Alvin Buyinza, The conversation and Jamaal Abdul-Alim, The conversation
1.7 trillion US dollars. This is the amount that students and graduates owed in federal student debt as of July 2021.
The growing amount of student debt can pose serious problems for individual borrowers. For this reason, colleges and universities and even the federal government have sought solutions to ease the burden. But what are the best ways to alleviate student debt? Who must qualify? And what practical effect will debt relief have, not only on individual borrowers but on society and the economy as a whole?
To answer these questions, The Conversation researched a range of academics – from economists to philosophers – all of whom specialize to some degree in student debt and its impact on those who borrow.
1. How does student debt affect borrowers?
Student loan debt doesn’t just cause financial damage to borrowers. Kate Padgett Walsh, associate professor of philosophy at Iowa State University, says it also causes mental, emotional and physical damage.
Walsh and two other academics – Dalie Jimenez, professor of law at the University of California, Irvine, and Raphael Charron-Chenier, assistant professor of sociology at Arizona State University – write about how student loans affect borrowers well after graduation.
“Students who are the first in their families to attend college and low-income students have a much harder time repaying their student loans, and they end up defaulting more often than other students,” write Walsh et al. colleagues.
Read more: Student loan debt costs new graduates far more than money
2. Will Student Debt Relief Help the Economy?
Some economists argue that student debt relief will help stimulate the economy. However, William Chittenden, an economist at Texas State University, writes that the economic benefits of canceling student debt may be modest at best.
“If all of the $ 1.5 trillion in federal student loans were canceled, the average borrower would have $ 393 more per month,” Chittenden writes. “The economy is estimated to grow by only about $ 100 billion, or about 0.5% …”
Chittenden argues that student debt relief should target borrowers who typically owe less than $ 10,000 but are more likely to default on their loans. Demographically, this would benefit people of color and women the most, as women on average owe more than two-thirds of outstanding student loan debt, and 85% of black graduates owe money on loans. students, compared to just 69% of white colleges. graduates.
Read more: Cancellation of student debt will hardly stimulate the economy, but a targeted approach could help some groups
3. Who benefits from the settlement of unpaid balances by colleges?
Colleges and universities are using federal American Rescue Plan money to clear unpaid debts from students and recent graduates who enrolled at their institution as of March 13, 2020. Students and their respective institutions will benefit from this. debt clearance, according to Chittenden. . Debt clearance will allow students to continue their education and pursue career goals, he writes. During this time, institutions will be able to settle their debts without dipping into their own finances.
“For recent graduates, having debts to their school may prevent them from getting a transcript or proof that they graduated,” Chittenden writes. “By paying off the debts of new graduates, alumni can, as City University of New York Chancellor Felix V. Matos Rodriguez noted,” move forward in the pursuit of their educational and professional goals without the specter of tuition fees and unpaid fees. ‘”
Read more: Colleges Use Federal Stimulus Money To Wipe Out Overdue Student Debt – Economist Answers Five Questions
4. Is bankruptcy filing a solution to settling student debt?
As it stands, most student loan borrowers are prevented from paying off their loans in the event of bankruptcy. However, under the FRESH START project via bankruptcy law, borrowers can obtain release from their federal loan debts if they prove that the debt has caused “undue hardship” within the first 10 years of payment.
Brent Evans, assistant professor of public policy and higher education, and Matthew Patrick Shaw, assistant professor of public policy, education and law, both at Vanderbilt University, explain what is involved in proving a undue hardship for borrowers seeking to discharge their student loan debt through bankruptcy.
âDeclaring bankruptcy is not an ideal option for dealing with student loans as it has significant immediate and long-term consequences,â they write.
Read more: Can student loans be settled in bankruptcy? 4 questions answered
Editor’s Note: This story is a summary of articles from The Conversation archives.
Alvin Buyinza, Editorial and Outreach Assistant, The conversation and Jamaal Abdul-Alim, educational editor, The conversation
This article is republished from The Conversation under a Creative Commons license. Read the original article.