By Christian Trinh
Student loans are not very forgiving in America. That is why the total of these outstanding debts is $1.75 trillion.
“Student loans are the second-largest slice of household debt after mortgages, bigger than credit cards,” The Brookings Institution reported in 2020. “About 42 million Americans (about one in every eight) have student loans.
Nearly 75% of student loan borrowers attended two- or four-year colleges. Their loans equal half of all outstanding student debt,” Brookings reported.
Thus, student loan forgiveness is in the news. President Joe Biden is pushing for a debt deduction to forgive a portion of a student’s loans.
Loan forgiveness is something the loan servicer will provide to decrease student debt.
CNBC reported the exact amount Biden wants student loans to be reduced is still up in the air. He said, “I’m not considering $50,000 in debt reduction.” However, the president favors reducing school loans by $10,000 and is considering a further reduction.
There have been a lot of arguments about whether student loan forgiveness should be increased at all.
David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at Brookings and a contributing Wall Street Journal correspondent, considers different viewpoints in the loan forgiveness debate.
He said, “It will forgive loans for people who have well-paying jobs and don’t need relief… And, of course, it only helps people who went to college; many people haven’t gone to college and are struggling. They may wonder why their car loans aren’t being forgiven too.”
Wessel raised another issue with loan forgiveness: What about the people who have already paid off their loans?
They can resent the deduction because they spent years paying off loans just to see other people’s loans go away in an instant.
Wessel said another problem might occur if the government must spend money in different areas of society. In that case, Wessel said we would need to raise taxes to offset the amount of money being deducted from student loans.
There may be a lot of downsides to deductions, but there are upsides worth considering for the giant deduction.
Many students that go to college would benefit from a loan reduction. However, there is an after effect to this. There will be more incentive to attend college because loans will be forgiven.
Students pursuing higher education that costs more would benefit if they attend expensive colleges or earn a master’s degree because their loan forgiveness amount would increase.
In a related matter, Associated Press reported April 27 that the Pennsylvania Higher Education Assistance Agency mismanaged federal student loans of thousands of New Yorkers.
PHEAA is auditing 10,000 borrowers’ accounts to correct mistakes. This mismanagement of the loans removed benefits for people, including student loan forgiveness, Attorney General of New York Letitia James said in a news statement.
“As one of the largest student loan servicers in the country, it’s a shame that PHEAA did not do more to help students and caused public servants to miss out on loan forgiveness, said James.
The financial officers from PHEAA are being held accountable for miscounting payments, not processing applications in the correct period, and improperly denying applications.