Home / Markets / Cryptocurrency /  Can Bitcoin be the solution for US student loan?

Millions of students in the United States choose loans as their resort for education. Student loans are the second largest consumer debt category in the country, after mortgages. In a major relief, US President Joe Biden announced to forgive student loans up to $10,000 and $20,000 ahead of the midterm elections. While many experts have given thumbs up to the move, however, some believe this will not be enough. Dennis Porter, CEO, and Co-founder of Satoshi Act Fund proposes Bitcoin as the solution for US student loans.

Explaining why Bitcoin is the solution for US students loan, Porter tweeted, "instead of forgiving $10,000 in student debt, Biden should have given each person $10,000 in Bitcoin, locked up for 10 years in a smart contract that pays off the remaining balance of the student debt once it's released."

"Problem solved, no more debt," Porter said.

Can Bitcoin be the solution for US student loans?

Porter's statement grabbed the attention of many Twitterati. The majority of them feel Bitcoin is not the needed solution for US student loans.

A user replied to Porter saying, " I know you think this is smart… but what do families do about the debt they can’t pay for those 10 years. Bitcoin is great but it’s not The Solution for everything. Read the room, my guy."

While another user said, Bitcoin has got the potential to solve monetary problems.

Another user commented stating that 'you simply can’t cherry pick when to accept loan forgiveness or subsidy from the fiat lords. You are either a self-sovereign free individual or you belong to the Matrix."

Meanwhile, another user liked the idea, however, believes not necessarily Bitcoin but instead a US-backed blockchain to be a better option for smart contracts and further repaying student loans.

Also, in the thread, Porter tweeted, "You can lock up bitcoin with a smart contract on bitcoin. It’s literally the centerpiece for the existence of the lightning network." He also released a Hash Time-lock Contract (HTLC) link.

As per the Lightning Engineering doc, Hash Time-lock Contracts (HTLCs) are the centerpiece of any Lightning transaction. While your Lightning Network channel is a 2-of-2 multi-signature address with funds on the bitcoin blockchain, an HTLC is an output of an unconfirmed transaction to a separate “smart contract".

Under the doc, it said, the smart contract can be spent by revealing a “secret’ together with a valid signature of the recipient. While it can be redeemed after a set amount of time together with a valid signature of the sender. Also, smart contract can be spent immediately by someone presenting a revocation key.

Ideally, this transaction never needs to be committed onto the blockchain. Instead, when the preimage is revealed by the recipient, the balances of the channel can be updated, creating a new commitment transaction and invalidating the previous one, it said.

So let's understand what is Bitcoin Smart Contract.

Bitcoin smart contract:

As per CoinGeek's website, a Bitcoin smart contract is a digital agreement. It is a software code stored and then executed across all nodes in the Bitcoin (BSV) Blockchain network.

Here, the creator of the smart contract establishes the rules and is agreed upon by the involved parties. Once the contract is saved onto the blockchain, it will remain there forever which means the code at that location will never change. The Bitcoin (BSV) ledger stores and replicates the agreement giving it security and immutability.

Further, it explains that Blockchain smart contracts not only define the rules around an agreement. Smart contracts are also responsible for automatically executing those rules and obligations. There is no central authority necessary to run the software to function seamlessly.

Biden's student loans relief

On Wednesday, Biden announced a targeted debt relief as part of his government's campaign commitment.

Under the Biden Administration's Student Loan Debt Plan, the US President through his Twitter account said, "If you received a Pell Grant while in college and make less than $125,000 a year, you are eligible for up to $20,000 in debt reduction."

Simply put, if you went to college on Pell Grants, then your student loan up to $20,000 will be forgiven. While to students who didn't receive Pell Grants, Biden announced forgiving debt up to $10,000. However, the forgiveness only applies to those whose earnings are less than $1,25,000.

Further, Biden extended the student loan pause on final payment through December 31, 2022. Also, students having undergraduate loans can cap repayment at 5% of their monthly income.

Biden said, "My plan to address student loan debt is responsible, fair, and focuses the benefit on middle-class and working families."

US student loans:

According to data from Federal Reserve, outstanding student loan debt stood at $1.59 trillion in the second quarter of 2022, roughly unchanged from the first quarter.

In June this year, a Federal Reserve update showed that most student loan borrowers owe less than $25,000 on their loans. The median amount of education debt in 2021 among those with any outstanding debt for their own education was between $20,000 and $24,999. One-quarter of student loan borrowers had less than $10,000 in outstanding student debt. Student debt balances vary across different demographic groups. Borrowers with an income of less than $50,000 a year were more likely to carry lower balances of student loan debt.

Further, the data revealed that not all education debt is in the form of student loans. 96% of those with outstanding debt from their own education had student loans, but many borrowers had other forms of education debt as well. This includes 19% who borrowed with credit cards, 4% with a home equity loan, and 11% with some other form. Collectively, 24% of borrowers had one or more forms of education debt besides student loans for their own education.


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