“Students think Uncle Sam is going to forgive their debt.”
Students are hearing the ongoing talk about free college and debt forgiveness in the Democratic primary every day. Why would they repay their loans?
The College Fix reports:
Expecting debt forgiveness, most students are not reducing their student loan balances ‘at all’
You’d think during a prosperous period with record-low unemployment, those who took out federal student loans would be better equipped to pay down the balances.
That’s not what’s happening, however, and higher education economist Richard Vedder has an explanation: Students think Uncle Sam is going to forgive their debt.
In an essay for the Martin Center for Academic Renewal, Vedder analyzes an October report from the Federal Reserve Bank of New York.
The numbers are alarming: Borrowers with more than $100,000 on their balances are 7 percent of the borrowing population, but owe more than a third of outstanding loans. The report’s analysis of student loan debt by ZIP code confirms that “relatively affluent borrowers are disproportionate participants in the student loan program,” Vedder writes.
Those who graduated in 2010 had repaid less than 10 percent of their loan balances five years later, and student loan debt rose twice as fast as tuition fees between 2008 and 2018, which means “much student borrowing appears not to meet direct instructional costs,” the economist says.
The New York Fed report expresses surprise at the “very large share of borrowers who have not reduced their balances” between the second quarters of 2018 and 2019:
Although the share of borrowers in the “balance not declining” category edges slightly lower as incomes increase, it should be noted that a surprisingly large share […] of borrowers are not actively reducing their balances even in relatively wealthy areas.
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