On June 30, the U.S. Supreme Court ruled that the U.S. administration had overstepped its authority in trying to cancel or reduce student loans. It effectively dismissed President Joe Biden’s $400 billion student loan forgiveness plan, which he had announced in 2022 in line with his campaign promise. Loan repayments have been kept on hold since the beginning of the COVID-19 pandemic and are expected to resume by late August.
Mr. Biden claimed that his plan would lift the burden of student loans from lower middle-class borrowers and narrow the racial wealth gap. Republicans argued that the relief plan was unfair to students who had already spent years paying off their debts.
Under the student loan relief plan, $10,000 was expected to be cut from all loans owed by graduates earning a salary of less than $1,25,000. For graduates who had exceptional financial need and received Federal Pell Grants during their undergraduate courses, the relief was increased to $20,000. A Pell Grant is a type of federal financial aid in the U.S. that is awarded to undergraduate students who demonstrate exceptional financial need.
The issue of student loans has increasingly become a crisis for graduates in the U.S. in the last few decades. Data show that while in 2007, 28 million student borrowers owed a cumulative debt of $0.59 trillion, in 2021, 44 million student borrowers owed a debt of $1.76 trillion. While the number of student borrowers has increased by over 50%, student debt has grown exponentially by 200%, as shown in Chart 1.
Chart 1 | The chart shows the year-wise cumulative student debt (in $trillion) against the number of federal student borrowers (in hundred million).
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The skyrocketing costs of college tuition fees in both public and private universities have resulted in this crisis.
Chart 2 | The chart shows the year-wise average cost of college tuition fees (in $) at a public and a private institution for a four-year graduate course and the year-wise value of a maximum Pell Grant per student (in $).
The chart shows that while the maximum Pell Grant awarded to a student has remained stagnant, the cost of education in public universities, where about 77% of U.S. students study, has increased considerably. Also, the tuition fees in private universities, which have an enrolment rate of 23%, have skyrocketed. The chart shows how federal grants have not been able to keep up with college costs in both public and private universities, making student loans a necessity for college education.
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Further, despite securing a job which offered adequate pay, student loans absorbed half of it from graduates, especially at the beginning of their careers. Studies by the Education Data Initiative show that the burden of student loans inhibits the spending capability of graduates, could push them into poverty, and also adversely affect the U.S. economy.
Chart 3 | The chart shows the average inflation-adjusted annual student loan debt of a graduate student (in $) and their average inflation-adjusted starting salary (in $).
The chart shows how student loan debts eat up more than 50% of the starting salary of a graduate from the U.S.
The impact of student loans is felt more among some communities due to disparity in income levels. Graduates from Black and Hispanic communities paid a higher share of their salaries for student loans compared to their White and Asian counterparts.
Table 4 | The table shows student debt as a share of the median income of a graduate based on their race as of 2016. The table also lists the same for an average U.S. person (including graduates) for 2016 and 2021.
rebecca.varghese@thehindu.co.in
Source: U.S. Department of Education, Education Data Initiative, U.S. Census, U.S. Bureau of Labor Statistics, National Center for Education Statistics
Also read: Explained | The U.S. student loan crisis and Joe Biden’s new cancellation plan
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