One of the first things Joe Biden can do to help a nation struggling with COVID-19 and a financial crisis is to alleviate the burden for the tens of millions of Americans, like me, who are still carrying student loan debt in excess of $50,000.
I have been out of law school now since 1994. I should have paid off my loans a decade or so ago. But that’s not always the way life works. Job interruption, income loss, health crises, having to help family members in financial distress—all of it happens to the best of us. When I came out of law school, I only owed $46,000 in total debt from undergrad and law-school. With a high interest rate of 8.5 percent (that is the rate they locked us in at; we could not get these wonderful low interest rates and still cannot refinance them lower) and compounding when in forbearance (temporary postponement of payments), your debt can skyrocket into your principal being more than you actually borrowed. Which is what happened to me and many others.
Like many others, I could not keep up in years where finances were tight, or I wanted to buy my first home, a car, etc. Coming out of school with a $700-a-month payment for 10 years is a big deal for a single person, even a professional. For young people coming out of school now that figure is near double, with many having student loan payments of $1,200 or more. They walk out with $100,000 debt for private colleges and universities and well over $50,000 for public universities and colleges. And that’s just for a bachelor’s degree.
And don’t go to get an MBA, Ph.D., law degree, or medical degree. The cost is daunting. This leaves only wealthy, mostly white people who are able to afford these kinds of degrees. Many of my peers had family help, their parents paid for college, or paid off their loans. That was not the case for myself or most of the Black and brown people I know. And there is a reason for that; statistics show there is a huge wealth gap in America. A recent study shows that the Black wealth gap is widening, not shrinking. The median wealth for white households is in excess of $150,000, as opposed to Latino/Hispanic at $36,000 and Black at just over $17,000.
The May 2020 jobless rate for Black workers was 16.8 percent according to Forbes. A recent study by the Federal Reserve shows that the typical white family has eight times the wealth of the typical Black family and five times the wealth of the typical Hispanic family. All of this impacts who can go to school, who can take out loans, and more importantly who can pay them back.
Worse, the government, which is the biggest lender through Sallie Mae (which I and everyone I know hates), and other entities feel entitled to rob students with draconian interest penalties. It’s a lot like when you owe the IRS $500 and by the time they add penalties and interest if you do not pay it immediately you owe them $1,200. Then, the lenders punish borrowers when they do not earn enough to cover huge monthly loan payments. This is how people get into a hole they can never dig out of. I know. I was there for a long time.
The reality is that more than $1.6 trillion is owed in student loan debt by 44 million Americans. Let that sink in. Can you imagine what would happen if that debt was forgiven in full or in part? How much people could spend and help ignite the economy in a time of economic crisis? Just imagine how credit scores would go up, increasing people’s ability to buy a home or condo. Refinance bad debt with historically low interest rates.
I know that there is a big debate right now between the so-called progressive wing of the Democratic Party and the center-left Biden-Harris wing on this issue. But both Elizabeth Warren and Alexandria Ocasio Cortez are correct: We will never recover this enormous debt, and it is a huge drag on the American economy. The student loan default has fallen since 2016, but as one policy expert noted in a 2019 Forbes piece “A 2018 Government Accountability Office (GAO) report found that many colleges ‘manage’ their default rates by pushing their former students to enroll in forbearance, which temporarily relieves borrowers of the obligation to pay their loans. If she uses a forbearance, a borrower on track to default may do so four or five years after entering repayment, rather than one or two. Since default status is measured three years after entering repayment, a borrower who goes through forbearance and then defaults may not be counted in the official default rate statistics. This pushes down the official default rate, but independent research finds that borrowers continue to default after the three-year measurement window has expired. In other words, the true default rate may be constant even as the official rate plummets.”
All of this could happen with the stroke of a President Biden’s pen on January 20, 2021. If Biden wants to jumpstart the economy he needs to make this one of his first executive actions in office. I am all for paying back my debt. I do not want a free college or legal education. However, I do not want to be gouged and robbed by my government either. Which is what has happened to us all. I often lament I could have gotten a better loan rate from the Mafia and actually paid it back by now.
The downside to this is that many people now question whether or not college or advanced degrees are a good return on investment. I have questioned that many times myself. The reality is this student loan debt crisis is choking life out of the next generation’s economic fortunes.
It’s time for America to solve this crisis. Which means colleges need to tighten their belt too. Tuition and fees have increased exponentially, far surpassing wages and earnings of their alumni. Getting a good education is a must in the 21st century. But having to sell your entire life to debt to do it is simply not worth it. It’s time for our leaders to act. President-elect Biden has a great opportunity to do so come January 2021.