The Debate Over Student Debt Cancellation
Americans are burdened by student debt more today than ever before in the history of the United States. This situation has caused a lot of stress and financial burden for millions of people, and it has led to a debate about whether student debt forgiveness is a viable solution to this crisis.
Current Student Debt Crisis
According to the latest data, more than 43 million borrowers owe around $1.6 trillion in student loans. Over the past few decades, the average expense of obtaining a college degree has risen dramatically, surpassing the rate of inflation, and making it the second most significant form of household debt, just behind mortgages. In the year 2019, approximately 21 percent of households carried a student debt load with an average amount of around $42,000.
In contrast, three decades earlier, only 8 percent of households were affected by student debt, with an average amount of just $11,500 after taking inflation into account. Due to tax cuts, state funding for college has declined, causing those schools to raise tuition to fill the gaps. Since 1980, college tuition and fees are up 1,200%, while the Consumer Price Index (CPI) for all items has risen by only 236%.
Paired with declining state support for higher education, the burden of student debt has profound consequences for individuals and society, affecting their mental health, career choices, homeownership, marriage, family formation, and retirement savings.
Proposed Solution
To address the growing student debt problem, President Joe Biden has proposed a plan to cancel between $10,000 and $20,000 in current debt for most borrowers. The plan aims to provide debt relief to millions of struggling Americans, reduce racial and economic disparities, boost consumer spending and growth, and align with other developed countries that offer free or low-cost higher education.
Those in favor of student loan forgiveness argue that it has the potential to enable younger individuals to concentrate on securing their financial stability, provide a small boost to the economy, and help address inequalities rooted in race and socioeconomic status. The plan has also faced fierce opposition from some states, lawmakers, and commentators who argue that it is unfair, costly, risky, or illegal.
For Student Debt Forgiveness:
Economic Stimulus: One of the main arguments for student debt forgiveness is that it would be a form of economic stimulus. With more than $1.6 trillion in outstanding student debt, forgiving some or all of that debt would free up a significant amount of money for borrowers.
Supporters of student loan forgiveness maintain that abolishing some or all of the outstanding debt could help alleviate the detrimental impact it has on the economy, which includes impeding home ownership, lowering borrower net worth, and hindering the creation of small businesses. This would enable them to put that money back into the economy by buying goods and services, which would stimulate economic growth.
Social Justice: Another argument for student debt forgiveness is that it would be a way to address social justice issues. Studies have shown that the burden of student debt falls disproportionately on low-income and minority individuals. Forgiving student debt would be a way to provide relief for these groups and reduce inequality.
Education Access: Student debt can be a significant barrier to higher education access. By forgiving student debt, more people would be able to pursue higher education without being deterred by the financial burden of student loans. This would lead to more opportunities and a more educated workforce.
Against Student Debt Forgiveness:
Moral Hazard: One of the main arguments against student debt forgiveness is that it would create a moral hazard. This means that borrowers who took out loans with the expectation of having to pay them back may feel that they do not need to repay their loans if they know that they will be forgiven. This could lead to a culture of irresponsibility and a lack of accountability.
Unfair to Those Who Paid Off Their Loans: Another argument against student debt forgiveness is that it would be unfair to those who have already paid off their loans. Many people have worked hard to pay off their student loans, and forgiving debt would be a slap in the face to those who have sacrificed and made financial decisions based on their loans. This could lead to a sense of injustice and resentment among those who have worked diligently to paid theirs off already.
While people may not object to subsidizing debt relief for a newly employed social worker earning a modest $25k a year, they may hesitate at financing the education of a business school graduate who’s about to embark on a lucrative career on Wall Street.
Cost: Student debt forgiveness would be expensive, and someone would have to pay for it. Some argue that forgiving student debt would be unfair to taxpayers who have not benefited from higher education. It could also lead to higher taxes or other forms of government revenue to cover the cost of the forgiveness.
In essence, it entails transferring the burden of this debt from individuals and families to the federal government, and ultimately to taxpayers – including those who may have scraped and saved to finance their own education, or the majority of Americans who chose not to pursue college.
To Forgive or Not To Forgive
The student debt crisis in the United States is a complex issue with valid arguments on both sides of the debate. The decision to forgive student debt would require a careful consideration of the economic, social, and moral implications of such a policy. While student debt forgiveness may be a welcome relief for many borrowers, it is essential to weigh the potential long-term consequences and costs of such a policy.
