Fixing Student Loans

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Scholars propose modifying the U.S. student loan system to remedy a debt crisis.

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Politicians, educators, and financial experts agree—student loan debt in the United States is in a crisis. More than a third of U.S. adults under 30 have outstanding student loans, with a total of nearly $1.6 trillion owed by all Americans.

This number rose dramatically over the past decade and may continue to increase—especially because young adults are more likely to take out loans than were previous generations.

Although students and families can take out loans from private lenders, more than 90 percent of student loans come from the federal government. Schools consider these loans as better options for students than private loans because they have more favorable terms, such as a fixed interest rate and repayment plans that students can delay until after graduation.

Several factors have contributed to creating the modern student debt crisis. Today, more high school graduates attend college, and these new students are more likely to be from low- and middle-income families who may need loans. In addition, the U.S. Congress has lifted various limits on student lending since the 1980s, making loans more accessible to college students, graduate students, and parents.

Some politicians have also established barriers in the U.S. Bankruptcy Code to prevent student loan debt forgiveness. Although certain types of debt—such as mortgages and medical debt—can be discharged under bankruptcy, effectively cancelling their repayment, student loans presumptively remain with the borrower. To remove student loan debt, individuals declaring bankruptcy must meet a vague “undue hardship” standard that Congress has yet to define and that courts interpret differently.

Both Democrat and Republican policymakers continuously debate how to address the growing amount of student loan debt. Some politicians have proposed a variety of potential solutions, such as tying repayment to paychecks or cancelling large sums of outstanding loans.

As the Trump Administration enters its final weeks in office, and President-Elect Joe Biden prepares to enter the White House, the future of student loan debt remains uncertain. President Donald J. Trump froze student loans payments for 33 million borrowers earlier this year, a freeze that will expire on December 31 unless President Trump enacts a previously announced extension. Meanwhile, President-Elect Biden has said that he supports some sort of mass loan forgiveness as a way to kickstart the U.S. economy.

This week’s Saturday Seminar examines student loan debt in the United States and different approaches to addressing this crisis.