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How Skyrocketing Student Loan Burdens Are Impacting Confidence in Higher Education

While Biden's Loan Forgiveness plan has provided relief, critics argue it doesn't solve the problem
Student loan borrowers gathered at the Supreme Court today to tell the court that student loan relief is legal | Getty Images | Photo by Larry French
Student loan borrowers gathered at the Supreme Court today to tell the court that student loan relief is legal | Getty Images | Photo by Larry French

Nearly 3 out 4 Americans have delayed a major life event to cope with the burden of a student loan, according to the latest Gallup Lumina Foundation Cost of College report. Borrowers had to delay having kids, buying a house, or even getting married to make sure they manage to pay their debt, CNN reported citing the study. Thus, Biden’s mega student loan forgiveness program has proven to be more crucial than ever but critics aren’t convinced that it would help.

Representative Image | Unsplash | Photo by Tim Gouw
Representative Image | Unsplash | Photo by Tim Gouw

According to the poll, about one in 3 students in the US currently enrolled in college or other post-high-school programs say they have considered stopping their coursework over the past six months, and 31% of them blame the high cost.

The rising cost of education has now impacted the perceived value of a college degree as well. In a separate Gallup Study from 2015, it was found that over half, 57% of Americans had “a great deal” or “quite a lot” of confidence in higher education, but last year, that figure hit a new low of 36%. While the study did not probe the cause of the eroding confidence, it mentions that costs are “likely to play a significant role.”

To provide relief to student loan borrowers, President Joe Biden announced a mega loan forgiveness program. So far, the White House has forgiven a staggering $153 billion in federal student loan debt, providing a lifeline to millions of borrowers.

Last week, the Education Department released formal regulations for the new and massive student loan forgiveness plan, as per Forbes. Under the new plan about 25 million borrowers can potentially qualify for forgiveness and unlike the first student debt relief initiative, many could see complete cancellation.

The new plan provides multiple, distinct pathways to relief for borrowers depending on their loan history, the school they attended, and their overall personal and financial circumstances.

However, as while Biden’s $153 billion in forgiven debt is staggering, it is still less than 10% of the trillion-plus dollars in outstanding federal debt, as per CNN.

Critics of the loan forgiveness plansay that wiping out the debt provides relief to borrowers of the past, but it doesn’t fix the root cause for future students as the forgiveness program could encourage universities and institutions to raise tuition further. This will add to the rising costs leaving students no option but to take on expensive student loans at historically high rates.

Borrowers taking out a loan from the US government to cover college tuition this fall are likely to face the highest interest rates since the Great Recession, as per a Bloomberg report. The interest rates on federal student debt are determined each academic year by a formula taking the yield from May’s US Treasury 10-year note auction and adding 2.05% as per the report.

In recent weeks, the yields have soared as Federal Reserve officials reconsidered the timing of their first interest-rate cut due to the lack of progress on inflation.

Thus, based on the latest April auction, the student loans taken out by undergraduates for the 2024-2025 school year would have a rate of 6.61%. This marks the highest interest rate since 2008 up from the previous rate of 5.5%, as per Bloomberg. The yields have risen further this month and they could go higher when the Treasury Department holds the May auction.