FOR IMMEDIATE RELEASE

Wednesday, August 24, 2022

CONTACT

Steve Crawford, Crawford Strategies, 617-877-1816

BOSTON The Hildreth Institute, a nonprofit research and policy center dedicated to restoring the promise of higher education as an engine of upward mobility for all, released the following statement in response to today’s announcement from President Joseph Biden on plans to provide debt relief to millions of student borrowers and make the student loan system less burdensome for borrowers:

We applaud President Biden for keeping his promise and providing up to $20,000 in targeted student debt forgiveness. This will provide immediate relief for borrowers in financial distress and change the trajectory of millions of families across the nation. 

The Biden Administration has taken important steps acknowledging that a huge component of the student loan crisis is negative amortization – when interest accumulates faster than students can make their payments. The proposed changes to Income-Based Repayment plans will prevent future debt accumulation for millions of low-income borrowers. But, negative amortization is not unique to borrowers on these types of repayment plans. It needs to be addressed across the board.

Student loans are just one part of the broken system we use to finance higher education. While today’s actions are an important first step to ease our nation’s student debt burden, fully addressing this crisis is going to take a multi-faceted approach and our work is far from done. 

One option to be considered is removing interest altogether – setting the interest rate on federal student loans at zero and installing a cost-offset mechanism to make up for the cost to the government. This has the potential to not only protect future borrowers from shouldering a similar debt burden, but will ensure the viability of the way we finance higher education. 

While there is much to celebrate today, we hope that leaders in Washington will recognize this is just the first step.

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About the Hildreth Institute’s recent report on No Interest Student Loans with a Cost Offset:

Earlier this month, The Hildreth Institute released a report outlining one innovative step policymakers can take to address the student debt crisis: remove the interest obligation from student borrowers. With the ‘no interest student loan with a cost offset’ plan outlined in the report, the federal government would lend no interest loans to students, to be paid back with a regular monthly payment over a set period of years. 

To offset the cost of eliminating interest on student loans, the federal government would invest principal repayments in a risk-free asset. The investment and the interest incurred on the investment would generate a return to cover administrative costs and issue new loans. In fact, depending on the length of the investment, the return generated could exceed those costs, which could help provide more need-based grant aid to students.