to the Congressional Budget Office, the plan would cost about $400 billion and be one of the president’s most expensive programs.
Evidently, this is unsustainable in the long term.
In the statement announcing the plan, the Biden administration declared that “a post-high school education should be a ticket to a middle-class life, but for too many, the cost of borrowing for college is a lifelong burden that deprives them of that opportunity.”
Student loan forgiveness is only a temporary solution to an intergenerational crisis.