Student Loan Forgiveness Raises Concerns

By Chuck Merlis

On Wednesday, Aug. 24, President Joe Biden, speaking from the Roosevelt Room in the White House, cashed in on a key campaign promise by announcing his administration’s plan for student loan forgiveness.

The plan states that anyone making less than $125,000 a year (or $250,000 per household) is eligible for up to $10,000 in debt cancellation. The plan also states that those on pell grants,  which are federal loans given to those with financial limitations, are eligible for up to $20,000 in loan forgiveness.

As part of the plan introduced, Biden also announced that his administration is extending the student loan repayment pause, a COVID-era policy that temporarily suspended student loan payments, for one final time through the end of the year. 

The U.S Department of Education estimates that it will take up to four to six  weeks to receive forgiveness after the application is completed.

The Education Department advises borrowers to complete their application before Nov. 15, 2022, to qualify for forgiveness before the payment pause expires. 

Cooper Brown, junior psychology major, said he is grateful for the Biden administration’s new student loan forgiveness policy.

“$10,000 does not cover the entirety of my loans. It is essentially just a coupon on the back end of what I owe,” said Brown. “But it feels good to be acknowledged by my government.”

Brown went on to say that he hopes this is just the beginning of student loan forgiveness.

“I am a first-generation college student. The reason why others in my family haven’t [sought] higher education is because of the price tag put on a college degree,” said Brown. I hope we see more of this because it will make a difference.”

Keely Farrell, junior human performance major, holds a different sentiment.

“This is a good thing for many people. But it is also penalizing the people who did the right thing,” said Farrell. “I chose where to go to school, in large part, based on what universities provided the most money in scholarships. It was important to my family that I didn’t come out of school drowning in debt. I could have racked up the bills but I made the responsible decision. It is not sitting right with me.”

Dr. Abigail Hall Blanco, an associate professor of economics, raised concerns about the policy introduced by the Biden administration.

“Generally, this is not a good policy,” said Blanco..

Blanco argues that there is no such thing as “forgiving” debt. 

“Essentially, what this policy does is it transfers the debt. When people hear things like forgiveness, they imagine the debt goes away. It does not go away. Just who is paying for it changes,” said Blanco. “So the loans that are being forgiven, the individuals who took out the loans are not having to pay for that particular $10,000, but other people are paying for it.”

According to Blanco, Biden’s student loan forgiveness plan is counterintuitive to the idea of fairness.

“Some people have criticized this policy, particularly, as regressive. So what that means is it essentially benefits people who are wealthier at the expense of poorer people,” said Blanco.  

Blanco said the debt is unfairly shifted from college-educated to non-college-educated people.

“Only about 30 percent of adults in the United States have a college degree, compared to 70 percent who do not. So if you have people who are college educated, who are going to, generally speaking, be relatively wealthy compared to the people who don’t have college degrees, you’re efficiently shifting the burden of paying off that debt from those people who are relatively wealthy to those who are relatively poor,” said Blanco. 

Blanco went on to raise concerns about the efficacy of this bill, stating that it doesn’t address the root problems of the price of a college degree.

“We’re gonna get right back to where we were, we already are back to where we were, in terms of how much people owe because of interest payments. It doesn’t do anything to address the underlying cost issue, and in fact might actually make it worse,” said Blanco.

Blanco instead believes in alternative measures to address the underlying issue of college expenses.

“Some people have suggested that student loans have zero interest, which would be a fairer option than broader loan forgiveness,” said Blanco. 

Blanco also proposed alternative measures that she believes are more plausible across the board.

“In terms of reducing the cost of college, it is actually to remove the intensive educational subsidies,” said Blanco. 

Blanco went on to explain what she believes the merit behind her proposal is.

“One of the reasons the government subsidizes anything, education included, is because they want more people to go to school. If you subsidize something, you make it more profitable for producers and cheaper to consume that good. So, on the one hand, this does what you want it to do,” said Blanco. “It is easier for people to go to school, but it is effectively really distorted and pushes up the price of higher education. So perhaps counterintuitively, fewer subsidies for higher education would likely decrease the price of higher education.”

According to CNBC, the Biden administration’s student loan forgiveness plan will amount to over $6 billion in overall relief, and that over 100,000 people will have their debt fully cleared.

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