Yahoo Finance Live’s Akiko Fujita and Brian Cheung discuss the Biden administration canceling student debt for 40,000 borrowers under the Public Service Loan Forgiveness program.
AKIKO FUJITA: Biden administration is announcing major changes to repayment plans for federal student loans, erasing the debt of more than 40,000 borrowers. The Department of Education specifically addressing the controversial income driven repayment program. And to bottom line this, Brian, this is a program that was designed to provide relief for borrowers who've been making payments for 20 to 25 years, but there was a recent investigation from NPR that essentially revealed these payments were not being counted.
BRIAN CHEUNG: Yeah, well, and the tracking of this over 20 to 25 years is something that, I mean, like, the infrastructure that you had, 20 to 25 years ago, it's not going to be the same today. But I mean, you know, that was, obviously, very bad for those people that have been enrolled in this program. And for people that might be looking at this news and saying, oh, this has something to do with the income based repayment program itself, it's really more of a technological question here than it is about the program itself.
We've heard the likes of, for example, Sheila Bair come on the show and say there could be something to an income-based program, which, again, as a reminder, would essentially automatically take a percentage of your income-- let's call it, 10% of your paycheck-- and then use it to repay any student debt you have. And anything that you still have over as a remainder after 20, 25 years gets forgiven. So it's interesting to see if this is going to derail that specific idea for repayment because we know student debt at large is a huge issue.
AKIKO FUJITA: Yeah, I mean, when we were talking about this off-camera, to not get too technical about-- we talk so much about student loan forgiveness, but there are very different layers to this. And we're talking about a specific program, at least, with forgiveness on this front. But when you look at the numbers, the administration has canceled more than $17 billion in debt. 725,000 borrowers have been affected. But you go back to what the president campaigned on, he. Hasn't always been for full forgiveness, but you'd imagine there's some increased pressure going into the midterms.
BRIAN CHEUNG: Midterms-- yep.
AKIKO FUJITA: Student loans not the number one issue, but he's certainly going to hear it from those voters who say, look, you've got to do more for those who have incurred all this debt. And this, at least, is one way to address that because it was a program that was mismanaged by all accounts.
BRIAN CHEUNG: Right.
AKIKO FUJITA: And the Education Department saying, look, we're trying to right that wrong, at least for those who are affected.
BRIAN CHEUNG: And it's probably going to be the case that the Biden administration is going to use this in the midterm campaigning and say, look, we've done something for student borrowers, but again, the statistic on those that are going to benefit from this change from the Education Department is a very small percentage of the overall student borrowers that we have in this country, which, as a reminder, almost all of them, all that debt is being held by the US government. So they have a lot of capacity to do something about this.
But important to note that, I mean, this income-based program broadly covers 3.6 million people. That's 10% of all student borrowers. This is a type of debt that could burden the next generation of people for decades to come. So it's not just the midterm 2022 question, right?
AKIKO FUJITA: No, it is not.
BRIAN CHEUNG: It's much more than that.
AKIKO FUJITA: But I would argue that there's also still the question about addressing it on the very end of the issue when they've already incurred this debt, versus should there be more discussion about the cost of education and the cost of higher education. And some would argue--
BRIAN CHEUNG: Right, and people are still going into college--
AKIKO FUJITA: Exactly, so--
BRIAN CHEUNG: --80k a year, yeah.
AKIKO FUJITA: Well, and some would argue that that's where the issue needs to be addressed, not necessarily on the student loan part, in terms of complete forgiveness.
BRIAN CHEUNG: Yeah, yeah, a multi-pronged issue, right? In addition to student debt forgiveness, how do you address the rising cost of tuition, which is vastly outpacing inflation.