The increasing number of loans for students may be a major problem for individuals who are borrowers. This is why universities and colleges as well as the federal government are looking for ways to ease the burden. What are the most effective methods to approach students’ debt reduction? Who is eligible? What practical impact will the relief from debt be, not just on individuals but also on the economy and society overall?
To address these questions, the Conversation has sought out a variety of experts ranging from philosophers to economists each of whom specializes to some extent in student loan debt and the impact it has on those who are able to borrow.
How will student loan debt impact those who are borrowers?
The debt of student loans doesn’t only cause financial hardship to people who are borrowers. Kate Padgett Walsh, an associate professor of philosophy at Iowa State University, argues that it causes physical, emotional, and mental damage as well.
Walsh as well as two additional researchers two other scholars Dalie Jimenez, a law professor at the University of California, Irvine and Raphael Charron-Chenier, an associate professor in sociology of sociology at Arizona State University – write about how student loans impact the borrowers long after they have graduated.
“Students who are the first in their family to attend college and low-income students have a much harder time paying off their student loans, and they end up defaulting more often than other students,” Walsh and her coworkers write.
Read moreabout: Student credit is taking recent graduates much more than cash
Does student debt relief benefit the economy?
Many economists believe that reducing student loan debt can increase the economic output. But, William Chittenden, an economist at Texas State University, writes that the economic advantages of cancelling student debt could be small at most.
“If all US$1.5 trillion in federal student loans were forgiven, the average borrower would have an extra US$393 per month,” Chittenden wrote. “It is thought that the economy will only expand by around $100 billion, which is about 0.5 percent. …”
Chittenden believes that relief from student debt should be targeted towards the borrowers who have a debt of less than $10,000, but tend to be more likely to default with their loan. It is evident that this will benefit women of color and minorities the most, as women are on average responsible for more than two-thirds of the outstanding student loan debt. 88% of Black college graduates are in debt on student loans, as opposed to 69 percent of white college students.
Learn more about how cancelling student loan debt isn’t going to help the economy, but an approach that is targeted could benefit certain groups.
Who gets benefited by colleges clearing outstanding balances?
Universities and colleges are using federal funds through the American Rescue Plan to clear outstanding student debts as well as recent graduate students who have enrolled at their institutions at or after the 13th of March 2020. Students as well as their institutions will be benefited from this debt elimination according to Chittenden. The debt clearing will enable students to continue their studies and achieve their professional goals Chittenden writes. Institutions will also be able to pay off debts without having to tap the funds of their own financial accounts.
“For recent graduates, having debt outstanding to their school may prevent them from obtaining a transcript or proof that they graduated,” Chittenden writes. “By clearing the debts for recent graduates, alums can, as noted by the chancellor of City University of New York, Felix V. Matos Rodriguez, ‘move ahead in pursuit of their educational and career objectives without the specter of unpaid tuition and fees.'”
Read more colleges have been using stimulus funds to help students pay off their past-due loans – an economist responds to five questions
Are bankruptcy filings an option to clear outstanding student debt?
At present students who have student loans are generally prohibited from releasing their loans in bankruptcy. But, under the proposed FRESH START Bankruptcy Act, borrowers can be able to have their federal debts discharged if they can prove that the loan resulted in “undue hardship” during the first 10 years of repayment.
Brent Evans, assistant professor of higher education and public policy as well as Matthew Patrick Shaw, assistant professor of public policy, education , and law Both from Vanderbilt University, explain what the definition of undue hardship is for those seeking to eliminate their student loan debts via bankruptcy.
“Declaring bankruptcy is not an ideal option to deal with student loans because it comes with substantial immediate and long-term consequences,” they say.