Around 35 million students attending higher education institutions will receive an application next month that will allow many of them to wipe out their student loans. For another 8 million borrowers, the process is already underway.
This undertaking comes after President Joe Biden’s Aug. 24 statement which outlined a three-part plan to lift the $1.7 trillion debt burden incurred from federal student loans. Aimed at low and middle-income households, it continues the freeze on loan repayments, cancels debt for borrowers the government deems “at highest risk of delinquencies or default once payments resume” and curates a new income-driven repayment plan to reduce future monthly payments.
For the 26% of undergraduate students at USC who receive federal loans, such as Andrew Lutz, a junior studying philosophy, politics and law, this plan will come as a welcome relief.
“That’s money that I would either have to pay off with my own career for the next five to 10 years, or money that my parents would have to take out of the house,” he said. “It’ll probably cut the amount of time, including interest, that I’d have to take to pay back the loans by at least half.”
In canceling debt of up to $10,000 to $20,000, Lutz said he believes that the forgiveness plan offers a greater number of options for the future.
“It also gives me more peace of mind because I’m not a STEM major,” he said. “While there’s definitely a lot of options for me out of college, I don’t feel as much that I have to find something that’s going to be super lucrative right out of school.”
Victor Falcon, a first-generation sophomore studying business administration, said the plan is “making a huge difference” towards his decision on pursuing a fourth year at USC rather than concluding his undergraduate studies after three.
Student loan debt accounts for the second-highest consumer debt category in the United States, second only to mortgage debt and higher than credit card and auto loan debt. California holds the greatest contribution to this segment of debt, totaling $141.8 billion for a combined population of undergraduate and graduate students.
“I definitely feel like I’m getting a better deal right now from school,” Lutz said. “It often feels like if you want to get an education, you have to go into an overbearing amount of debt.”
While the plan aids USC’s current crop of students in managing their debt, there are some who suggest that the school must still do more to increase its affordability. Attending the University in the 2022-23 academic year is estimated to come with a price tag of $63,468 just for tuition — 53% more than the national average of $41,568.
“USC wants to proclaim itself as a top-tier institution… on par with top-ranking Ivy League schools,” Falcon said. “A lot of these schools are dropping their tuition and guaranteeing free tuition for all families less than $100,000.”
In April 2022, Bloomberg reported that the average cost of tuition at an Ivy League school is falling by around 5% on average, adjusted for inflation. While the University of Pennsylvania raised its tuition by 4%, it increased its financial aid by 5.25%. Earlier this month, Princeton University expanded its aid package by offering free tuition to students from families that earn less than $100,000.
USC’s most recent step in need-based funding came in February 2020, when it committed over $30 million to covering tuition for families making less than $80,000 per year.
“[The University] needs to make financial aid more accessible, more streamlined, especially in reaching out to first- generation students who are new to this process. Also, being more generous with their aid, or maybe capping the cost,” Falcon said. “Let’s say you’re a freshman, USC [could] guarantee that the costs to come here are going to be fixed.”
Meanwhile, others believe that while the policy may help USC students, it is funneling funding away from areas that need it more.
“It’s going to help places like USC, but perhaps there are better ways of spending these funds and the people who will really hurt,” said Robert Dekle, an economics professor at the Dornsife College of Letters, Arts and Sciences. “[With a degree], you’re going to get paid back through the market, it’s just an investment in yourself.”
While California holds the largest level of student loan debt, it also has the third lowest average student loan debt, at $21,125. Sixty-five percent of Americans don’t attend college, but the forgiveness plan will cost taxpayers an estimated $400 billion over 10 years.
“Use the money for preschool education, and there’ll be more impact on income equality,” Dekle said.
Falcon “wholeheartedly disagrees” with the idea that the plan won’t help lower-income families, since it is directed towards families who make under $150,000.
“I feel like this is completely a step in the right direction,” he said. “I feel that Senate debt relief should really increase the amount. I’m more in favor of $50k forgiveness.”
For years, progressive members of Congress have lobbied for the cancellation of $50,000 in student loan debt. After the economic fallout of the coronavirus pandemic, which affected borrowers’ ability to pay back their loans, Congress and both the Trump and Biden administrations have responded with historic student loan relief and pauses on federal student loan payments.
When looking to the future, Falcon and Dekle said that the long-term focus for achieving greater equity in education should not lie only on the question of student debt.
“I know that student debt forgiveness isn’t the end-all be-all,” Falcon said. “It should really be expanded. I believe that the United States should adopt a system closer to the education system in Europe for higher education, where citizens are paying little to nothing to go to college and follow their dreams. Here in the United States, we’re paying an exorbitant amount of money.”
Dekle said he has doubts over the plan’s longevity and ensuing efficiency, asking if administrations will “perennially have a $10,000 forgiveness program.”
“Education has externalities,” Dekle said. “There’s the question of whether that individual [forgiven of a student loan] should benefit so much at the expense of other programs… my feeling is more balanced towards greater needs than this.”