Will he or won’t he? And how much? That’s what everyone has been asking about President Biden and student debt forgiveness. When news leaked that the Biden administration was planning $10,000 of loan forgiveness, many argued it wouldn’t go far enough. Yet Biden has said he is not considering canceling it all and wants Congress to address student debt through legislation.
A legislative proposal would temporarily allow those with student loans to refinance them at 0 percent interest. Congress should not only pass this, they should expand it and make it a permanent policy.
To make a difference in the college debt crisis, Congress should apply all interest payments already made towards the principal for each borrower, set public loans at a permanent interest rate of 0 percent going forward, and allow those with private loans to convert their debt to public loans, also at a 0 percent interest rate.
Our research suggests that eliminating interest would allow those who graduate college with student loans to contribute more fully to the economy, attain financial stability and security, build families, and live fuller, happier lives. Removing interest would mean that people would still repay the loans they borrowed—just without the government or private companies profiting off of them.
For many, the interest on their debt creates a situation that feels like quicksand. Payments often don’t even cover the interest, so as people repay their loans, they see their balances increase.
Setting interest rates at 0 percent for all public student loans, forgiving interest, and applying past interest payments towards the principal would allow people to actually pay off their debt. Biden’s $10,000 loan forgiveness would certainly also help some of these borrowers, but it wouldn’t solve the problem of compounding interest on remaining student debt for everyone.
Then there is the 13 percent of borrowers who use loans from a private source. For the past six years, a participant in our research study has paid approximately $1,200 each month on their $105,000 private loan, a total of over $86,000 so far. High interest rates mean they somehow still owe $78,000. Private loan holders should be able to refinance their loans under a 0 percent interest public loan program. Then when they make payments, they’ll see their balances meaningfully decline.
Applying all past interest paid to principal would mean instant loan cancelation for those who have already repaid much more than they ever borrowed. It would also allow anyone balking at the notion of loan forgiveness to see that many of those with loans have paid them back — and then some.
We’ve been studying the experiences of college graduates with loans for over six years, and this type of cancelation would be a game changer for them. In the spring of 2016, we interviewed a small number of graduating seniors with loans, and we’ve interviewed them again almost every year since, following them as they dealt with student loan repayment, job changes, living with their parents to make ends meet, and serious health problems.
We also interviewed a larger group of students and graduates and asked them what they would do if their student loans were forgiven. Most told us they would save and invest for the future, buy homes, and pay off medical and credit card debt. Some would get married or have children. In recent interviews, we saw how the pause on student loan payments helped borrowers finally accomplish some of these goals.
One woman in our study, now in her late 40s, started college at 18, but was only able to go back to finish her degree when she was older. Her nearly $700 monthly loan payment never seemed to make a dent in what she owed, but paying it meant she and her husband couldn’t cover all their expenses, even though they have both been employed full-time for decades. Delinquent on bills, borrowing…
Read More: If Biden won’t cancel student loan debt, Congress should cancel the interest