Student Loan Forgiveness

Pros and Cons

Photo by Jp Valery on Unsplash

Just last week I paid my first college loan repayment of $300, and my present balance is $27,087.26. However, after today’s news, I might only have a few thousand to pay off.

With President Biden announcing his plan for student loan forgiveness earlier today, many people have been expressing their thoughts on the subject. To simplify it, democrats are excited for the $10,000 (and up to $20,000 for Pell Grant recipients) relief for middle class Americans, while progressives think it doesn’t go far enough and that all debt should be eliminated. Republicans on the other hand think it’s $10,000 too much and conservatives believe loans should be paid back by the individual who took them out and that is it not fair for people who have already paid off their federal college loans off.

While this will personally help me, I believe it is bad fiscal policy. The problem lies in the fact that this “abolition” does not seek to address why college tuition is so expensive in the first place. Without the root cause being alleviated, debt will accrue again.

Let’s look at some facts.

In 1958, President Eisenhower signed the National Defense Education Act to encourage Americans to pursue higher education in the fields of math, science, and technology. Not wanting to be outdone on the world stage, the law provided federal student loans and grants (which started at $1,000) in these areas so that ultimately America could stay apace with the Soviet Union’s technological advancements. Since then, federal loans have only expanded in the areas that they cover and by how much. Because of this expansion, college is no longer affordable like it was when our parents and grandparents went to school. I went to a university in-state and had to take out loans, because unlike the 1970’s, yearly college tuition runs at the tune of $10,000 and not $400. As the tuition increases, the loans get bigger. This is the vicious cycle of higher education.

A classic example of government initially seeking to achieve a noble and righteous goal, while creating another massive issue decades later. Make no mistake, this is an act of government to try to fix a problem that it (inadvertently?) created. And it’s how career politicians like Biden stay in power. Create a crisis and then campaign on short term solutions.

American politics as usual.

While federal subsidization is almost never the answer, I do acknowledge the fact that this does benefit regular Americans in the short term. If banks and big corporations can get bailouts when they’re struggling, then everyone should. Even though I disagree with anyone getting federal bailouts. As we saw with covid and the CARES Act, inflation has skyrocketed. Not to mention when the government picks winners and losers, innovation is stifled.

With midterms fast approaching, and the Democrats trying to hold fast and retain their slim House majority, they’re looking to placate their base and win votes with this policy proposal.

The short sightedness of this Democratic “win” will most definitely cost us economically in the long run. College tuition prices will ultimately increase, because why would they do anything else? If the universities know the feds will bail them out, and continue to give loans for thousands and hundreds of thousands, they have no incentive to decrease their prices. And why would they? That would mean colleges must cut spending: reduce their bloated budgets, eliminate abundant administrative costs, cut unsuccessful degree programs, and spend their dollars wisely.

But we can’t have universities take fiscal accountability now can we?