Student debt in America is sitting at a whopping $1.5trn, that’s more than the whole country of Belgium. It’s now more prominent than borrowing on credit cards and car hire purchase; the growth has quintupled since 2004. It is a good job that the underwriter of the debt (92%) is the federal government as defaults do not affect the financial system; only the poor taxpayer picks up the obligation. “As of the first quarter of 2019, there are an estimated 5.2 million federal student loan borrowers in default, 3.4 million federal student loans in deferment, and another 2.7 million in forbearance.”

The Democratic candidates all have a different take on how to deal with the problem. Sanders wants to cancel all student debt; this is great for the struggling graduates but also produces a bonanza for the well-off. Elizabeth Warren has the same policy but only up to $50k. Joe Biden and Bloomberg have a more UK-centric approach.

Biden and Bloomberg want to put new and old borrowers into an income-dependent scheme, repayment of the loan is based on their income above a certain threshold. This strategy has worked well in the UK, and it has meant that graduates can’t fall into poverty.

It’s important to note that the US has an existing income-dependent scheme for the most poverty-stricken borrowers, but the earning threshold is far to low at $18k (the UK is $34k). Government interest rates are at a scandalous 6%, and the paperwork involved to obtain a loan is confusing and must be updated every year.

Biden and Bloomberg would both slash income repayments from 10% to 5%. Biden would raise the income threshold to $25k. On the other hand Bloomberg would forgive the debt that was procured from for-profit universities and exempt debt forgiveness up to $57k from tax. Sounds great but neither of them have mentioned the 6% interest rates.

Getting student loans under control is all well and good. Still, a more significant part of the problem is for-profit universities charging the most extreme prices and marketing themselves in an over-aggressive fashion.



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