The U.S. Student Loan Crisis
26-08-2023
01:19 PM
1 min read
What’s in today’s article?
- Why in News?
- How Big is the U.S. Student Loan Debt?
- What Was President Joe Biden’s Student Debt Cancellation Plan?
- Arguments For/Against Student Debt Cancellation Plan
Why in News?
- United States President Joe Biden has released a new plan to cancel billions in student loan debt.
How Big is the U.S. Student Loan Debt?
Image Caption: U.S. Student Loan Debt
- As per the latest Federal Reserve figures, more than 45 million Americans owe a total of USD1.77 trillion in student debt to the U.S. government.
- As per the Congressional Research Service, approximately 63% of the U.S. population over the age of 25 has at some time enrolled in some level of higher education.
- Over the past three decades, the cost of higher education has risen sharply in the U.S.
- Between 2006 and 2019, the outstanding balance of student loans has nearly quadrupled.
- In the U.S., the federal government is the primary source of student loans, running several loan programmes to help students and their families finance higher education.
- The U.S. government makes loans using federal capital, meaning funds from the U.S. Treasury Department, after which the outstanding loans become assets of the federal government.
What Was President Joe Biden’s Student Debt Cancellation Plan?
- In 2022, the President announced a plan to cancel USD10,000 in federal student loan debt for those making less than USD125,000 a year or households making less than USD250,000.
- The plan made 43 million borrowers eligible for some debt forgiveness, with 20 million possibly having their debt erased entirely.
- As per the Congressional Budget Office, the program would cost about USD400 billion over the next three decades.
- Intervention by the Supreme Court –
- The Supreme Court of the U.S. (SCOTUS) in June 2023 blocked the U.S. President Joe Biden’s student debt cancellation plan.
- The SCOTUS held that the administration needs Congress’ endorsement before undertaking such a costly programme.
o However, on the day of the SCOTUS ruling, the U.S. President announced that the Education Secretary had initiated a new rulemaking process for the alternative plan.
Arguments For/Against Student Debt Cancellation Plan
- Numerous federal student loan repayment and forgiveness programmes providing targeted relief to individuals in certain circumstances currently exist.
- However, proposals for broader-scale student loan debt relief—including cancellation of all or a portion of federal student loan debt—have gained considerable attention in recent years.
- Arguments In Favour of Debt Cancellation –
- As the cost of education increases while wages stagnate, it has become harder for students to pay off their loans.
- Studies also point out how federal grants and scholarships have not kept pace with the increasing cost of education and attendance.
- President Biden has explained the need for loan cancellation by arguing that higher 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.”
- Arguments Against Debt Cancellation –
- Critics of broad-based cancellation of loans point out how one-time loan cancellation may fail to address the underlying causes of crushing loan debt.
- One major cause is the skyrocketing cost of education and the need for an overhaul of the system.
- Another factor flagged by studies is the increasing availability and utilization of loan repayment plans that allow borrowers to make monthly payments lower than the interest accruing on their loans.
- Analysts have highlighted that policies providing across-the-board loan cancellation may result in higher-income households receiving more cancellation benefits compared to lower-income households.
- Besides, large cancellation plans may also significantly impact federal budgets and debt.
Q1) How many members represent each state of the US Senate?
There are 50 states in the US. The Senate is composed of 100 Senators, 2 for each state.
Q2) How is the President of the US Elected?
US Presidents are not elected by popular vote, they are elected by electoral votes, cast by the electors from each state and DC. The electors are elected by popular vote and pledge to vote for one particular candidate. Most states use a winner-take-all method for choosing electors.
Source: Explained | The U.S. student loan crisis and Joe Biden’s new cancellation plan