This week the Mountain Citizen editorial team went head-to-head on the issue of student loan forgiveness.
Student loan forgiveness may lead to long-term economic growth
The Whitehouse has announced a three-pronged plan for student loan forgiveness that has caused predictable division across party lines. Despite the many criticisms of the plan, student debt relief is likely to bolster the economy by increasing college enrollment and competition.
The plan extends the COVID-19-related pause on federal student loan repayment to the end of the year, cancels up to $20,000 in federally held student debt depending on qualification, and restructures the federal student loan system.
It is important to note that this plan only applies to loans held by the Department of Education. This includes direct subsidized loans, direct unsubsidized loans, direct PLUS loans and direct consolidation loans.
Individuals in the bottom 95 percent of American incomes are eligible for debt cancellation under the plan. Borrowers who received Pell grants will be eligible for up to $20,000 in federal student loan forgiveness, while non-Pell grant recipients will be eligible for up to $10,000.
Cash stimulus plans are commonly thought to increase inflation, and many critics of the student loan forgiveness plan claim Biden’s plan will do the same. In fact, a CNBC poll shows that 59 percent of Americans believe student loan relief will worsen inflation.
Once loan payments resume in January, repayment will be capped at 5 percent of an individual’s discretionary income. The plan also changes the definition of discretionary income such that an individual making less than approximately $15/hour will effectively have no monthly payment. For the vast majority of borrowers, this will be a significant decrease in their minimum payment.
Many Americans who receive federal student loans make payments for decades after graduating. Even worse, due to the interest and minimum payment structures of federal student loans, many borrowers find that after decades of making payments, their principal balances have only grown. The new plan takes this into account and covers unpaid interest, which will prevent principal balances from increasing month to month.
Economists point out that the key to inflation is a change in spending habits that leads to a greater amount of currency in circulation. Due to the pause on federal student loan payments since March 2020, this is unlikely to happen. Borrowers have not been making payments for over two years. Individuals who resume payment in January will suddenly have a new bill each month. This money will go to the Department of Education, not directly into public circulation.
These individuals will have less spending power, but increased funding for the Department of Education will result in job creation and improved school conditions nationwide.
Most importantly, the new plan makes college more accessible than it has been in decades as prospective students no longer have to take such a severe financial risk when taking out loans for school.
According to the Bureau of Labor Statistics, the U.S. is currently experiencing a shortage of STEM (Science, Technology, Engineering Math) workers in the government and private industry sectors. The new student loan relief plan presented by the Biden-Harris administration provides a clear path to solving this shortage.
The new student loan relief plan will directly increase college enrollment and competition for enrollment, leading to a more educated workforce overall, an increase in innovation and entrepreneurship and more STEM graduates all of which will positively impact the economy.
It’s another political football
There has been a recent debate about President Joe Biden saying he is going to forgive college loans for thousands of students worth as much as $10,000.
It is another political football going back and forth between the Democrats and Republicans.
But does this mean these college students are getting a free education? Absolutely not. Just like the public school system, nothing in life is free.
Do you think your kids go from kindergarten through high school for free?
No, your tax dollars pay for school buildings, teachers, books, etc.
Nothing is free. Someone has to pay for it. That means more taxes.
We have to teach this young generation some responsibility. We can’t keep spoon-feeding them.
When they buy a house and get a huge mortgage, will the government bail them out then? Or they buy a new car and one for their significant other but can’t pay for it, will Biden come in and pay for that?
They say they will raise taxes on the rich. Well I will believe that when I see it.
Those billionaires and millionaires have lawyers to help them beat the tax system. The middle and lower middle classes pay more than their fair share of taxes.
But if these kids get out and get a good job, they need to learn they have to pay back the loan. How far will they go back for these loans? What about the future? How long will this program last?
Is this feasible? Is it fair to those parents who pay for their child’s education or those who work hard to receive academic and athletic scholarships?
Proponents of student loan forgiveness argue that eliminating some or all such debt would excuse its bruising effects on the economy. This includes reduced home ownership, lower borrower net worth, and hurting small business formation.
Opponents of student loan cancellation argue that widespread forgiveness would provide little economic boost. They say it does nothing to address the underlying propulsion of the growth in student debt.
This decision that cancels outstanding student debt could have a positive impact on the financial health of some Americans, but it also could be costly to the government and the middle class. They say they will raise taxes on the filthy rich, but don’t hold your breath with that statement. The rich can hire lawyers to skate the tax system and make a few donations to keep from paying taxes.
Moreover, besides higher taxes, tuition costs will likely rise, and postgraduate programs will increase their fees. Colleges are not into break-even mode — they want to make a profit.
They have to pay staff, keep up facilities, fund sports programs and much more. That money has to come from somewhere.
It won’t just magically appear. Even though President Biden seems to think it will.