Often, when you start to look at government responses to the student loan debt situation, you see start to see some of the big picture of what borrowers are dealing with – and it’s unpleasant, in many ways.
It’s a complex problem in a way, but it’s one that, overall, shows us some of the problems attached to corporate greed and a lower standard of living for the average American family.
A fact sheet put out by the Biden administration in August provides some compelling reasons why it was necessary for the White House, not to mention various advocate agencies, to get involved and try to reform how colleges work, to work on behalf of those with crippling student loan debt, and look into why that debt is so hard to handle.
Here are seven important takeaways from the Biden fact sheet…
It’s Broad
One thing you get from a reading of the fact sheet is that it’s going to help out tens of millions of Americans. In other words, this isn’t a small interest group – it’s a significant number of people in every American community, and a significant portion of the total population. So the reform has to be broad and well organized.
“If all borrowers claim the relief they are entitled to, these actions will: provide relief to up to 43 million borrowers, including cancelling the full remaining balance for roughly 20 million borrowers,” write spokespersons. That’s fantastic!
It’s Means Tested
Digging into the details of this report, we see exactly why it’s so important for targeted borrowers to get student loan relief!
The government even provides three ‘persona’ case studies of average borrowers – a construction worker, a nurse and a public school teacher – and shows how the debt relief is structured according to their incomes, writing:
“A typical single construction worker (making $38,000 a year) with a construction management credential would pay only $31 a month, compared to the $147 they pay now under the most recent income-driven repayment plan, for annual savings of nearly $1,400. A typical single public school teacher with an undergraduate degree (making $44,000 a year) would pay only $56 a month on their loans, compared to the $197 they pay now under the most recent income-driven repayment plan, for annual savings of nearly $1,700. A typical nurse (making $77,000 a year) who is married with two kids would pay only $61 a month on their undergraduate loans, compared to the $295 they pay now under the most recent income-driven repayment plan, for annual savings of more than $2,800.”
Also, we see that the vast majority of relevant loans are made to people with household incomes under $60,000, and how many more are made to people with household incomes under $30,000. When you translate this into plain English and basic economics, you see that these people hardly have any discretionary income at all to put towards long-term debts like this. That’s why income driven repayment plans are so important.
It Cuts Maximum Contributions in Half
With that in mind, let’s look at one concrete thing that the Biden plan does – by putting in place new income-driven guardrails, it brings down the maximum amount of someone’s income that goes to student loans from 10% to 5%. That is a big deal!
You can see that and reflected in the much lower dollar amounts that the average borrowers are going to be paying, as shown in the fact sheet, and enumerated above.
It Contemplates Pell Grants
We also get a lot of detailed information on Pell grants in this report. We see that they are typically given, again, to underprivileged Americans, and we get some good data about how they will be treated moving forward.
It Addresses COVID
The fact sheet shows how those exposed to financial difficulties during COVID will get specific debt relief. Millions of borrowers will actually have their entire loans forgiven, or cease to make monthly payments. Others will see those monthly payments cut in half, or even further reduced.
Accreditation Reform
You can’t address student loan balances without addressing what colleges charge. There is the general consensus that colleges are charging way too much, and this is also covered in the fact sheet.
“The Department of Education has already taken significant steps to strengthen accountability, so that students are not left with mountains of debt with little payoff,” spokespersons write. “The agency has re-established the enforcement unit in the Office of Federal Student Aid and it is holding accreditors’ feet to the fire. In fact, the Department just withdrew authorization for the accreditor that oversaw schools responsible for some of the worst for-profit scandals. The agency will also propose a rule to hold career programs accountable for leaving their graduates with mountains of debt they cannot repay, a rule the previous Administration repealed. Building off of these efforts, the Department of Education is announcing new actions to hold accountable colleges that have contributed to the student debt crisis. These include publishing an annual watch list of the programs with the worst debt levels in the country, so that students registering for the next academic year can steer clear of programs with poor outcomes. They also include requesting institutional improvement plans from the worst actors that outline how the colleges with the most concerning debt outcomes intend to bring down debt levels.”
Addressing the Future
Finally, the fact sheet addresses the future of American education. These reforms are meant to complement other projects that will help to skill up American workers and leaving them with more money in their wallets, and more economic opportunity, in a more inclusive economy that drives growth.
For more, keep reading our blog to see how to access your rights as a borrower under the law, and how to take on fraudulent or abusive lenders.
