Remington A. Gregg. and Neal McCluskey
Yes, canceling student debt would narrow the racial wealth gap and boost our economy
President-elect Joe Biden has the power on day one as president to help close the racial wealth gap and boost the economy for a country on the brink of economic disaster by clearing the debts of all 45 million borrowers in full .
Student borrowers have a glaring debt of $ 1.6 trillion – $ 1.37 billion owned by the federal government. Before the federal government suspends student loan payments as part of its spring coronavirus stimulus package, one person defaulted on student loans every 26 seconds. By 2021, borrowers are expected to have $ 2 trillion in student debt.
Millions of people struggle to provide for their necessities and to meet their loan obligations. The coronavirus health and economic crisis has made the situation worse. As of last week, the unemployment rate among African Americans has nearly doubled the unemployment rate for whites, and more than 8 million people have fallen into poverty since May. Black and Latinx people are forced to borrow at higher rates and in greater amounts because of racial inequalities in income and wealth.
According to one study, 20 years after college, the median white borrower paid off 94% of his debt, while the median black borrower still had 95% of his debt. The reasons are simple: these borrowers have to borrow more because they have less family assets and are paid less after graduation, making it more difficult to repay their loans.
On his first day of work, canceling student debt helped Biden close the black-white wealth gap among student loan families by 25% and the Latinx-white gap among borrowing families. Opponents of the student debt cancellation argue that it would be a windfall for the most privileged, such as doctors and lawyers, who have high student debt. But the data shows the exact opposite. Those with the least debt are more likely to fail to repay their loans.
For example, a person who left school before graduating because he couldn’t afford to continue school or had too many family commitments is still on the hook to repay his loans. Without a degree, those students often take on low-paid jobs that make it impossible to repay loans for a degree they never received.
Forgetting the student debt means that families have more money to meet their basic needs, to pay for a car or to save for retirement. In addition, those who have put off getting married and having children would have the opportunity to do so.
A recent study found that millennials spend less than previous generations because they are poorer. One of the many reasons for that lack of personal wealth: the weight of student loans.
Other opponents argue that canceling the student debt would cost too much. According to a recent analysis, the federal government is about to lose $ 435 billion of the $ 1.37 trillion of its student loan portfolio – meaning millions of people defaulting on those loans, putting their personal credit history at risk. Rather than further harming these struggling borrowers, we need to boost our economy and tackle injustice by canceling the entire $ 1.6 trillion student debt owed – including buying and forgiving private loans – and giving these people a chance to pursue economic to build security for themselves and their families.
Finally, President Donald Trump’s Secretary of Education, Betsy DeVos, has argued that it would be unfair to those who have already paid off their debt or never attended college to cancel student loans. But this completely misses the point that society works for the collective good. I have chosen not to have children, but I pay taxes to fund child nutrition programs, early childhood education and primary schools. Do I have to ask the government to refund my money? Of course not, because I proudly contribute to a better society for everyone.
Forgiveness of student debt would not only provide a lifeline for 45 million people, some of whom are struggling under the weight of their debt, it would also help build a more robust economy. It is supported by a majority of Americans. And it lives up to the promise so many leaders have made over the past year to focus on racial equality by working to close the racial prosperity gap and give black and brown borrowers a real chance to succeed.
Ultimately, however, Biden should do it because it’s the right thing to do. Remington A. Gregg
Remington A. Gregg is a civil and consumer rights attorney at Public Citizen.
No. Forgiveness of student debt by presidential decree is wrong on many levels
If you loaned someone money to start a business that made a lot of money, you would expect it to be paid back, right? You took a risk and the borrower took advantage. Federal student loans are like that, only you didn’t choose to borrow, and now there’s a move to let the borrower keep the money – by presidential decree, no less.
Sens. Chuck Schumer and Elizabeth Warren lead an appeal to the incoming Joe Biden government to forgive massive amounts of federal student debt, which approximates nearly all student debt, as the federal government – read: the taxpayer – is by far the largest provider of student finance. Schumer and Warren have backed a resolution calling for $ 50,000 in loan cancellation for an unlimited number of federal student debtors, though Schumer went on to say that he is eligible for an income of $ 125,000, which is only about the top 10% of earners.
This would be a terrible policy on several levels. First, it would be blatantly unfair. Being in debt can be difficult, but why should someone be allowed to take your money, take advantage of it and not at least get you back to health? And yes, borrowers typically benefit.
The average bachelor’s degree holder earns about $ 1 million more in their lifetime than the average person whose education ended with a high school diploma. Go beyond a bachelor’s degree – that’s what many student loans are for – and the payoff is even greater, with someone with a professional degree, such as law or medicine, making about $ 2.3 million more in their lifetime.
Meanwhile, the average federal student borrower’s debt is about $ 36,500. Significant, but small compared to the payout. Borrowers are also usually people who started life fairly well. The vast majority of student debt – 63% as of 2016 – is in the hands of people in the top half of the income distribution. The richest 25% of Americans own 34% of the debt. The numbers make it clear that massive cancellation of student loans would largely help the well-off.
But wouldn’t it be an economic boost, especially valuable in these economic times of COVID-19? The Schumer-Warren resolution praises it as such, but ignores one major problem: The FBI has created a budget based on loan repayments. If not, someone else will have to make up for lost federal revenue. So while canceling would mean an extra $ 250 or so in the pocket of the average borrower every month, someone else would have to limit their own expenses or investments to send more money to Washington. Goodbye, stimulus.
Meanwhile, the people most affected by COVID-19 and its economic effects are not those with college degrees. They are people without them, working in jobs that cannot be done in the secluded comfort and safety of someone’s basement, for example. The restaurant employee needs more help than the accountant or lawyer. And, of course, the only thing that will end COVID’s economic slowdown is the end of COVID-19 itself.
Mass cancellation would also be detrimental to higher education policy. America’s Ivory Tower is an overworked structure, and forgetting student debts, far from solving rampant tuition inflation, or the proliferation of campus water parks, would only exacerbate such problems. By taking money from taxpayers and giving it to students, federal student assistance has enabled colleges to charge higher prices and often encouraged students to demand more expensive things that necessitate such prices.
Mass cancellation would signal students to borrow even more – they don’t really have to pay it back. Finally, there is the question of presidential dictate. There is an interesting discussion about whether the current statutes allow an administration to cancel almost all student debts. But even if this were technically legal, it would be an insult to democracy, in which the people represented in Congress would have to decide such hugely consistent things, like whether $ 1.6 trillion – with a ‘t’ – tax money must be permanently handed over. over to borrowers.
Paying off debt can be difficult, but it is the right choice. Simply having a president declare that for-profit graduates can keep what they’ve borrowed is the opposite of that. Neal McCluskey
Neal McCluskey heads the Cato Institute’s Center for Educational Freedom and is co-editor of “Unprofitable Schooling: Examining Causes of, and Solutions for, America’s Broken Ivory Tower.”
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