A massive debt cancellation proposal that went into effect today would do nothing to address the loans students would begin accumulating again tomorrow.
People who go to college typically do so thinking that it will leave them better off than before they enrolled. And that’s true for many students-college graduates usually earn more than $1 million more throughout their lifetimes than those with only a high school diploma. 9 But some students who take out loans and enroll with this belief never see these benefits. Instead, they are made worse off because they didn’t graduate, got little or no return on their investment, or were even defrauded by their institution-leaving many of these borrowers in a true crisis. 10 Today, 16% of households with student loan debt participate in public assistance programs (and this number is likely underreported because of stigma or confusing or uncommon program names in reporting). 11
Among all American households, 67% of low-income families with children (defined as families with income that’s less than 200% of the federal poverty level) receive food-related assistance and 60% receive public health insurance, including 9 million children who receive coverage through the Children’s Health Insurance Program (CHIP) each year. 12 In addition, nearly a quarter of families (23%) received cash assistance for their basic needs through the Temporary Assistance for Needy Families (TANF) program in 2019, and over 22 million people received the Earned Income Tax Credit (EITC) in 2018. 13 Student loan borrowers who have found themselves in these kinds of public assistance programs are among the least likely to ever be able to pay down their debt without relief. Of the entire balance of outstanding student debt, the federal government already expects to forgive around $435 billion through federal programs that provide some level of debt relief, like income-driven (IDR) repayment programs, which offer full forgiveness after 20-25 years, depending on the plan. 14 So for many of these borrowers, they may be eligible for forgiveness under current law, but unfortunately only 6% of the lowest-income borrowers are enrolled in income-driven repayment plans. Continue reading “Student loan debt holders on federal public assistance programs have found themselves in the worst-case scenario”