The Biden Loan Forgiveness Plan has been put on hold this past Friday after the federal court of appeal temporarily blocked it from moving forward until legal challenges against it are resolved.
This is big news for the more than 43 million Americans with student loan debt, with federal student loans making up the vast majority of American education debt—about 92% of all outstanding student loans is federal debt.
The federal student loan portfolio currently totals more than $1.6 trillion, owed by about 43 million borrowers.
As of last Friday some 22 million Americans had already applied for loan forgiveness and the democrats could be dealt a major blow should the plan be permanently halted.
The average student loan in America is $ 37,358 with many people owing much more.
The original scope of the plan was to forgive roughly $500 billion in student debt. Up to $20,000 in debt would be forgiven for Pell Grant recipients and $10,000 for other borrowers. Borrowers whose income was under $125,000 ($250,000 if married) in either 2020 or 2021 were eligible.
The legal challenge against the plan is being led by GOP states. Six GOP-led states said the Biden administration overstepped its authority in its plan to forgive up to $20,000 in federal student-loan debt.
Another group, the Brown County Taxpayers Association asked the Supreme Court to block Biden’s student loan program while the group’s litigation against it proceeds, arguing the Biden Administration exceeded its authority and violated the Administrative Procedure Act when it imposed the loan forgiveness policy.
The student loan debt is quickly becoming the largest growing expenditure for many Americans and some experts have predicted that it could lead to the next financial crisis.
The concern is that if the plan is permanently blocked it could have a ripple effect throughout the economy as people would have less money to spend on other things.
The block is only temporary for now but it remains to be seen what the final outcome will be.
Critics of the plan have said that it would be unfair to those who have already paid off their loans, and that it would incentivize people to take on more debt than they can afford.
They also argue that forgiving the student loans does not address the major issue of the rising cost of higher education and the Universities have no incentives to keep cost down.
This has has re-ignited the conversation on whether college degrees are still relevant and whether parents should continue to invest in their children’s higher education.
Reasons For The Crisis
Over the years tuition fees have been rising at a rate that is much faster than the rate of inflation. In the last 30 years, the cost of tuition has more than doubled.
The increase in the cost of tuition is not the only reason for the crisis, there are other factors as well such as more people going to colleges.
In the early 1960s only about 8% of Americans had a college degree, by 2016 that number had risen to about 33%.
So not only are more people going to college but also the price of tuition has increased which has put a lot of pressure on Americans.
Only 40% of full time college students graduate within 4 years which means that students are taking longer to graduate and even if you pause your schooling your debt keeps growing.
If it takes a student six years to graduate they will have six years of accumulated interest which will be even more debt that they need to pay off, and the average college graduate now has over $37,000 in student loan debt.
The Student Loan Bubble
There is a big difference between student loan debt and other forms of debt such as credit card debt or mortgage debt.
Student loan debt is not dischargeable in bankruptcy, which means that if you can’t pay back your loans you will be stuck with the debt for the rest of your life.
This is one of the main reasons why people are worried about the student loan crisis, because it’s very hard to get out of debt once you’re in it.
Another reason why people are worried about the student loan crisis is because of the way student loans are structured.
Most student loans have very low interest rates, which means that they are not a very good investment for the lenders.
This means that if there is a recession and people start defaulting on their loans, the lenders are not going to make any money back and they will probably lose a lot of money.
This could have a ripple effect throughout the economy and could lead to another financial crisis.
The solution to the student loan crisis is not going to be easy, but there are a few things that can be done to help.
One of the most important things that needs to be done is to make college more affordable.
This can be done by increasing government funding for colleges, or by giving tax breaks to people who are paying for college.
Students can also start by going to community colleges for their first two years and then transferring to a state university.
This will save them a lot of money on tuition and it will also help them to get a better job after graduation.
Another solution is to make it easier for people to repay their loans.
This can be done by making it easier to consolidate loans, or by making the repayment process more flexible.
Students can also opt to go straight to the work force after high school then later on applying to college when they are more financially stable.
There are also certifications available like Google Career Certificates which can help people get jobs without going to college.
The Google program has placed over 75,000 workers in well paying tech jobs and the average salary for an entry-level position being over $50,000 per year.
Studies show that people who have the right skills training are five times more likely to succeed at a job than people who have a college degree and skills not college will shape the future of work.