Economic Advantages and Disadvantages of Student Loan Forgiveness

Kojo A.Quartey

When economics was invented, economists were positivists (focused on facts or what is), not prescriptive (what should be or what is good or bad). So folks, just the facts as I look at the pros and cons of student loan forgiveness.

Believe it or not, I went to college and finished. During my studies, I worked full time, took no student loans and paid all the way. In graduate school, I had partial assistantships and delivered pizzas, worked in fast food and did the dishes. I celebrate the fact that I was lucky enough to have no student loans when I got my doctorate in the late 1980s. Boy, am I glad. Today, student loan debt exceeds $1.7 trillion, and I have nothing to do with it. The recently announced Loan Forgiveness Program forgives debt up to $20,000 for those who qualify for Pell Grants, $10,000 for those who do not qualify for Pell and earn less than $125,000 (individuals) and $250,000 (couples).

Here are some salient college loan statistics from various sources such as nitrocollege.com, educationdata.org, and Community College Review:

  • Current student loan debt in the United States is $1.75 trillion.
  • 1 in 4 Americans have student loan debt (44.7 million people).
  • The average student debt is currently $37,693.
  • The average student borrows over $30,000 to pursue a bachelor’s degree.
  • Twenty years after starting school, half of student borrowers still owe $20,000 each on their outstanding loan balances.
  • The average public community college debt for graduate students is approximately $11,261.
  • The average amount Monroe County Community College students borrow per year is $5,485.

Now let’s get to the gist of this article.

Benefits:

• For those in debt, loan forgiveness is a good thing, allowing them to use those funds elsewhere. According to a Roosevelt Institute study, “The positive effects of an evidence-based student debt cancellation policy for individuals and households go far beyond the immediate need to eliminate heavy debt. The ramifications for financial and personal well-being, credit, job stability and satisfaction, home ownership earlier in life, the ability to build wealth in an emergency, capital investments human, family stability and the accumulation of wealth can multiply throughout a person’s lifetime.

• This will help stimulate the economy, which will benefit many.

• This will help rectify racial inequalities, especially for black students. According to a study by Columbia University, black students carry twice as much debt as white students and have a delinquency rate of 21% compared to 4% for white students. Debt prevents wealth building.

• It provides some relief, since bankruptcy for student debts is not permitted, as is the case for most other debts.

The inconvenients :

• This may be considered unfair to those who do not have a loan or who have repaid their loans. Those who took out the loans made a personal choice and must pay it.

• Most of the benefits can accrue to those at the top of the ladder who are better able to pay, as they are the most indebted and benefit most.

• Other loan relief programs already exist, so this may be a temporary solution to the larger problem of overly inflated college costs.

• It can be an incentive for people to borrow more in the future, expecting to be forgiven. Some may take out larger loans with no intention of repaying.

• This could worsen inflation as more money is invested in the economy.

• This creates a burden on taxpayers, who will eventually have to repay this money.

So while we don’t know exactly how this new debt cancellation plan will pan out, it’s important for us to understand the economic ramifications.

Unfortunately, while all colleges are grouped together for these statistics, as we can see for community colleges such as MCCC, student loan debt is significantly lower. That’s why it makes so much sense to start at your local community college and take on little to no debt. Plus, now if you’re 25 or older, you may be eligible for free classes through the Michigan Reconnect program. Just the facts.

Kojo Quartey is president of Monroe County Community College and an economist. It can be attached to [email protected].

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