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The cancellation of student loans in the United States: an economic necessity
Professor Emeritus at University of Sherbrooke’s School of Applied Politics
Tuition fees have escalated to more than 21 000 dollars a year. These fees, as such, represent 34% of the average income of an American household. This cost is becoming prohibitive. More than 70% of students’ only option is to borrow to cover their educational expenses.
The numbers on student debt in the United States are alarming. More than 45.5 million Americans, representing 27% of all Americans aged 20 to 65 years old, collectively owe more than 1.6 billion dollars. Student debt represents more than 6.2% of the American federal debt.
The breakdown by age groups shows that many drag this student debt throughout most of their lives. As a matter of fact, 8.2 million less-than-25 former students owed 21 billion dollars in 2019. 15 million, aged 25 to 34, owed 502 billion dollars. 14.1 million, aged 35 to 49, owed 576 billion dollars. 6 million, aged 50 to 61, owed 241 billion and eventually, the 2.1 million aged 61 and above still owed 76 billion dollars.
The reimbursement of student loans is a common challenge for many Americans. And such reimbursement has become more and more difficult, as the average monthly payments have known an increase of 55% over the last decade. Many Americans suspend the payment of their student loan, are in a default situation or have to find a financial arrangement with their bank.
More than 70% of students’ only option is to borrow to cover their educational expenses.
Student debt represents an important financial stress for the borrowers. They are nearly incapable of building a financial safety net to cover unplanned expenses such as medical emergencies. As Americans have trouble respecting their obligations in terms of student debt, it only keeps growing. Default in the reimbursement of this category of debt is far superior than default in credit card debt or auto loans. While 59% of Americans aged more than 25 attended university at some level, the fees currently associated with university education and the indebtedness that comes with it make young Americans increasingly reluctant to undertake such studies.
In the current political context in the United States, it is hard to envision a complete cancellation of student debts. At best, a significant decrease of student debts could be possible. This, in spite of the fact that ensuring the gratuity of university education and cancelling student debts are two essential prerequisites to ensure the United States’ intellectual and economic predominance.
After World War II, the Truman administration secured this economic predominance thanks to the GI Bill. This bill enabled the United States to equip itself with the most educated and productive workers for 30 years. Currently, the student debt are a deterrent to economic growth.
Unequal, unfair, and a huge mess
President of the Foundation for Economic Education
First, you can’t just “cancel” loans. Either the lenders will lose the money they lent, or the government will have to repay to lenders on behalf of the students who took out the loans. In cases where the government is the lender, student loan cancellation means less money in public coffers. Less money for other purposes, e.g. poverty alleviation.
Speaking of poverty, US college graduates make nearly double than those with just high school diplomas. During their working life, people with degrees earn about $1 million more than those without. If you want to use taxpayers money to help the disadvantaged or the poor, you should give taxpayers’ money not to college grads, but to those who did not go to college.
Of course, if college grads are experiencing poverty, they should be helped just like everyone else. But why should a poor college graduate be helped more than a poor person who did not borrow money to go to college?
Student loans cancellation means less money in public coffers
Second, why should we pay for other people’s college loans, but not housing loans, or car loans? After all, college loan debt is $1.6 trln., while car loans are $1.2 trln., and housing loan debt – above $10 trln? Selecting one group of people and using other people’s money to pay their debts is unfair.
What about those who chose to forgo a car, a vacation, or a bigger apartment to repay their college debts instead? What moral lesson does loan cancelation teach?
Will taxpayers have to pay for everyone’s debts, including people who owe half a million dollars for degrees in acupuncture?
Will only the current loans be cancelled, or will it apply to future loans too? If it does – would you lend money if you knew people don’t have to pay back? If the government is to provide these loans, what will it do to the price of college, if you know you can borrow and not have to pay it back?
To avoid all these absurd outcomes one will have to completely overhaul the entire system of tertiary education. There are good arguments for overhauling the system; there are good arguments against. Let’s debate that. If you want that – fine, but don’t reduce the complicated discussion to simplistic slogans. Simplistic slogans are nothing more than political vote buying.