5 reasons not to cancel student loans
President-elect Joe Biden (Photo by Joe Raedle / Getty Images)
Getty Images
You have heard the reasons why we should cancel student loans. Here are some reasons do not to cancel student loans.
Here’s what you need to know:and what it means for your student loans.
Student loans
Will your student loans be canceled? Some members of Congress and President-elect Joe Biden have proposed to cancel student loans. Of the many student loan forgiveness proposals, the most recent has gained ground: a plan to write off up to $ 10,000 in student loans. According to Senator Elizabeth Warren (D-MA), there are several reasons for canceling student loans. For example, student loan cancellation could help a generation of borrowers start their lives debt free. The latest statistics on student loan debt show that 45 million borrowers collectively owe more than $ 1.6 trillion in student loans. It can help student borrowers get married sooner, start a family, buy a home, and save for retirement. Warren also says that canceling student loans can reduce social and racial disparities.
As Congress, the President, and policy experts debate the future of student loans, it is important to understand both sides of the “student loan cancellation” issue. What are the arguments against canceling student loans?
Here are 5 reasons not to cancel student loans:
1. Cancellation of student loans for everyone excludes over 200 million people
There are approximately 250 million adults in the United States. Of this total, only 45 million are student borrowers. Although this number is significant, it represents less than 20% of the total adult population. Forgiveness of student debt would certainly benefit these people. However, over 200 million adult Americans no longer have, or have never had, student debt. Is it fair to cancel student loans for this subsection of the population, when the majority of the population (who may face other significant financial challenges) are not receiving commensurate financial support? Many federal taxpayers may not want to subsidize the cost of canceling student debt, which could cost nearly $ 400 billion, when they receive no financial benefit.
2. Cancellation of student loans invariably benefits richest Americans with graduate degrees
Who benefits from the forgiveness of student loans? Graduate student debt accounts for over 40% of all outstanding student loans. This includes student loans for medical schools, dental schools, business schools, and law schools. While each of these degrees can cost hundreds of thousands of dollars in tuition fees, student borrowers who hold these degrees tend to earn much higher income. This is not to say that some borrowers with a graduate degree don’t have difficulty repaying their student loans. Many do, and not all student borrowers with graduate degrees earn significant income. That said, canceling student loans for all student borrowers would mean high income borrowers student loan forgivenesseven though they can pay off their student loans. Therefore, student loan cancellation would not be optimally targeted to low-income student borrowers who have not attended university or who are unemployed, for example. The Heroes Act – the $ 3 trillion stimulus package that House Democrats passed earlier this year – included a provision to write off $ 10,000 in student loans for borrowers who “struggle economically.” If lawmakers cancel student loans, they may want to consider imposing an income limit or tying the cancellation of student loans to unemployment or other financial hardship due to the Covid-19 pandemic or the economy, for example.
3. Stimulus checks and unemployment benefits may be better ways to stimulate the economy
Some have argued that canceling student loans is smart policy to stimulate the economy. However, research shows that stimulus checks and unemployment benefits are better ways to stimulate the economy. For example, the Committee for a Responsible Federal Budget claims that canceling $ 1.6 trillion in student debt would produce only $ 90 billion in available cash to spend in 2021 and only $ 450 billion in the next 5. years. Why? The reason is that giving away $ 10,000 student loan does not equal giving every borrower $ 10,000 in cash. On the contrary, with the cancellation of student debt, borrowers save an amount of cash equal to their principal and interest repayments, which could translate into savings of several hundred dollars per month, on average, per example. If Congress wants to stimulate the economy, Congress had better give stimulus checks to all Americans and encourage them to spend.
4. Student loan cancellation is unfair to borrowers who have paid off student loans
If there is a student loan cancellation, only borrowers who hold student loans on the day the student loans are canceled would be beneficial. This means that if you paid off your student loans in full the day before, you wouldn’t be out of luck. Many student borrowers have paid off their student loans by holding multiple jobs, giving up on buying a home, or delaying other important life decisions. Will these borrowers who have also had difficulties receive proportional compensation? Congress could consider a reasonable lookback period to account for student loan borrowers who have paid off student loans for a specific period before any potential student loan cancellations.
5. Cancellation of student loans does not solve the high cost of education
Canceling student loans could bring immediate relief to current borrowers. However, the day after the cancellation of student loans, students will continue to borrow tens of thousands of dollars to finance their studies. While a college or university degree usually results in higher incomes, canceling student debt does not solve the underlying problem: the cost of higher education. Congress can have more impact by focusing on ways to make colleges and graduate studies more affordable.
Pay off student loans
What’s the best way to pay off student loans? As Congress debates the merits of canceling student loans, be sure to act to pay off student loans. There is no guarantee if or when Congress can cancel student loans. Start with these options, all at no cost: