There have been a number of U.S. government measures over the past few years intended on helping borrowers to manage and alleviate their student loans. There are three types of these programs: forgiveness, cancellation and repayment plan, and each has its own eligibility requirements and advantages.

Public Service Loan Forgiveness (PSLF)

One of those debt relief efforts is the Public Service Loan Forgiveness program. PSLF is a program that forgives the remaining balance on Direct Loans left after the borrower has made 120 qualifying monthly payments while working full time for a qualifying employer, which includes government organizations and non-profit sectors2. While the program appears to hold promise, it has received criticism for its convoluted eligibility criteria and the 2% of applicants who were approved for forgiveness at the outset of the program were met with a rejection3.

Income-Driven Repayment Plans

With income-driven repayment plans, borrowers will pay monthly amounts according to their income and family size, which are expected to make the debt more manageable. Such plans include IBR, PAYE, REPAYE, and others. Under this program, any balance on your loan after 20 to 25 years of qualifying payments is forgiven4. Although such plans offer immediate assistance by reducing monthly payment amounts, they can also prolong the time it takes to pay off debt and cost consumers more in interest long-term.

Teacher Loan Forgiveness

Teacher Loan Forgiveness is one program that was created to bring teachers into low-income schools, as well as keeping them there. Currently, after teaching for five years, eligible teachers may have between $17,500 of their ever forgiven6Direct and FFEL loans5. By doing so, this program helps financially relieve educators while also promoting teaching in underserved communities.

Student Debt Relief's Effect on the Economy

For example, the student debt relief is more than just affecting one individual borrowers, the student debt relief also affects the economic trends. The resulting buoyancy in disposable income, which also translates to an easing of monthly financial obligations, may bolster consumer spending and broader growth, particularly if the economy remains weak. Finally, reducing student debt helps students to improve their credit scores7 and enables borrowers to spend money on big stage events, like buying homes and launching businesses6.

But there are also challenges with these programs. Widespread debt relief would come at cost and that would be reflected in the public finances. Some critics see debt forgiveness as merely a band-aid on the bigger issue of rising tuition costs without addressing who is responsible for this rise and how to fix7.

Looking Ahead

In the ongoing discussion about the fate of student debt relief, it is important to find solutions that do not only provide fast relief but one that would be sustainable — one that would tackle the real, pressing issues of college affordability. More fundamental reforms of the existing programs and new initiatives are necessary to ensure that access to higher education is maintained without burdening the current and future generations with excessive costs.

Government programs to wipe out student debt provide substantial help for borrowers, but we need to identify the costs of public policies on the economy and public finances over time and redesign them as needed. Investment in education might be beneficial for the society as more people would be able to contribute positively to the economy and their communities when education becomes accessible and affordable.

References

• Federal Reserve - Consumer Credit
• Federal Student Aid - Public Service Loan Forgiveness
• NPR - Public Service Loan Forgiveness Challenges
• Federal Student Aid - Income-Driven Repayment Plans
• Federal Student Aid - Teacher Loan Forgiveness
• Brookings Institution - Impact of Student Loan Debt on the Economy
• The New York Times - Student Debt Forgiveness Debate