With a record balance of $1.8 trillion in outstanding student debt, it is clear that students and graduates in the US are facing an unmanageable crisis. The Biden-Harris plan to forgive student loans up to $20,000 is an admirable effort to alleviate some of the pressure they face.

However, long-term reform is necessary to ensure that future generations have access to affordable higher education without taking on crushing debts. In this blog post, we explore why loan forgiveness should be only one component of a comprehensive program of reforms for solving the national problem of high education costs and unsustainable student loan burdens.

The State of Student Loan at a Glance

At a glance, it's clear that student loan debt in the US is an issue of overwhelming scale. With 43.8 million borrowers owing federal student loans and a national average balance of $37,338 (or up to $40,114 including private loan debt), a growing number of Americans have been struggling with financial challenges due to their loan balances for years now.

Unfortunately, this situation has only worsened over time. The rising tuition costs, coupled with the skyrocketing inflation and hiking interest rates, have been adding fuel to the fire.

The student loan relief program proposed by the Biden-Harris administration set out to forgive $20,000 in debt held by eligible borrowers. While this maneuver may help some graduates deal with their financial burden, the core issue is left unaddressed. Below, we’ll look at the reasons why more comprehensive reforms are needed.

Why Student Loan Reforms Are More Needed Than Ever

Student loan debt in the U.S. has nearly doubled since 2008 and continues to rise every year as tuition costs and interest rates continue to increase. Forgiveness might give a temporary sense of relief, but it won't tackle the root problem: student loan reforms are necessary to create lasting changes that will help lower future borrowing costs and reduce existing debt burdens.

In some countries, such as Finland, reform models that involve no-interest loans and income-based repayment plans have already been successful. While not all aspects of these models are easily introduced, the US government can provide more sustainable solutions for current and future borrowers by streaming repayments, avoiding driving up tuition costs and providing financial safety nets.

Let’s look at what these reforms may look like below.

Student Loan Forgiveness Fails To Address the Core Issue

Forgiving student loans may offer temporary debt relief for current borrowers, but it fails to take into account the underlying issue at hand, which involves high tuition costs and a lack of available financial support.

It also comes with serious side effects such as lowering a borrower's credit score by 5-10 points, which would then make financing options limited for graduates.

Setting Clear Foundations, Regulations & Guidelines To Finance Higher Education

Setting clear foundations, regulations, and guidelines is essential to overcome the hurdles of financing higher education. By streamlining the process of taking out loans, reducing fees, and standardizing payment plans, it is possible for current and future students to better manage their finances.

In turn, this can provide prospective pupils with more education opportunities and allow them to complete their educational journey without having to compromise or drop out of college because of the steep costs involved.

Making Repayments More Affordable for All Borrowers

Although options such as a custom student loan by SoFi make it easier for borrowers to lower interest rates and customize their repayment plans, many students and graduates still struggle with repaying their debt.

This issue is aggravated by the events that are shaping today’s economy, including rising interest rates, record-high house prices, growing inflation, and higher consumer prices. In turn, current repayment schemes are often unattainable under the current financial circumstances.

Because of this, reforms should focus on restructuring student loan repayments. This should involve providing clearer terms, easier repayment tools (i.e.: online platforms and apps), and customized repayment plans that meet the individual needs of each student.

Preventing Future Borrowing and Tuition Costs From Increasing

Although the current student loan forgiveness program may represent a helping hand for today’s students, it does not protect future borrowers from the downsides of crippling student loans.

To avoid future borrowers sinking into debt, it is important to introduce regulations to prevent tuition costs and interest rates from climbing any higher. Reforms should also aim to safeguard students from inadequate lending practices and unscrupulous lenders.

This can help ensure that all future generations can access quality education at an affordable price.

Keeping Today’s Graduates Ahead of Dark Economic Times

Providing loans that are manageable and reflect the current economic times allow students to stay afloat during economic crises and recessions. This is particularly important today, as the global market is more unpredictable than ever.

What’s more, it is estimated that a growing percentage of the population will require upskilling to remain relevant in today’s job market. Making education more affordable may help the US build a workforce that is competitive on an international scale.

Boosting the Economy as a Whole

The student debt relief program introduced by the Biden-Harris administration may allow graduates and borrowers to repurpose $20,000 towards other purchases. While this may help the economy in the short term, it does not offer a sustainable, long-term solution. This is especially true as inflation and consumer prices increase.

Oppositely, a structured reform can spur productivity, innovation, investment, and home ownership all across the nation's largest demographic, college graduates. Reforms may also help save government resources on mortgage interest deductions, Social Security outlays, and Medicaid spending due to economic growth. It’s time for student loan reforms that define sustainable debt relief and ensure a long-term healthy economy.