The Biden administration has extended the payment pause on federally-backed student loans. Although this provides some temporary relief for borrowers until payments must resume on August 31, one expert said it’s time to rethink how people pay for college altogether.
“What we need to do is we need to look at this crisis, and we need to learn from it — student loan debt is not working as a way to finance higher education,” Persis Yu, managing counsel and policy director at the Student Borrower Protection Center, told Yahoo Finance Live (video above).
“The big lesson that we need to take away from this is that as a society, as a country: We need to move away from debt-financed education,” Yu added.
Meanwhile, outstanding student debt has risen to around $1.7 trillion and is held by 43 million borrowers.
Though payments on federal student loan debt have been paused since March 2020, lawmakers and advocates such as Yu are asking for bigger changes to be introduced to the student loan system, such as the mass cancellation of student debt.
Democrats, for instance, have consistently urged the president to do more.
“The payment pause has been a significant federal investment throughout the pandemic, providing essential relief to millions of families during the economic and public health crisis and saving them an average of $393 per month,” a recent letter from prominent Democrats stated. It went on to say that most borrowers “are not financially prepared to shoulder another bill as they face skyrocketing costs for necessities like food and gas.”
Yu noted that there are deep-rooted problems within the student loan machinery.
For instance, a recent investigation by NPR revealed that student loan servicers struggled to implement income-driven repayment (IDR), which is a key way low-income borrowers seek relief on their student loans during difficult financial periods. IDR ties a borrower’s monthly repayment to his or her income — and without any income, the debtor’s payments drop to $0.
The investigation also found systematic mismanagement among student loan servicers. Some providers were not clearly tracking IDR payments and did not know when borrowers qualified for forgiveness.
And according to Yu’s own research from her previous firm, the National Consumer Law Center, despite millions of student debtors qualifying for forgiveness under IDR terms, which stipulate that borrowers who pay for 20-25 years can have the rest of their debt forgiven, only 32 have actually had their debt cancelled.
In her view, cancellation is the only way to create a more efficient system and provide borrowers with a fresh start.
“The student loan system has been broken for a very long time,” Yu said. “The president should not turn on a broken student loan system. So we are asking the president to provide widespread cancelation. That’s one of the first steps in fixing a broken student loan system. We shouldn’t be putting people back into debt that they really don’t have any great hopes of repaying.”
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