By Lee Sherman
One of the biggest barriers to acquiring and maintaining wealth is having to pay off existing debt. For many people that debt comes in the form of unpaid student loans. These loans average around $10,000 to $50,000 and can go much higher.
Why Student Loans Are Broken
Student loan debt has doubled in the last 10 years as tuition has become prohibitive, with the federal government now owning 92% of all outstanding loan debt. The root of the problem stems from the ease with which it is possible to get a loan. Nearly anyone who needs a loan can qualify regardless of whether they have the ability to pay it back or even whether they really need it in the first place. The basic idea is that this is an investment in one’s future self. If all goes to plan, the right education will lead to a high paying job and you’ll be able to pay off the loan eventually. Colleges have no incentive to reduce costs and in fact the opposite is true since this is a major source of funding.
To Forgive Is Divine
Both the Biden administration and Congress are looking at ways to cancel this debt. And several colleges and universities are doing their part as well. Biden has already cancelled $3 billion in student loans, attempting to make good on a campaign promise. But members of Congress including House Speaker Nancy Pelosi and Senator Chuck Grassley (R-IA), the ranking member of a Senate Judiciary Committee that is looking at a bi-partisan student loan bill that would make it easier for student loan borrowers to get relief in bankruptcy, have spoken out in recent days, saying that Biden lacks the legal authority to enact wide-scale student debt cancellation without explicit authorization from Congress.
In addition, the Biden administration reversed a Trump era policy in May that makes it possible for colleges to use covid-19 relief funds from the American Rescue Plan to wipe away student debt and many have taken it up on the offer. Delaware State University announced it would forgive up to $730,655 in debt for recently graduated students. Antonio Boyle, Vice President for Strategic Enrollment Management, estimated that the average eligible student will qualify for about $3,276 in debt relief.
“Too many graduates across the country will leave their schools burdened by debt, making it difficult for them to rent an apartment, cover moving costs, or otherwise prepare for their new careers or graduate school. While we know our efforts won’t help with all of their obligations, we all felt it was essential to do our part,” he said. Connecticut State Colleges and Universities (CSCU) cancelled $17 million in student debt for 18,161 community college students. While historically black universities hit hardest by the pandemic such as the public Delaware State University and Wilberforce University, a private institution are undertaking similar measures.
However, Biden has reached the limits of his executive power and, according to a recent article in the Washington Post, will not include any student loan forgiveness or debt reduction in his budget proposal, indicating that he agrees with his colleagues in Congress. Any further relief will have to come from legislators. While student loan forgiveness is not a silver bullet, parties on both sides of the aisle are beginning to recognize the urgency.
“The incentives in higher education are badly broken,” Sen. Jon Cornyn (R-TX) said during the hearing, “Teenagers are expected to borrow tens of thousands of dollars to get a good job only to find out when they graduate there are limited jobs or their job doesn’t match their area of study, which creates a mismatch for student loan repayment.”
Financial advisors that specialize in college funding are often a good source of more detailed information on how to finance higher education costs, the latest on loan forgiveness and even loan refinancing.
Lee Sherman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Lee is an experienced journalist and editor with over 30 years of expertise with a significant history of writing in the personal finance and technology arenas.
