Student loan waiver: what advocates (and naysayers) are saying

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Americans’ group student loan burden has nearly doubled over the past decade, topping $ 1.7 trillion this year. While everyone can agree that this causes problems, political experts, economists and the general public are less in agreement on what to do about it.

Enter: the student loan cancellation debate. The conversation has died down as President Joe Biden’s administration examines whether the cancellation without Congressional approval is legal. Biden has repeatedly stated that he supports modest debt relief, ideally passed by Congress. But in the months since his election, lawyers repeatedly pressured him to go further and use the executive branch to write off $ 50,000 for each borrower.

The idea of ​​a large forgiveness of student loans has been around for at least the Occupy Wall Street protests ten years ago. But it only gained Main Street attention within the Democratic Party after the 2016 presidential election, and attention to the proposal has increased over the past year.

There are many ways – some clear and measurable, others anecdotal – that student debt has shaped a generation of students and their families. Yet, to navigate the arguments for and against universal student loan cancellation, one must analyze the competing narratives of those who would benefit most from paying off the debts of millions of Americans.

Here is a guide to the most common points on either side of the debate. Note: Here we are focusing on the proposal to write off up to $ 50,000 in federal loans, which will not wipe out all of the $ 1.7 trillion outstanding, but it is one of the most ambitious proposals under consideration.

The Case for Universal Student Loan Forgiveness

Advocates for canceling student loans have rallied around issues of social justice, a failing higher education funding system and the need for a fair economic recovery from the pandemic. Here are their most common arguments:

Canceling student loans would prevent the racial wealth gap from widening. Data showing the disparate effects of student debt on white and black college students has been piling up for years. Here’s one of the more striking statistics: After twenty years of repayment, the typical white borrower has repaid around 95% of their original balance, while the typical black borrower has only repaid 5%. The result is that student debt worsens the racial wealth gap among young borrowers, and canceling much of it would counteract that.

It is one of the few levers that the executive can pull alone.It is still under legal debate (the Departments of Education and Justice are studying it for the White House). But the argument goes: The Higher Education Act gives the Secretary of Education the power to create, change and write off federal student debt. It’s a power former President Trump and President Biden have already used in asking the Education Department to extend an interest-free payment break during the pandemic. So is student debt cancellation the best way to tackle racial wealth inequalities? Probably not. Will this solve all the problems, like too many defaults and confusing repayment plans, within the student loan system? Definitely not. Is this a change that can be implemented quickly and easily? According to lawyers, yes.

This would help economic recovery. College graduates, as a group, fared much better financially than those without a college degree during the upheaval of 2020. But not everyone with student debt. In fact, the groups of borrowers who tend to struggle the most against their debt were also among the groups disproportionately affected by the economic collapse of the last year, notably those who borrowed for college but did not. never graduated, and black and Latino borrowers. Canceling student debt would put more pocket money in the hands of millions of Americans, while helping those populations recover from a patchy recession.

It would help borrowers build wealth. Even though borrowers are on the higher end of the income spectrum (which is true for college graduates in general), many say their debt makes it difficult to turn that income into more lasting wealth, like saving money. for retirement or buying a house. In fact, more than half of all student loan debt is held by borrowers with zero or negative equity. Cancellation of $ 50,000 in student loans per borrower would wipe out the total debt of about 80% of federal borrowers, and millions of borrowers would jump to positive equity.

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The case against universal student loan forgiveness

Opponents of debt cancellation, including conservative analysts and some centrist liberals, tend to point out that student loan borrowers are not a homogeneous group. Some have trouble, yes; but many are doing very well. Here is an overview of their case:

Writing off student debt helps the wealthiest disproportionately. Because people who go to college tend to come from better-off families than those who don’t, and college graduates tend to earn a lot more in their careers than those who do. don’t have a degree, economists call universal debt cancellation a political regression, in that the highest incomes would get a larger portion of the total money spent on cancellation. Almost a third of all student debt is held by the richest 20% of earners, for example. Supporters say loan cancellation is gradual, while opponents continue to stress how regressive it is. The analysis depends on whether you look at borrowers’ income – which makes it appear regressive, as higher incomes benefit disproportionately – or wealth – which makes it appear progressive, as it would increase the net worth of the borrower. many borrowers and would further reduce the monthly debt burden. for low income borrowers.

It is not a good economic stimulus. The best stimulus targets people who will go out and spend the money immediately; thus, stimulate the economy. There are two reasons why debt cancellation isn’t the most efficient way to do it, opponents say. First, as noted above, a large portion of the benefits would go to the higher earners. And when high incomes get a cash boon, they tend to save the money rather than spend it. The second reason is that if the government forgives $ 50,000 in debt, it is not writing you a check for $ 50,000. Instead, your cash flow would be the amount – say, $ 300 – that you pay for your loans each month. It is not that canceling loans would not have any stimulating effect on the economy, but simply that it would not give the government the best value for money. An analysis by the Committee for a Responsible Federal Budget estimated that cutting $ 1.5 trillion in student loans would likely increase economic output from $ 115 billion to $ 360 billion.

It is unfair and risks creating moral hazard. College graduates, even those who are in debt, tend to do better in a variety of measures than those who are not in debt because they did not go to college. It is a central argument for the opponents. Why are students more deserving of this money than adults who struggle to earn a living wage because they didn’t go to college? Why do the people who have not paid their debt deserve it more than those who have saved and saved to pay for their university studies out of pocket or to repay their loans? And what happens to borrowers in the future? are they going to take out loans irresponsibly on the assumption that it is less risky because the government will do another round of forgiveness?

It does nothing to resolve the underlying problem. These prospective student borrowers play a role in another common argument against cancellation: It does nothing to address the high cost of a college education or the fact that some college degrees don’t lead to well-paying jobs. If we eliminate all that debt today, it is believed, it will start growing again tomorrow.

Existing forgiveness options are already available, so much of the debt is already in the process of being canceled. Almost all federal borrowers can already sign up for specific repayment plans that offer an eventual discount. If these plans worked perfectly, then in theory people would not default on their loans and repayment would not be a burden holding borrowers back. The big catch? The system is a confusing maze for borrowers, who have to overcome hurdles to enroll and stay enrolled for at least 20 years. In addition, debt often increases in these plans, adding to the psychological burden of feeling that your debt is inevitable. Those who oppose universal debt cancellation and suggest building on these plans instead believe Congress should pass legislation focused on solving the problems with these income-driven plans.

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