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Student Loan Forgiveness: Can The US Erase Student Debt? - YouTube
Channel: CNBC
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Americans owe $1.57 trillion
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in student debt.
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That might be a hard number
to wrap your head around. What
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it comes out to is $20,000 to
$25,000 for the typical borrower, but of
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course that's not
evenly distributed.
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I have $69,812, $47,000, $350,000.
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More than 600,000 people carry higher
burdens of $200,000 or more.
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Even people over age 60 had $85 billion
in student debt in 2017, in part
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to help children or
grandchildren get through school.
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Altogether, it's more than all the
outstanding credit card debt in the
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country.
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I think there's a critical mass of
folks who who hope someone will do
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something about it.
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And this is a case where because
the federal government holds about 90
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percent of all outstanding student debt
in the country it's easier to
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make a case for them
to do something about it.
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Whereas if everyone didn't want to pay
their car loan or their mortgage
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it's harder for the government
to do something about that.
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But there are questions
about who would benefit.
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Student loans are largely
held by relatively affluent
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families.
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So what would it take for the
government to actually erase student debt?
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Democratic presidential candidates are
talking about it.
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But is it a good idea?
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Let's start at the beginning.
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Student debt has been around for a
while but it's really boomed since
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the turn of the century.
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And the government holding that much
debt is an even newer phenomenon.
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As part of Obamacare, the
government stopped insuring private bank
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loans and took a bigger
role in lending directly.
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The Obama administration hoped the move
would save money for the
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government and help offset the costs
of Obamacare during the recession.
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As the Federal Reserve kept interest
rates at record low levels,
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students could borrow at
a pretty good rate.
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By 2013, cries for lower
interest rates grew louder.
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Right now a big bank can get
a loan through the Federal Reserve discount
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window at a rate of about
three quarters of one percent.
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But this summer a student who's trying to
get a loan to go to college
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will pay almost 7 percent.
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That isn't right.
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Congress ended up passing rare bipartisan
legislation to cut rates for
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student borrowers, but they were
still significantly higher than what
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banks paid.
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Today, interest rates on various
federal loans rang between five
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percent and about seven and a
half percent, higher than the average
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30-year mortgage rate.
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We've seen a dramatic increase in
the amount that students are borrowing
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to go to college.
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Obviously if individual students are
borrowing more because education
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is more expensive but we're also
seeing that more people are borrowing
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to go to college.
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Another factor that kind of contributes
to that is also the budget
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reductions at the state level.
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If you think of education as an
investment, the return on that that
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comes from the increases in
employment opportunities and earnings
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generally more than outweigh
the upfront costs.
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So where's the problem?
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Where the system kind of breaks down
is that we have a tremendous
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problem with college completion
in this country.
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A third of people, a very large
number of people in our economy, are
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paying for college, in many cases taking
on debt to do that, but
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then not getting the earning bumps
that comes along with having a
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degree, which means they're having a
hard time paying back their debt.
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And so we're seeing that in the
increases in student loan default rates
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Even though it's unclear how much
it has hit the economy,
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experts believe the high level of
student debt will increasingly be a
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drag on growth.
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If all the sudden I'm not having
to make a regular student loan payment
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that was part of my budget, that's
maybe a couple hundred more dollars
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in my pocket on a monthly basis
that now becomes fluid and flexible.
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Evidence suggests that a decent portion
of that would be spent.
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Even the Fed chair has weighed in.
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As this goes on and as student
loan continues to grow and becomes
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larger and larger, then it
absolutely could hold back growth.
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And for the most part it's
almost impossible to have student debt
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forgiven even in bankruptcy.
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I'd be at a loss to to
explain why that should be the case.
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Since the government is charging
interest on these loans,
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it stands to make a potential
profit off of student borrowers.
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That profit number is disputed
based on different accounting methods.
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But many believe the government should
cut interest rates to subsidize
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loans instead of raising revenue.
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We should not be profiteering off
working families who are trying to
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send their kids to college.
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So this all brings us to the
question: Could the government just simply
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forgive America's student loans?
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The simple answer is yes.
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The hard part, it would take a
new law in a potentially divided
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Congress. 2020 Democratic candidate Elizabeth
Warren is the first one
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to put out a detailed plan.
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The senator's proposal would eliminate up
to $50,000 in debt for people
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with household incomes under $100,000,
while giving smaller amounts of
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relief to people
with higher incomes.
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The cancellation of student loan debt of
up to $50,000 for 42 million
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Americans. Entrepreneur Andrew Yang and
Senator Cory Booker have also
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said they would push
for loan forgiveness plans.
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Obviously you've got a lot of voters out
there with a lot with the debt
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and they're saying well if I vote for
this candidate all of a sudden my
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student loans are going to go away.
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That's a pretty attractive political, you
know, piece to dangle out
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there. I think it leaves out
a lot of unanswered questions.
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Even if I'm a borrower, am I
personally paying for as a taxpayer,
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right? Because borrowers
are taxpayers too.
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So it's not like this
money is coming from nowhere.
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It is on the mind of voters like
Liz Smith, a 24-year-old who works in
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the advertising industry in
Des Moines, Iowa.
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Smith, who took on more than, $30,000
in debt to get through college
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plans to participate in
the Iowa Democratic caucuses.
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I recently purchased a car and I
am nervous about having a car payment
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and a student loan payment at
the same time, but it's unavoidable.
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You have to get to work and you
also have to pay back your loans.
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Erasing student loans would likely
be an economic stimulus.
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Forgiveness of the outstanding student
loan balances with would without
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question be an economic stimulus.
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One study estimates government forgiveness of
all the loans and holders
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could boost real GDP
by around $100 billion.
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The question is what is the most
efficient way of providing stimulus to
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the economy.
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And my sense is that forgiveness of
student loan debt is is not the
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most efficient option.
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But I think you are also going to
see some concerns from the left that
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if you were wiping out all the
debt that that would be a pretty
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regressive thing to do.
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And once you look at the numbers,
this is, you know, looks like the
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Trump tax cuts in terms
of who it benefits.
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So it's a little hard to be out
there saying well I'm against tax cuts
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for the wealthy but at the same time
want to give this this big handout
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to the wealthy.
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That's where things get complicated.
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The ones with the most debt are the
ones who tend to have the highest
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earnings potential.
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So if we want to do is stimulate
the economy we can think of better
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more efficient ways to do that
than a sweeping program that forgives
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existing student loan debt.
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Under Warren's proposal, debt relief would
end at $250,000 in income.
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Her plan would cost one and a
quarter trillion dollars over 10 years.
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I think there is a risk of spending
over a trillion dollars in a way
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that's not particularly targeted beyond giving
it to folks who happen
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to borrow to go to college, or in
a lot of cases to go to graduate
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school, and then for whatever reason
haven't yet paid it off.
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It could raise concerns about who
gets those benefits, it would raise
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concerns about fairness.
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Of course fairness is a central
question in the loan forgiveness debate.
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The student loan forgiveness.
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What about people who took
loans and paid them back?
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What are we going
do, give them reparations?
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This is a giveaway to millennials who
have had their parents and family
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and society pay for their bad
decisions for their entire life.
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There already are ways for people to
get loan relief in the U.S.
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Many borrowers have income based repayment
plans which can cap monthly
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loan payments at about
10 percent of income.
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But... What we're seeing is that students
who really need the benefit of
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these income adjusted repayment plans aren't
aware that they exist or
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if they are aware they exist are
having a hard time enrolling in them.
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In other countries, college is
cheaper to begin with.
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But on top of that, they found
creative ways to help the people that
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really need relief.
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Like in Australia.
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It's done through the tax system.
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So when your taxes get withheld from
your paycheck every week they also
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take out your student loan payment.
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And what that means is when you
lose your job the government doesn't
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come after you to pay your taxes.
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You don't pay your taxes
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'cause you're not making money anymore
because you lost your job.
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So this works the same way with
your student loans in countries like
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Australia. In the UK, students don't
have to start making payments on
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their debt until they make
a certain amount of money.
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In Sweden, borrowers have a longer period
to pay back loans than they
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do in the U.S.
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On the other side, the Trump
administration has been more focused on
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reducing the costs of college and
holding schools more responsible for
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educational outcomes.
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Student loan debt.
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I'm going to work to fix it.
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There is some evidence that the cost
of higher education has started to
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plateau. But that won't help the
people already saddled with thousands
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of dollars in debt.
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That's who politicians
are talking to.
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I do think it should be
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focused on the people that
need it the most.
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So whether that be their potential
future income or what their families
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weren't able to contribute
that, you know,
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having huge amounts of student
debt would really impact
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them and their future success
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