The student loan bubble 'is going to burst'

The call to reduce debt was a rallying cry for Occupy Wall Street activists, but the idea has now become mainstream
In the US, canceling student debt was once a marginal idea, but as credit increases, it's becoming increasingly mainstream.
For her birthday that year, Alicia Davis received one of the best gifts ever: it was reported that around $ 20,000 (£ 14,500) of her student debt would be cleared.
It is a massive relief to resolve an issue that has created threats from collection agencies, raised interview questions, and ruined your credit, making things like buying a car difficult to do.
"This is the best birthday present," recalls the 38-year-old. "I can now function in society."
The forgiveness came after the Department of Education agreed in March to completely cancel the debts of borrowers like Alicia, who proved to officials that their schools had misled them about costs and job prospects.
The move was part of a series of steps the Biden administration took to tackle America's rapidly growing student debt, which reached $ 1.7 trillion (£ 1.2 billion) last year. But he is being pressured by his party to do far more.
Chuck Schumer at a press conference to reinstate a resolution to repay student loan debt up to $ 50,000
Top Democrats, including Senate Majority Leader Chuck Schumer, have urged the president to use his powers to eradicate borrower debt of up to $ 50,000.
The proposal would completely eliminate the debt of more than 34 million people and could cost up to $ 1 billion, according to estimates - as much as the country has spent on housing aid over two decades.
For Washington, acceptance of such demands is a remarkable change as an idea advocated a decade ago by anti-corporate greed activists on Occupy Wall Street and strongly opposed by the Trump administration takes center stage in political debate.
"It's a subject that has really reached a critical moment where it just can't last that long," said Persis Yu, director of the Student Loan Assistance Project at the National Consumer Law Center.
"The fact that widespread cancellation has gained so much steam and is now more of a mainstream idea is an acknowledgment of this crisis."
How did the US get to this point?
More than 42 million people in the United States - roughly one in six adults - have student debt that averages $ 30,000 for a four-year bachelor's degree.
Financial burdens from the loans that bring typical monthly bills close to $ 400 to recent graduates have been blamed for holding them back financially for a generation.
"Will we be another lost generation?"
What Joe Biden wants to do
My $ 88,000 debt due to a "false loan"
Nearly a fifth of borrowers are in arrears, and millions more are in arrears with payments due soon after graduation regardless of employment or income.
The government, which owns more than 90% of the debt, estimates that about a third is never repaid.
One in six US adults is in student debt
Previous efforts to address the problem have centered on borrowers misled by for-profit universities about fees and employment prospects.
The US has also sought to expand programs that reduce the debt of people in certain public professions or link repayment to income. They are approaching a system like the one in the UK, where the average debt burden is higher and the government expects more losses. However, borrowers are better protected from problems like default.
However, the widespread problems with actual access to US programs have led to the demand for broader and more immediate lending, among other reforms.
"We need some major debt relief to erase the books," said Ms. Yu, whose organization recently received federal data showing that only 32 people had actually canceled their debts through income-based repayment plans.
"It's really hard to see who deserves relief and who doesn't," she adds. "If you want to start slicing and dicing who is entitled to relief, I assure you that people who need it will not get it."
"Our system is broken"
Alicia says she is an example of how big the problem is. She won $ 20,000 in debt relief after years of struggling for credit, which she took out when she enrolled in a Florida nonprofit college in 2006 in hopes of starting a career in law enforcement.
Two years later, she says, the school stopped communicating with her.
"It didn't seem right that I should pay all this money and have nothing to show for it," said Alicia, who joined the Debt Collective student loan advocacy group and filed claims with the government to ultimately enforce action.
But even after winning that fight, she still faces the prospect of decades of bills to repay the additional $ 75,000 she took to get her masters degree from a public university while working as a bartender.
Young voters came to Democratic Senator Bernie Sanders also because he focused on issues such as student debt
"I'm not paying for what was a scam, but I'll still have tons of debt," says Alicia, now a private intelligence analyst.
"Our system is broken," she adds. "It's so far now that it's like the housing bubble - it's going to burst. You can only milk so much before they just give up."
"Basically unfair"?
President Biden has endorsed debt relief of up to $ 10,000 - a proposal analysts estimate would affect about a quarter of the outstanding debt, or more than $ 400 billion, and completely remove the burdens for more than 15 million people.
But he has turned down calls to forego up to $ 50,000.
"I won't make it," he said in a town hall earlier this year, arguing that such a move would benefit graduates from elite vocational schools such as doctors and lawyers and that the money would be better spent on lowering tuition fees, for example.
His opposition reflects the concerns of voters.
In a Harris poll of around 1,000 adults in February, only 46% of respondents said they were in favor of some level of debt relief, compared to two months earlier. Republicans have also consistently opposed widespread debt relief.
"It is fundamentally unfair to ask two-thirds of Americans who do not go to college to pay the bills for only one-third," said Donald Trump's Secretary of Education Betsy DeVos in a speech last year.
What will Joe Biden do to address student debt?
Proponents say they remain confident Mr Biden will act, noting the issue is particularly important to young voters and ethnic minority communities who were key to his election victory.
They say they were encouraged by steps that cleared the way for forgiveness, such as asking for a formal legal opinion about his powers to do so without Congress, and that he should take the opportunity for reforms during student loan payments suspended due to the pandemic.
"You have a unique opportunity to actually fix things before people have to start paying their bills again," said Mike Pierce, director of policy at the Student Borrower Protection Center.
"It will be a test of this government's political will to see if they can actually get the job done."

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