The huge student loan debt in this country – estimated at around $ 1.6 trillion – is thwarting much of its young population. Many borrowers delay starting a family because they cannot afford the expense of raising children. They also don’t buy homes or cars, which would stimulate the economy.
This has led some advocates to call for debt cancellation, with President-elect Joe Biden pledging during his campaign to write off up to $ 10,000 for each borrower. More Liberal Democrats are fighting for up to $ 50,000, and the Progressive Wing says all the existing debt must be canceled.
Such a bailout, however, would be extremely costly; to forgive up to $ 50,000 would cost around $ 1 thousand billion. A disproportionate amount of this relief would go to the highest paid employees, who are more likely to attend college, especially a private college. And the money would only help this crop of debtors. Future students would still be hooked.
There are many ways to provide relief to borrowers, but a blanket rebate would be the least fair and cost effective. Instead, the government should help graduates most in need, those who lost their income during the pandemic, and those who took steps to reduce their debt by attending public colleges and working through their university years. And he should fix an existing program to cut payments that didn’t work at all.
General forgiveness would be particularly problematic at a time when so many families face far greater financial challenges than not being able to buy a house or a car. The pandemic has left millions wondering where their next meal will come from and how to keep a roof over their heads.
Supporters of debt cancellation say it would stimulate the economy if borrowers could spend their income on other items. Predictions as to whether the country would earn more than it spends, however, are mixed. The other argument is that higher education is a public good, so its cost should be borne by society which benefits from a well educated population. That may be true, but in this case, what it takes is tackling the cause of student debt, not the symptoms: offering a college education in this country costs more than nearly everywhere else in the world.
Many countries in Europe can offer free or very low cost college education because they not only offer increased public support, but also control costs. Students in Europe and Canada are much more likely than Americans to live at home and attend school; the class sizes are much larger, the sports teams much smaller, and the ancillary services, a major factor in the cost of university studies in the United States, much rarer.
Canceling a loan also raises questions of inherent fairness. People who acted particularly cautiously – for example, by attending cheaper schools and limiting their borrowing – are the ones who would end up receiving little or no help.
Meanwhile, the nation would immediately start producing more graduates with insurmountable debt.
Of course, there are low-income students for whom no frugality would allow them to complete college without a loan – and these are the people who need the help the most. They can’t afford living expenses, even at home, or a few thousand dollars a year for college.
Therefore, need-based relief, rather than blanket loan forgiveness, is both prudent and justified. But the Biden administration should also consider other ways to reduce the debt burden without breaking the bank.
The existing civil service loan forgiveness program cancels the debt held by students who engage in government or nonprofit work after they have paid off their loans for 10 years. But the program was a mess. People were paying off the wrong types of loans without realizing it, were misled into thinking they had a loan that could be canceled, and in many cases their requests for relief were wrongly denied – in fact, only 1% was approved in the first round. . The first point of the matter should be to solve this problem.
Another program allows students to limit their loan payments to a percentage of their income, with any outstanding balances written off in 20 or 25 years. The biggest burden here isn’t the main one, it’s how interest accumulates to perpetuate a borrower’s debt. Lowering the interest rate would provide significant immediate relief and reduce defaults.
Again, student debt forgiveness is a short term solution. Ultimately, the answer lies in preventing overwhelming debt in the first place.