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US Student Loan Crisis 

US Student Loan Crisis
US Student Loan Crisis

In News: US Student Loan Crisis

United States President Joe Biden has released a new plan to cancel billions in student loan debt.

US Student Loan Crisis
US Student Loan Crisis

Joe Biden’s Student Debt Cancellation Plan

In News: US Student Loan Crisis
  • In 2022, the President announced a plan to cancel USD 10,000 in federal student loan debt for those making less than USD 125,000 a year or households making less than USD 250,000.
  • 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 USD 400 billion over the next three decades.

Intervention By 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.
  • However, on the day of the SCOTUS ruling, the U.S. President announced that the Education Secretary had initiated a new rule making process for the alternative 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 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.

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