There is $1.7 trillion of student debt outstanding in the US. The Biden administration is considering a debt forgiveness program that would reduce that amount somewhere between $10,000 and $50,000 per student. These proposals would not have any impact on private student debt or debt already paid by borrowers.
Three out of four Americans are in favor of reducing student debt by $10,000, according to the latest College Investor Survey; this amount has been endorsed by the Biden administration. If instituted, it probably would be with an executive order and not enactment of a new law. Biden’s fellow Democrats are pushing for a $50,000 per student reduction, including Senator Chuck Schumer and Senator Elizabeth Warren. They claimed that such a move would “close the nation’s racial wealth gap.”
Women and people of color would be the greatest beneficiaries of a debt forgiveness program. At $50,000, 80% of federal student loans would be stricken. This would reduce debt for 36 million Americans. Women owe 2/3 of the total student loans, $31,300 is the average for white women, $29,900 is the average for white males and $35,700 is the average for Black males. Within the last 12 years, 38% of Blacks have defaulted on loans, three times higher than whites. 85% of Black Bachelor of Arts recipients have student debt and 69% of whites have student debt. 90 percent of student debtors have accepted government offers to put monthly payments on pause during the pandemic.
[Note: Fox News 8 and Pimco were the sources for most of the aforementioned statistics.]
The questions surrounding this costly entitlement proposal are:
- What if any benefits would accrue to students who have paid back loans? Answer: None.
- Where will money come from to pay for the program? Answer: From taxpayers.
- How much money would accrue to debtors? Answer: Zero. Loan payments would cease.
- How would forgiveness of debt impact the economy? Answer: It would increase the chances of inflation as the federal government cancels debt and increases payments to those affected by the pandemic.
- How would students who have been paying feel about the program? Answer: Probably, they would feel cheated.
What alternatives could be considered in lieu of forgiveness of debt?
- A universal reduction in college tuition across the board.
- A moratorium on debt payments, rather than forgiveness of debt. It would give debtors a chance to catch up on payments 5 to 10 years in the future when they are earning more money.
- Forgive $10,000 per student, not $50,000.
- A surcharge on tuition for wealthy families. Once again, look to the affluent to pay more to subsidize the needy.
- Elimination of college tax exempt status. This would force colleges to pay taxes on profits.
- Free tuition at state and community colleges.
- Revamp college curricula to include more practical studies that would increase employment and wages.
- Force private colleges to give more scholarships rather than using cash to increase endowments.