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High Student Debt Raises Calls for Forgiveness Program

May 5, 2022 by Tom Ramstack
High Student Debt Raises Calls for Forgiveness Program
Mike Pierce, executive director of the advocacy group Student Borrower Protection Center.

WASHINGTON — Financial experts told shocking stories Thursday at a Senate hearing of former college students trying to decide between basic necessities or paying their student debt.

In some cases, the experts said the debt interfered with owning their homes, taking care of their families and saving for retirement.

“The student debt crisis is a failure of public policy,” said Mike Pierce, executive director of the advocacy group Student Borrower Protection Center.

Public policy on the debt prompted the Senate Banking, Housing and Urban Affairs Committee to call the hearing to discuss potential legislative or presidential action.

President Joe Biden said last month he is considering an executive order that would erase $10,000 from the student loan debt of more than 40 million Americans.

Together, they owe about $1.75 trillion. An average of two of them default on their loans each minute, often hurting their credit ratings and depressing their finances and careers for years afterward, according to the Student Borrower Protection Center.

“Canceling student debt is just, it is equitable, it is legal and it is the only appropriate response to decades of government mismanagement and industry abuse,” Pierce told the senators.

Biden said last week he would explain details of his federal student loan forgiveness plan “in the next few weeks.”

He already has forgiven the federal loans of student borrowers who were disabled or defrauded into predatory loans. Other debt was forgiven for graduates who worked in public service, bringing the total to $17 billion in student loans his administration has erased.

The across-the-board $10,000 would eliminate all student debt for one-third of the borrowers with outstanding loans.

Administration officials said Biden is considering an executive order that would eliminate the debt only for persons earning less than $125,000 a year.

Some Democrats at the Senate hearing said $10,000 is not enough. They are asking for $50,000.

Biden, along with Republicans, says $50,000 would be too much of a burden on taxpayers who did not incur the debt, and would be inflationary.

“Nobody is compelled to take out a student loan,” said Sen. Pat Toomey, R-Pa. The loans are personal choices by persons trying to improve their career opportunities, he said.

“Student debt cancellation is grossly unfair to any other American,” Toomey said. “Should the government cancel their mortgages, their car loans, their credit card debt? Of course not.”

The dispute is taking on growing urgency as a pandemic relief policy on federal student loan payments is set to expire as soon as September.

More than two years ago, the Education Department allowed borrowers to pause their payments under the policy without risk of default. For borrowers who already are in default, the Education Department is moving toward a revision of their credit ratings to eliminate any record of the past-due accounts.

Senate Democrats said the government’s generosity was not as much a burden on taxpayers as it was a benefit to the entire economy and the borrowers.

“Americans should not be trapped by a system that was supposed to be an opportunity to help them work their way into the middle class,” said Sen. Sherrod Brown, D-Ohio, chairman of the Banking, Housing and Urban Affairs Committee.

Sen. Jon Tester, D-Mont., said, “If you want an economy that moves forward, higher education is the key.”

Rising costs of college crimp students’ upward mobility and the entire nation, he said.

“When you saddle them with tens of thousands of dollars in debt, then they will not go to school,” Tester said.

They put some of the blame on student loan service companies that are supposed to advise borrowers on how to control their debt.

Some of the companies give bad advice that increases the need for their services, thereby increasing their own revenue.

One example was advice on forbearance, which is an option for borrowers to put their debt payments on hold for a year or more at a time. Interest continues to accumulate, often leaving the borrowers with more debt rather than relieving their burden.

Jalil Mustaffa Bishop, an assistant professor at Villanova University, said 66% of Black student borrowers remain deeper in debt a decade after they took out their loans.

“Student loans are a debt trap,” Bishop said.

Tom can be reached at tom@thewellnews.com and @TomRamstack

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