Canceling Student Loan Debt - Why or Why Not?
A few weeks ago, the Biden administration announced that the student loan payment pause will be extended yet again until August 31, 2022. This is the 6th time the pause has been extended since it was originally announced by former president Donal Trump in March of 2020. President Biden stated “If loan payments were to resume on schedule in May, analysis of recent data from the Federal Reserve suggest that millions of student loan borrowers would face significant economic hardship.” While that is certainly up for debate, what is more controversial is the decision of whether or not to cancel a portion of student loan debt for good. Let’s take a dive into what this would mean for the American people and our economy.
Arguments for Canceling Student Loan Debt
Advocates for canceling student debt argue that the financial burden college graduates experience after school can be hard to overcome. They feel that canceling a chunk of debt would mitigate the harmful affects that the debt bears on the economy like reduced home ownership, lower borrower net worth, and limited opportunities for small businesses to form. They also state that canceling student debt would shrink the racial wealth gap.
Advocates also argue that canceling the debt would allow young professionals to invest for their financial future, as well as provide a boost to our economy. Overall, they believe eliminating a majority of the 1.75 trillion dollars worth of student loan debt would be of great benefit to the American people and our economy.
Arguments Against Canceling Student Loan Debt
Those opposed to student loan debt cancellation argue that the economic effect would be very minimal or even negative relative to the projected cost that would be payed. They believe that canceling the debt would disproportionately benefit high-income households, while the groups that really need the financial break would be forced to help foot the bill. Rather, some believe that soaring tuition prices should be addressed instead of debt cancellation.
Not only do those opposing the cancelation believe that the it would be helping the wrong groups of people, but some also believe that the economy would take a hit. Some argue that the extra money borrowers would now save would cause an increase in the already sky high inflation rates. The added spending on everyday goods could cause the demand and naturally the prices of goods to increase more than they already are. Overall, those opposed believe that cancelling student loan debt would damage our economy, and set the wrong standard.
Where do I Stand?
I should preface my personal opinion by stating that I carry as much student loan debt as the average American does soon after graduating with a bachelors degree. However, when I made the decision to go a large university after high school, I knew exactly what position I’d be in when I was finished. I made the decision to get my degree and take on the debt that came with it.
While I do believe it’s an incredibly difficult time to be a first time homebuyer, start a family, be a small business owner, etc. I think canceling student loan debt sets a terrible standard and is totally unfair to past graduates and those who chose not to get a degree. The idea has always been that if one is going to continue their education, they must be prepared to trade a sum of debt in order to have the opportunities that a degree may open up. Another issue I have is that when we think about the different types of debts American’s hold, I would guess that historically, student loan debt is of the least defaulted on. How about instead of bailing out the ones who should have a bright financial future, we offer some help to those who actually need it? Let’s cancel a percentage of credit card debt that those in need can’t seem to get ahead of. If we’re going to inflate the prices of everyday goods and services even more, let’s help those who it would hurt the most in the process.
While that’s likely not a very popular answer by most student debt holders, I think it’s incredibly important to think about the precedent that would be set by canceling student loan debt. It’s a tool we’ve never seen used before, and should not be taken lightly as the effects would be quite massive. Whether in student loan debt or not, the decision the Biden administration is soon to make regarding this issue is one we should all stay informed about.
Tanner Millar
Investment Advisor - Core Planning
tanner@yourcoreplan.com
(660)-998-4639
https://www.yourcoreplan.com/disclosures