Changing the Student Debt Crisis: America’s Plans Emily Wang
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n early October 2021, President Joe Biden proposed changes to the former Public Service Loan Forgiveness (PSLF), Total and Permanent Disability (TPD), and Borrower Defense programs, making it easier to satisfy certain loan requirements. The proposed changes will expand who is eligible for loan forgiveness, while also adjusting rejected payments and allowing more types of federal student loans. Biden wants to get people the relief they deserve within categories of public service, disability, or fraud by their schools. As of late January, the PSLF among other programs has already relieved $1.7 billion in private student loan debt¹. Eventually, he hopes to relieve $11.5 billion, acknowledging that America is struggling. However, he is still barely making a dent in the $1.6 trillion student debt crisis². And something must be done. Rising costs of higher education have been an issue long before the pandemic. As demand for higher education has been increasing, supply has remained stagnant, with institutions
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not being able to keep up with the growing number of students. Higher applications and idle enrollment numbers between 1970-2011 have driven the cost of tuition, room and board, and all other external costs up³. This has changed during the pandemic, as costs have also stayed the same with decreased demand within enrollment. However, costs were still high to begin with. The pell grant is a need-based federal subsidy targeted for students going to college. Figure 1 shows the change in value of the Pell grant if it were to be doubled, proving how much money must go towards supporting the high cost of education. Due to many factors, including lack of income, unemployment, and disability, rates of default have also been increasing. As of June 2021, an average of “15% of student loans are in default at any given time” and “11% of new graduates default in the first 12 months of repayment⁴”. For the national economy this is devastating, impeding those that have defaulted from being financially stable and participating in regular consumption and investment. This is why policymakers have been looking to student loan forgiveness programs to solve short-term issues of default. Amidst Biden’s new plan, many different studies have examined the implications of mass forgiveness. From a mistake made by the National Collegiate, researchers Di Maggio, Yao, and Kalda, looked at a random instance of debt forgiveness. The National Collegiate is one of the largest owners of private student loans. However, in 2016 and 2017, National Collegiate was unable to prove chain of title or historical record of ownership in the loans, leading to a mass amount of loan cancellation⁵. In this instance, they were able to study the effects on labor markets and future financial decisions made by the borrowers. In their research, they discovered that income increased by an average of $3,000 over a three-year period after the discharge. To put this into context, the mean salary