After many months of delaying payments, the Biden Administration has launched a firmer stance on student loans through their recent student debt cancellation plan. The program aims at lowering or even eliminating federal student loans for borrowers by canceling up to $20,000 in debt. While some believe that the bill will allow borrowers to invest themselves more rigorously into the economy, others view the plan as costly and ineffective as well as elusive to the root problem of higher education cost. Despite these differences in opinion on the act, the plan will surely have affects on the economy and borrowers’ decision making, both potentially beneficial or damaging, due to the sheer mass of debt being forgiven, and the cost to taxpayers and the U.S. economy.
Many objections against the bill relate to its potential harmful effects economically as a considerable sum has to be distributed by the government to forgive the loans of the expansive college borrower population. Estimates from University of Pennsylvania’s Wharton School of Business currently suggest that the bill would cost between $605 billion and could even surpass $1 trillion which would be divided out over the span of 10 years with a significant amount paid in 2022, potentially raising taxes on some and putting strain on an already struggling American economy. Many also raise questions about inflation with a wider range of people now able to spend greater amounts in the economy. With heightened participation in consumption of goods, costs may rise as they did in the spring. Others point out the restarting of payment for loans on January 1, 2023 after the Biden Administration’s final pause on payments as a potential harbinger for economic restitution. As those with remaining debt balances regain payment habits in January, the economy may smooth out with lessened expending of income.
The plan forgives loans based upon income levels with up to $10,000 of debt cancellation for individuals making less than $125,000, and Pell Grant recipients, a federal grant program for low-income students, receiving up to $20,000 in debt cancellation if they earn less than $125,000. For many, these divisions by income sufficiently abate concerns of inefficiency as the bill would more heavily target those who truly need the support rather than those earning hefty salaries who would not greatly benefit from this forgiveness. These distributions of forgiveness would cancel debt completely for around 20 million borrowers, and roughly 43 million borrowers would receive some kind of debt relief. With about 45 million borrowers of student loans, a high percentage would experience some form of assistance. Some see positives in a substantial population receiving relief as many have delayed major decisions like buying a house or starting families because of their monthly loan payments.
Additionally, the Biden Administration presents two other goals within the plan, of both the repairing of the student loan system and reducing the cost of college. As Americans have received the news of this program, many question how the loan crisis will be solved without a reduction in the immense cost for higher education. In the new act, the Biden Administration lays out plans to double the size of Pell Grants and to make community college free. Many view these intentions for the system as less clear and systematic than the plans for the forgiveness of loans. In the spring of 2022, undergraduate college enrollment declined by 4.7 percent from the previous year, according to the National Student Clearinghouse Research Center as workers began to choose an immediate entrance into the working world opposed to the tremendous cost of college. Less participation in higher education has negative ripple effects across many spheres of the U.S. economy as workers will not gain entry into the higher-paying jobs which would allow for greater engagement in the economy, generating growth and overall expansion of wealth and welfare. Increasingly, jobs require higher credentials for entry, and declining rates for higher education degrees have negatively impacted the employment rates for many businesses. In all, lacking efforts for lowering college costs have signaled issues in the plan, for those who see extensive college costs as the root problem of the student debt crisis.
As borrowers find the strain of their debt payments loosened, the economy may receive some growth as well as potential concessions. With an overall trend downwards in inflation, many fear the negative repercussions from the new act for the economy. Questions remain on how the Biden Administration might advocate for lowering higher education costs which many see as necessary for the fullness of the issue to be resolved. In the coming months, Americans will witness the potential changes to their everyday costs, and the effects of these new developments.
Sources:
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Photos: https://www.nytimes.com/2022/08/26/podcasts/the-daily/student-loan-forgiveness-joe-biden.html
https://www.wbur.org/cognoscenti/2022/02/23/college-application-covid-pandemic-uncertainty-teenager-ellen-odonnell