Student Stimulus: A Slippery Slope
Days before the pause on student loans that began in 2021 was set to expire in late August, President Joe Biden announced plans to cancel up to $10,000 of student debt for low and middle income families, a plan welcomed by millions of Americans. Many around the country view this plan as a significant acknowledgement of a serious problem — simply, college is too expensive, a sentiment echoed by many Peninsula students and staff.
“The biggest benefit is the larger conversation that has taken place and is taking place regarding the cost of higher education,” Financial Aid and Scholarship Coordinator Nancy Shafer said. “Instead of loan forgiveness in the future, the Department of Education is contemplating raising the income level for students receiving Pell Grants, lowering the cost of higher education for students coming from middle income families.”
The problem addressed by this plan is obvious: an entire generation struggling to pay off debts that are years, even decades old. In the years following the 2008 Recession, the federal government expanded access to loans by lending directly to student borrowers through the U.S. Department of Education. Coupled with the amount of people leaving the workforce to go back for higher education and the rising expense of attending college due to the slashing of state education budgets, the amount of federal student debt accrued by American students has tripled in the last 16 years (The Guardian).
To address this pressing issue, the Biden administration’s plan involves the following components: a final pause on existing loan repayments, a new income-driven repayment policy to reduce future monthly payments, a plan to raise the maximum income level for those receiving Pell Grants and debt cancellation for borrowers earning less than $125,000 a year. Those who qualified for Pell Grants, which are grants awarded to students exhibiting exceptional financial need, will receive up to $20,000 in debt relief (The White House).When viewed in context, these separate but related measures are all poised to alleviate the impact that debt, inflation and the coronavirus (COVID-19) pandemic have had on those seeking to enter the U.S.’s burgeoning middle class. However, while these steps are hailed by many as a momentous step towards making college affordable, policymakers, students and parents should still exercise caution when tackling the issue of financing higher education. Simply, debt relief is a lot more complicated than it might seem, and at best, is a stopgap measure meant to partially alleviate economic strain until a more comprehensive solution is passed in Congress.
The most straightforward benefits of Biden’s plan come in the form of direct financial assistance, which would immediately give borrowers and their families substantial breathing room by making it easier for them to buy homes, save up for retirement and pay off other expenses. More generally, the administration’s plan could contribute towards broader economic growth by making it easier for college graduates to obtain business loans and open their own small businesses, generating jobs, economic output and consumer spending — in effect, creating a ‘trickle-up’ effect. These benefits are projected to be even more pronounced for people of color, and would narrow the racial wealth gap. According to a study conducted by the Urban Institute, debt forgiveness programs targeting those who received Pell Grants while in college advance racial equity because Black students are more likely to have to borrow for school and twice as likely to have received Pell Grants compared to their peers.
“This program is a sign that the country and its government are beginning to take steps toward making higher level education more affordable and accessible, creating a path towards a middle class life for those that need it the most,” Economics and Advanced Placement Economics teacher Allen Aronson said. “By going to college, students are making the choice to invest their time and effort into increasing their human capital. This is an effort that [the] government perhaps one day should support by making [kindergarten through college] free.”
However, federal student loan debt cancellation is not without its own problems. In the spotlight is the massive price tag that comes with it — an estimated $300 billion. The bill from this program alone would negate the projected savings from the Inflation Reduction Act passed in August, a record-breaking piece of legislation that took aim at issues such as climate change, inflation, healthcare and the national deficit. Between other government stimulus packages and high oil prices caused by Russia’s invasion of Ukraine, loan forgiveness would recklessly pour gasoline on the fire of the monumentally high inflation rate.
The issues are not just limited to economics either, as there are many concerns regarding the fairness of such actions. To Americans who have already paid off their student loan debts and are now dealing with mortgages, car loans and credit card debts, forgiveness is not an option. Nor is it viable for those that never had the opportunity to attend college in the first place, but still work hard to make a living. The plan might also set a dangerous precedent, one that might influence the decisions of students attending college in the future. Forgiving outstanding federal student loans gives the wrong idea to students that the government will act the same way in the future, encouraging them to take on additional debt with the false presumption that it will be eventually forgiven. The problems that debt relief seeks to resolve are all made under a single assumption — that all student debt is bad. Though this is true the majority of the time, if used wisely, debt can in fact be a powerful tool to generate financial leverage.
“The principal misconception within this debate is the negative stigma surrounding debt,” senior Jacob Lee said. “Although debt does indicate an absence of money, the purpose of debt is often overlooked. If interest is charged at a low rate, borrowers might be able to pay less in the future due to the effects of inflation.”
As such, student loan debt is not only often manageable, but actually profitable for many considering the fact that the average four-year degree holder makes six to seven figures more in a lifetime than those with only a high school diploma. That being said, what should students make of the administration’s plan? The answer, as with many other policies, is complicated. The central issue is not just student debt — it involves changing the mindset that people have, convincing the citizens and lawmakers of our country that higher education is a valuable public good that the government should provide. If this fundamental belief is not established, Biden’s forgiveness plan, and other measures like it, will be the governmental equivalent to giving someone who has just been shot in the chest a band-aid.
