America's total student debt has quintupled in size since 2004—many poor and non-white Americans are worst affected
student debt, at over $1.5trn, is larger than the national borrowing of most countries. It has quintupled in size since 2004, overtaking both borrowing on credit cards and car finance. This growth is often presented as evidence of a crisis. But the rise in total debt, though arresting, is not the real problem. It largely reflects increased borrowing by graduate students, such as budding lawyers, who will go on to be high earners.
Messrs Biden and Bloomberg want to put all existing and new borrowers for undergraduate degrees into an income-linked repayment scheme, under which borrowers must repay only a fraction of their annual earnings above a certain threshold.has long argued in favour of such a repayment mechanism, which works well in Britain. Linking repayments to income makes it impossible to be impoverished by student debt, and frees graduates to take risks early in their careers.
By enrolling everyone automatically, Mr Biden’s and Mr Bloomberg’s plans would greatly improve the status quo. Both would cut repayments from 10% of income above the threshold to 5%, less even than in the British system. Mr Biden would raise the repayment threshold to $25,000 and make all debt forgiveness tax-free. Mr Bloomberg would forgive debt that was incurred at failed or predatory for-profit universities and exempt debt forgiveness up to $57,000 from tax.
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