Opinion

Biden’s imperfect but necessary plan to tackle student debt

Around 20mn students are entering university campuses across America to start the new academic year. They have bought into the American dream, which holds that a college education is a ticket to the middle class. Unfortunately for many, it has proven a ruinously expensive ticket. The US student-debt burden now stands at $1.6tn, with 45mn borrowers, making it the biggest consumer debt after mortgages. Millennials, around 14mn of whom are still paying off their college debt, now outnumber Baby Boomers in America. This makes student loans a pressing political issue, particularly ahead of November’s midterm elections.

After months of deliberation, President Joe Biden at a stroke recently cancelled $10,000 of debt for millions of Americans. The debt jubilee applies to those earning up to $125,000 (or a household with $250,000), while those who receive grants given to students in financial need qualify for $20,000 of debt cancellation. Biden also extended a pandemic moratorium on repayments until the end of the year. Once they restart, repayments can be capped at 5 per cent of disposable income rather than the current 10 per cent.

True to form, America is divided over the plan. There are understandable questions over who the plan will benefit, how much it will cost — up to $1tn by some estimates — and whether it is legal. Some on the left fear it does not go far enough. Some on the right dub it an unfair transfer from blue-collar taxpayers to irresponsible elites. Meanwhile, economists are split over the plan’s stimulating effects at a time when US inflation is increasing at the fastest pace in 40 years.

Politics aside, statistics show that America’s student debt mountain is a pernicious, worsening intergenerational problem for households, and particularly acute for black students. The debt’s structure means that, too often, education is harming rather than helping chances of social mobility.

Some debt forgiveness is needed. But the plan is a sticking plaster that will not tackle the underlying debt pile. A more effective, albeit politically difficult, remedy might have been to cut student loans’ interest rates, which have meant that just beginning to eat into the principal owed often takes years. Even that would not resolve the fundamental problem: the preposterous amounts universities charge for qualifications that do not secure jobs.

With no cap on fees, the cost of a university degree has nearly tripled in real terms since 1980, far outpacing household income, with some private universities’ fees topping $80,000 a year. Over the period, federal and state funding for tertiary education has plummeted, forcing even public institutions to become reliant on students for income. An arms race of offering flashier campuses, and fat salaries to attract the best teaching staff and administrators has ensued.

A toxic congressional debate over total debt cancellation rendered impossible a sensible conversation about more effective reforms. These might include a tighter focus on means testing for loans, more regulation of the for-profit colleges where there have been shocking instances of fraud, and greater backing of vocational training, particularly in key areas where there are shortages, like nursing and manufacturing. On-the-job training and tailored corporate courses have merit, as do existing “6 in 4” diplomas that combine two years of college credit with a high-school qualification.

The majority of new US jobs do not require a degree. That means employers, prospective students and politicians ought to emphasise skills as much as schools. Biden’s sticking plaster is necessary. But it will not cure the illness in American education.

hello, I am Flora Khan and i work journalist in allnewshouse website i work in other sites like forbes and washington post with 5 years in experience.

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