Good news for students - Fed will forgive $108 billion student debt

By: on 2017-01-03
Ask Sanders Patricia

Relief for the undergraduates and graduates in the upcoming years. The federal government is all set to forgive $108 billion student loan debt in the next 20 years after Obama’s attempt to slash student loan debt proved to be too costly and ineffective. It is said that Obama’s debt reduction plan for the student loan borrowers have proved far more expensive than what was predicted. The Education Department’s accounting methods have come under scathing review since they have understated the expenses of different debt-relief programs by 10 billions of dollars.

In the last 3 years, 5.3 billion borrowers have applied for the debt reduction programs. It is said that 24% of ex-students owe $355 billion and they have to start making payments now.

The Government Accountability Office (GAO) predicts that $137 billion won’t be paid off. Rest $108 billion will be forgiven since borrowers are fulfilling their obligations through income-driven repayment plans. Don’t forget that $108 billion only covers those loans that have been released through the current academic year. The overall debt amount will increase simultaneously.

The Government Accountability Office have criticized Education Department’s budget estimates. The GAO’s report reveals that $29 billion more will be forgiven due to death or disability.

1 Why were the plans approved?

The main goal was to reduce the stress of student loan borrowers. The plans give an affordable monthly payment plan to student loan borrowers. Plus, the federal government forgives loans that haven’t been paid for the last 10-20 years. This is applicable for the public-service workers. And, for the private sector workers, the outstanding balance is forgiven after 20 or 25 years. After Obama came into power, he made a few changes and extended the debt relief programs in 2010. More and more students are enrolling in these programs. So, the amount of forgiven debt would only increase in the future.

2 What do the supporters have to say?

The supporters are obviously in favor of the income-driven repayment plans since they help borrowers who don’t have a job or high income. The borrowers won’t have to pay a fixed rate. Plus, the amount they pay is capped at 10% of their after-tax income. So, all in all, it’s a favorable situation for the borrowers.

Ted Mitchell, the undersecretary at the Education Department, feels that these debt relief programs are helping borrowers to manage loans. These programs are especially beneficial for those who can’t afford standard repayment plans.

3 What academics have to say

Outside academics feel that federal government can’t make money on student loans. The present government is moving to forgive students loans when borrowers have enrolled at for-profit colleges due to deceptive advertising.

Students are well aware of the benefits of income-driven plans. They become less sensitive to a tuition hike. This, in turn, induces universities to increase tuition fee at the expense of the taxpayer. In the last 10 years, the cost of higher education has already increased by 5.2%. The growth rate is faster than inflation which is under 2% in the country.

4 What’s the future?

Donald Trump’s administration may dismantle the entire or parts of debt relief programs. The new government may change the rules that make it simpler for students (who are victims of deceptive advertising of for-profit colleges) to have their loans forgiven.

President Obama now wants to put a limit on the amount federal government should forgive. But his proposal has not been approved by the Congress.

Last Updated on: Tue, 3 Jan 2017

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