Student loan debt has become a major issue in the United States, with more than 44 million Americans owing a total of $1.7 trillion in student loans. The burden of this debt has led to calls for debt relief, including from President Biden, who has proposed canceling $20,000 in federal student loan debt per borrower. However, banks have been lobbying against student loan debt relief. In this blog post, we will explore why banks are taking this position and what it means for borrowers.
Banks make money off student loans
The first and most obvious reason that banks are lobbying against student loan debt relief is that they make money off of student loans. Banks issue private student loans to borrowers, and they make money by charging interest on those loans. If the government were to cancel or forgive student loan debt, banks would lose out on this source of revenue.
Banks also make money by servicing federal student loans. The federal government pays banks a fee to service student loans, which includes tasks such as collecting payments and processing paperwork. If the government were to cancel or forgive student loan debt, banks would lose out on this source of revenue as well.
Banks argue that debt relief is unfair
Banks have also argued that debt relief is unfair to borrowers who have already paid off their student loans. They argue that canceling or forgiving student loan debt would reward those who have not yet paid off their loans at the expense of those who have already done so. In their view, it would be more fair to provide relief to borrowers who are currently struggling to pay off their loans rather than to those who have already paid them off.
Banks are concerned about moral hazard
Another reason that banks are lobbying against student loan debt relief is that they are concerned about moral hazard. Moral hazard refers to the idea that if people believe they will be bailed out if they make poor decisions, they will be more likely to make poor decisions in the first place. In this case, banks are concerned that if the government cancels or forgives student loan debt, borrowers will be more likely to take out large amounts of student loans in the future, knowing that they may not have to pay them back.
Banks have political influence
Finally, it is worth noting that banks have significant political influence. Banks are major campaign contributors to politicians, and they have lobbyists who work to influence policy decisions. This means that they are able to make their voices heard in the debate over student loan debt relief, and they may be able to sway politicians to their point of view.
What does this mean for borrowers?
For borrowers, the banks’ lobbying efforts against student loan debt relief are concerning. The burden of student loan debt is a major issue for many Americans, and canceling or forgiving student loan debt could provide much-needed relief. However, if banks are successful in their lobbying efforts, it is possible that this relief will not come to pass.
Borrowers should be aware of the banks’ position on this issue and should consider making their voices heard as well. This could include contacting their elected representatives, signing petitions, or participating in protests or other actions aimed at advocating for student loan debt relief.
In conclusion, banks are lobbying against student loan debt relief for a variety of reasons, including their financial interests, concerns about fairness and moral hazard, and political influence. While the outcome of this debate is uncertain, borrowers should continue to advocate for relief and make their voices heard