President Biden had hoped that a sweeping student loan forgiveness program would be one of his signature achievements, but the courts blocked his plan to cancel up to $10,000 in federal college debt for millions of borrowers (and up to $20,000 for Pell Grant recipients).
The Supreme Court is keeping the program on ice until it hears the case in February, but Biden is staring down a 6-3 conservative majority — and the plan’s proponents are not optimistic. Is it a good thing that the president’s student loan forgiveness plan will probably die in the courts, or will the economy benefit if it somehow survives? Let’s explore the question and the possible outcomes.
Unsurprisingly, Americans Disagree on the Subject
A new GOBankingRates survey of more than 1,000 American adults reveals a broad variety of opinions on the subject.
Around 44% believe that student loan forgiveness would have only a minor impact on the economy, with a roughly even split between those who think that minor impact would be good or bad. Around 16% expect it to have no impact at all.
The remaining 40% believe that college loan forgiveness would have a major economic impact — 24% worry that it would do significant damage and just 16% believe it would bring significant benefits.
According to the U.S. Census Bureau, roughly 38% of the country earned either a bachelor’s degree or an advanced degree. That’s nearly identical to the roughly 39% of respondents who think the economy would benefit from forgiving student debt.
Also unsurprisingly, the oldest Americans — those least likely to have gone to college and most likely to have paid off any loans if they did — are the group that most opposes the plan by far. Those most in favor of it are the 25-34 demographic, which happens to hold most of the country’s student debt.
Now let’s get into what the experts think…
It’s a Tough Sell for America’s Non-Degree Majority
The Congressional Budget Office (CBO) estimates that Biden’s plan would cost $400 billion in taxpayer money. That’s a tough pill to swallow for the countless people who skipped college because they weren’t sure the degree’s ROI would ever outweigh the debt required to earn it.
Biden’s plan requires them to pay for other people to get the degree but dodge the bill.
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“I think student loan forgiveness is generally not good for the economy, or society in general, because it sends the wrong message,” said Andrew Griffith, CPA, associate professor of accounting at the LaPenta School of Business of Iona University.
In October, Intelligent.com published a widely circulated study that didn’t help the administration’s case. It found that nearly three out of four loan forgiveness applicants planned to use the money for non-essentials like vacations, new smartphones and even drugs and alcohol.
“I do not believe student loan forgiveness would make the economy stronger,” said Tom Siomades, chief investment officer of AE Wealth Management. “Most student loan holders said they would use the ‘extra’ cash to travel and dine out. This flies in the face of the reasons given for loan forgiveness, which was that the loans were a financial burden preventing the borrowers from getting on with their lives and buying a house or getting married and starting a family.”
Siomades also argued that a $400 billion injection of what recipients see as found money could add inflationary pressures to all the wrong segments of the economy — most notably airlines, hotels and restaurants.
Millions of Struggling People Would Get Real Long-Term Relief
On the other hand, proponents say the country needs an educated population to compete in an information-based global economy, and that years or decades of debt shouldn’t be the only path to new-economy jobs.
Advocates say that Biden’s plan benefits only low- and middle-income households, and that if there are billions available for things like agricultural subsidies that make fresh vegetables expensive and high fructose corn syrup cheap, then why not invest in ordinary people?
“The government has bailed out auto manufacturers, airlines, banks, and more,” said Jay Zigmont, Ph.D., CFP, and founder of Childfree Wealth. “Why not bail out [people with] student loans? While I don’t agree with the way they went about forgiveness, the average American needs a break.”
Sarah Jane Paulson, CFP, founder of Valkyrie Financial, sees many of the millennials she works with missing important financial milestones because of college debt.
“In my view, relieving student loan debt is crucial for the next 60 years of our economy,” she said. “If we do see a recession in 2023, releasing borrowers from their student loans will unlock a flood of money that could certainly benefit our economy.”
Even Those Opposed Agree That the System Must Change
Most experts on both sides agreed that the current system is unfair, inequitable and unsustainable — even if they disagree on how to fix it.
“What we really should do is tackle rising tuition and the need for student loans in the first place,” said Zigmont. “But for now, we can at least give people some breathing room. If we can’t do forgiveness, we probably need to revise the bankruptcy rules to allow for an easier discharge of student loans.”
Griffith thinks that student loan forgiveness should be available only to those who intentionally pursue a career path with below-market wages that serves the public, like a government agency or non-profit that focuses on serving the disadvantaged.
But he, too, thinks the system is fundamentally flawed.
“The nation needs to take responsibility when regulatory oversight of an aspect of our economy fails to protect those who are being exploited by its predators. In that situation, a government agency should step in to right the wrongs for the victims and it should change the regulatory environment to prevent this from happening again,” he said.
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