US student loan plan brings limited relief

Americans are getting some student-loan forgiveness, but the plan only deserves a C grade. US President Joe Biden unveiled an initiative to forgive a fraction of the nearly $1.6 trillion in debt issued by the government to cover higher-education costs. Many borrowers will keep struggling to pay off their balances, leaving many holes in this compromise.

The relief announced on Wednesday falls short of progressive Democratic goals, but Biden has questioned why only college attendees should be helped with their debt. His program includes forgiveness of up to $10,000 in student loans for individuals who earn less than $125,000 a year and twice as much for recipients of a need-based grant.

For two years, student borrowers have benefited from a grace period. A pandemic-relief effort paused repayment requirements and interest hasn't accrued since March 2020. Biden is also extending these provisions until the end of 2022. The assistance alone has cost taxpayers some $45 billion, according to the US Department of Education.

The new package has three main gaps. More than two-thirds of relief goes to the top 60% of earners, per a new University of Pennsylvania study. It doesn't credit one-third of borrowers who have been making payments over the past two years nor does it concretely address the rising costs of higher education.

College tuition and other fees have soared, but they also go a long way. The average four-year US degree, including lodging and food, increased nearly 11% over the decade through the 2020-2021 school year, the Education Department says. And those with a bachelor's degree or higher have a median weekly salary almost double that of workers with a high school diploma, the Labor Department calculates.

There are other issues to consider, too. The current interest rate for federal loans is 5% for undergraduate borrowers and higher for graduate degrees. Unpaid student debt was growing before Covid-19 and cannot be restructured in bankruptcy.

Biden's plan does provide some income-based improvements. Private lenders with competitive rates, more need-based grants and lower interest rates ultimately could provide paths to longer-term solutions. The president also intends to keep pushing for two years of free community college, but it will probably be politically unfeasible after the November elections, which means he'll barely pass College Economics 101.