The White House recently announced several measures—including debt relief for 43 million borrowers—that will ease students’ financial burden. Jennifer A. Delaney of the College of Education explains the measures and the issues that gave rise to them.

When President Joe Biden announced in late August his student debt relief plan, you could almost hear the collective sigh of relief from the 43 million borrowers who stand to benefit.

The plan calls for Pell Grant (low-income) recipients to have up to $20,000 in student loan debt canceled, with non-Pell Grant students receiving up to $10,000 in debt forgiveness if their individual income is less than $125,000 or their household income is less than $250,000.

“About 27 million borrowers should get that $20,000,” says Jennifer Delaney, associate professor in Education, Policy, Organization and Leadership. “Even with the Pell Grant, they’re frequently taking on debt.”

She acknowledges that many people are not happy with the announcement. “There are likely to be hard feelings for people who have paid off their loans already,” she says. “Then, there are people who made other funding decisions, and people who are loan averse. Maybe they attended a community college when they could have gone to a four-year college to avoid debt. Life trajectories can be changed over these debt decisions. Had they known forgiveness would be there, they might have made a different educational decision."

The Rising Financial Burden on Students

Nationally, federal student loan debt has soared above $1.6 trillion. That’s not surprising when you consider the fact that—even after accounting for inflation—the cost of four-year public and private colleges has nearly tripled since 1980. Pell Grants covered almost 80 percent of tuition, fees, room, and board at four-year colleges in the mid 1970s; today they cover about a third of those costs.

“Student loan debt is impacting people’s lives,” says Delaney, who is frequently sought out by major media outlets for her views on higher education policy and finance. “When you borrow for college, you’re much less likely to buy a house right away, you hold back on retirement savings, you don’t start a small business, you wait on starting a family.”

“The burden we’re putting on this current generation was not part of the social contract for the baby boomers who went to college. They still had the need for loans, but not at this scale."

The Impact of (and Racial Disparity in) Debt

Loan debts are spread across the generations, Delaney says. “Twenty-one percent who are going to get the cancellation are under 35 years old, 44 percent are 36 to 39, more than a third are over 40, and 5 percent are senior citizens,” where grandparents are taking out loans to help grandchildren out, she notes.

Dropouts have it worst, she says. “The people who go to school, borrow, but drop out before they get a degree are still saddled with debt, which they’re stuck paying off without having accrued the labor market benefits of a degree,” Delaney says. Nearly one-third of borrowers have debt but no degree, according to a recent analysis done by the US Department of Education.

Another deep concern is the racial disparity evident in the loan system.

“A lot of it is about wealth disparities,” Delaney explains. “The average African-American family in this country has not been able to accumulate wealth across generations in the same way that White families have been able to.”

Black college graduates owe an average of $25,000 more in student loan debt than White college graduates, and four years after graduation, 48 percent of Black students owe an average of 12.5 percent more than they borrowed, according to Education Data Initiative. After four years, only 17 percent of White students owed more than they initially borrowed.

“These racial inequalities are built on generations of wealth and income inequality making borrowing for African-American families both riskier and more necessary to be able to attend college,” Delaney says. “Access to capital is the difference between being able to attend college (or not) for many people.”

Income-driven Plans

Loan debt relief is just part of the government’s plan to help students manage the debt they take on to attend college. The biggest change proposed, Delaney says—and one that hasn’t caught the media’s attention in the same way the forgiveness plan has—is changing the rules for an income-driven repayment (IDR) payment plan.

“The US has a number of income-based repayment plans for federal student loans, and they’re very complicated,” she says. “That’s part of the problem. Trying to navigate student loans is really difficult. But with any of these income-contingent repayment options, you essentially have a safety net built in.”

That net is there in case of emergency. “If you lose your job or have a health emergency or there’s a huge change in income, when your income falls, your payments fall,” Delaney says. “If your income falls far enough, you still have loans but your monthly payments go down to zero. With the current system, loans still accrue interest, but the value of the safety net is really important.” She notes that one of the proposals in Biden’s plan is to have borrowers who enroll in the IDR plan not accrue interest when their loan payments are zero dollars.

Most developed nations, she adds, have such a repayment plan in place—not just as an option, but as their standard plan.

“I wish an income-contingent repayment plan was the standard option in the US. This would build in a needed safety net for borrowers, especially since student loans are not generally dischargeable in bankruptcy,” Delaney says.

Other proposals for the IDR plan are intended to:

• Cut monthly payments in half for undergraduate loans (from 10 percent to 5 percent of discretionary income). This would lower the average annual student loan payment by more than $1,000 for both current and future borrowers.
• Raise the amount of income that is considered non-discretionary (and therefore is protected from repayment) to an annual equivalent of a $15 per hour wage for a single borrower.
• Forgive loan balances after 10 years of payments (instead of 20) for borrowers with original loan balances of $12,000 or less. This is geared to make nearly all community college borrowers debt-free within 10 years.
• Cover the borrower’s unpaid monthly interest so that no loan balance will grow as long as monthly payments are made—even when that monthly payment is $0 because their income is low.

In addition, the income verification process is being made easier. “This process has been a beast,” Delaney says. “Income verification has been a huge annual paperwork problem for borrowers. They’re going to automate more of that system now to ease the paperwork burden on borrowers in income-contingent repayment plans. No other country in the world has as much paperwork around taxes and student loans as we do,” she laughs.

Other White House plans to address student loan debt include revamping the Public Service Loan Forgiveness program for people working in public service, continuing to fight to double the maximum Pell Grant and make community college free, and holding four-year schools to greater accountability when they increase prices.

Concerns with Fraud, Complexity

Delaney has two more concerns with the income-contingent repayment plans. One has to do with student loan servicers misleading people. “Unfortunately, there have been a large number of complaints filed with the Consumer Financial Protection Bureau saying that student loan servicers, which help students navigate the system, have been directing students away from the income-contingent repayment plans, even though the students would have benefited from them,” she says.

The other has to do with the complexity for students in knowing how to access an income-contingent program. “You have to opt in, provide annual income verification, and navigate your loan servicer,” she says. “The end result is many of people who could benefit from these income-contingent repayment plans not being in them. The way you wipe that away is to make a student loan repayment program with a built-in safety net the default.”

See here for how to opt in to an income-driven repayment plan.

Loans—and Education—Fuel the American Dream

The debt forgiveness is a one-time occurrence. “While it’s good for those who have debt canceled, it doesn’t address any systemic issues about college affordability,” Delaney says. “In the research, we worry about affordability in a variety of ways. We need systemic change that doesn’t also vilify loans when access to capital is really important for college attendance.”

She says the changes in the IDR plan is an example of positive systemic change.

“We need to move away from rhetoric that makes student loans seem like a bad deal,” she says. “The idea that you can borrow for college and pay it back when you have a job after school is not a crazy idea at all. A college education can change your life, and it’s at that moment when you need to borrow.

“Borrowing student loans can be the difference between the next generation doing better than their parents, which has always been a part of the American dream. That dream is eroding. I worry about that too.”

An online form will be available by early October for students to check their eligibility for student loan debt relief and to receive text alerts regarding the process. Learn more here and log in to your account on StudentAid.gov here to make sure your contact information is up to date. You can subscribe to federal student loan borrower updates here.