The recent decision by the Biden administration to forgive student debt may help students now but won’t fix the student loan crisis in the long term, according to a world-leading expert on student loans.
Professor Bruce Chapman from The Australian National University (ANU) said the only way to make the system fairer and sustainable is to put in place loans where students don’t repay debt until they earn a high enough income.
In the United Kingdom (UK) and Australia, income-based repayments for student loans are automatic and universal, keeping individual debt levels low and affordable for the taxpayer.
"The current United States college student loan system is very poor - it hurts people in all kinds of ways," Professor Chapman said.
"The pandemic has shown us just how unfair the student loan system can be. The ups and downs of labour markets have a huge effect on someone’s ability to repay their student debt.
"In the past, it might have been individual bad luck, but COVID-19 affected the entire economy and a whole cohort of graduates lost their incomes.
"There are some American loan programs based on income but they’re not well known, difficult to apply for and far from universal.
"The changes announced by the Biden administration are a good first step but it’s only a bandaid solution. Long term, reforming the system to one modelled on the UK or Australia would make United States student loans more simple, efficient, equitable and cost effective."
There are 19 times more students in the United States than in Australia but the United States has more than 36 times the student debt. Australia’s total student loan debt is about US$46 billion while America’s stands at about US$1.6 trillion.
Student loan default affects 9 million American borrowers and their families. While Australian and UK students are unable to default because repayments only occur when their income is high enough.
In a New York Times poll, Australia was voted by experts around the world as the country that handles student loans the best.