As student loan debt continues to rise and the economy is slow to recover, many graduates are looking for financial help. Some are even getting desperate as the student loan default rate is over 8 percent – an all-time high.
Graduates have made their voice heard that they want the government to forgive their student loan debt and they want it fast. Many believe that recent graduates can help stimulate the economy with relief from their student loan debt which averages over $26,000. A slow economy, low wages and overwhelming student debt have made jump-starting the economy a tough task.
But a difficult question remains: Should Taxpayers pay for student loan forgiveness programs?
Who Qualifies for Student Loan Forgiveness Programs?
As it currently stands there’s only a handful of federal student loan forgiveness programs available. These are open to a select group of people that provide volunteer assistance or public service to low income areas.
For example, AmeriCorps volunteers can qualify for the Public Service Loan Forgiveness Program because they live on a stipend and their work is considered a public service.
In addition, the Army, Army National Guard, Air Force, Air Force National Guard, and the Navy offer student loan repayment programs. These provide up to $20,000 in student loan forgiveness under the Military College Loan Repayment Program.
Other loan forgiveness programs are available to public service employees such as teachers, doctors and even lawyers.
Careers that offer federal student loan forgiveness programs:
- Military Veterans
Taxpayers are currently funding these forgiveness programs, but will they be willing to pay for others, too?
Will There Be a Student Loan Bailout?
In 2011, the total student loan debt surpassed $1 trillion. According to the Federal Reserve, this amount is now more than Americans owe on credit cards or car loans.
The argument for broader student loan forgiveness programs has stemmed from the long list of restrictions on student debt. At the heart of the debate is predatory lending practices of both federal and private lenders. Sallie Mae, America’s largest lender, makes $700 million yearly from its collections division and is looking to expand this fee-income business to $1 billion a year.
Since both federal and private loans cannot be discharged in bankruptcy there’s no motivation for lenders to work with borrowers to improve their chances of repayment. Instead, lenders can increase fees and collections costs that are guaranteed to be repaid by helpless borrowers. In addition, collectors have the ability to garnish wages without a court order.
Private student loans also lack the protections that come with federal loans such as unemployment deferments, income-based repayment and public service loan forgiveness.
Without additional repayment options, recent graduates are stuck with an overwhelming debt burden and no way to get out. If no actions are taken to relieve this burden will the student loan debt crisis lead to another economic collapse similar to the 2008 housing crisis?
Who Pays for Student Loan Forgiveness?
It’s taxpayers that pay for student loan forgiveness programs. If these programs are expanded to lower the student loan debt burden it will be taxpayers that pick up the slack. But it doesn’t have to be that way.
Although more attention is being placed on the student loan debt crisis there’s still much opposition to increasing forgiveness and repayment programs. Those that have worked hard to repay their student loans or have avoided debt altogether have made it clear that they don’t want their tax dollars going to subsidize student loans.
On the other side of the coin, organizations that are in favor of broader forgiveness efforts don’t expect taxpayers to pick up all of the costs. The major argument is to reduce predatory lending practices and at a minimum increase repayment options. Limitations on discharging student debt after bankruptcy, loan consolidation options and repayment plans leave recent graduates with no way out.
Currently 1 in 5 student loan borrowers are in default and this number may continue to rise.
What will happen next is hard to predict, but the discussion will continue. Now it’s your turn to carry the torch. How should our student loan debt crisis be handled? Should taxpayers pay for student loan forgiveness programs?