The Cancellation Of Student Loan Debt In The US
The situation
Today, 44 million Americans, or one-eighth of the total population that is older than 18, have student loan debt2. On aggregate, student loan debt accounts for 1. 5 trillion of the national debt; however, this figure does not include private student loans which are not reported to the United States government, per the MeasureOne Private Student Loan Report. The U. S. Census Bureau (2018) estimates that one-third of all adults between the ages of 25 and 34 have some sort of student loan debt. The average debt owed is about 40 thousand dollars; however, professional degree-seeking students accumulate well over this amount.
According to the American Medical Student Association (2016), the average debt that a medical school student accumulates is approximately 190 thousand dollars, and close to 25 percent of all graduates are well over 200 thousand dollars in debt. Undoubtedly, student loan debt is disallowing educated Americans from fulfilling their complete economic capability. For example, a 2019 study by the Federal Reserve concluded that student loan debt was linked to the decline of young-adult homeownership of the last decade. Moreover, that study also found that the number of homes that average buyers can afford dropped by ten percent as a result of student loan debt. Similarly, a SoFi survey (2019) found that 61 percent of millennial respondents are currently putting off buying a home for this specific reason. Furthermore, 30 percent of young people have foregone saving for retirement and 16 percent have put off having children. Older generations, per an AARP report (2018), are seeing their incomes slashed due to loans they took out for their children. Student loan debt also affects credit scores, including FICO scores, in much the same way as other forms of debt do. This is because information, such as the total amount, the monthly payment, and payment history are all considered when a credit score is calculated.
Most importantly, when Americans miss payments or default on their student loans, the delinquency remains on their credit score for seven years. The ramification that this has on the financial well-being of Americans overwhelmingly impacts the most vulnerable of borrowers, such as the underemployed. As such, many Americans who earned degrees in search of the American Dream find themselves subject to the dismay of the economy of today, although unemployment is touted, and economic prosperity is made to seem as widely available. The fact remains that far too many educated Americans find themselves unable to partake in the economic opportunities that once comprised the American Dream.
The America way versus the world
Criticism often points to the educational models of other countries and suggests that similar structures be implemented to improve the American system. However, questions of political feasibility are plentiful when considering the uniqueness of established economic policies and the political culture of the United States. The American system is unique in that graduates can and do default when income levels are unable to reach a threshold required to make payments. Moreover, low earners that are able to avoid this are still subject to payments eating up massive portions of their monthly incomes. These occurrences are unique to the American model of education and are rare in most other industrialized nations. For example, student loans payments in Australia begin only when it is that graduates reach a certain income and not immediately after six months. In addition, these mpayments are collected through the tax system instead of a loan servicer; this provides a safety net should an unexpected occurrence, such as a layoff or an untimely accident take place. England employs an income-contingent model and forgives loans after 30 years. In addition, low-earning individuals pay no more than 3 percent of their income towards student loans.
Recommendations
Senator and Presidential candidate Bernie Sanders (I-Vermont) recently introduced legislation intent on eliminating all student loan debt in the country. This bill, an extension of his 2017 College for All Act, would effectively forgive all 1. 5 trillion USD of student loan debt. Moreover, this plan also seeks to eliminate tuition and fees at public universities, and community colleges. In addition, this bill would also cancel tuition at trade schools and apprenticeship programs as well as proposing the forgiveness of student debt for graduate students8. To fund this endeavor, which has an estimated 2. 2 trillion-dollar price tag, the Senator is proposing a tax on Wall Street speculation, which would include stock transactions, bond trades, and derivative transactions. This method, per estimates by economist Robert Pollin, would generate an estimated 2. 4 trillion dollars in revenues over the course of a decade. 8 This, the Senator decries, is the means through which Wall Street will finally pay back the American middle-class for the generous Emergency Economic Stabilization Act of 2008.
Benefits
The top economic advisor to the Sander’s presidential campaign along with the Levi Institute (2018) found that eliminating all student loan debt would stimulate the economy, raise GDP, and further reduce unemployment. Similarly, the National Bureau of Economic Research (2019), concluded that student loan forgiveness could be a very impactful means of providing economic freedom and noted that individuals who have had their student loans cancelled are less likely to be foreclosed upon, file for bankruptcy, and default on other expenses and debts, such as medical bills and prescription costs. Furthermore, economic studies, on behalf of Professor Robert Pollin, indicate that should student loans be cancelled, only moderately effects on the federal budget deficit would result. In addition, interest rates and inflation would see minimal disruptions. As such, it is suggested that a policy like student debt cancellation can be an effective means of enabling economic mobility. Moreover, the elimination of student loan debt would enable relief to the most vulnerable of populations, such as disabled veterans. Recently, President Donald Trump signed a memorandum that cancelled the student loan debt of thousands of disabled veterans. Thus, about 25 thousand veterans had their student loans forgiven, with the average balance erased being about 30 thousand dollars14. In addition, veterans are not being required to pay federal taxes on their forgiven debt. This indicates that even demagogues, such as the President, support, at least in principle, the cancelation of student loan debt.
Conclusion
In short, higher education is seen as the key to economic prosperity and the foundation of the future of America. Yet the education system in place disallows for graduates to be able to prosper and diminishes their economic freedom as a result. College is out of reach and few options outside of accumulating insurmountable debt are available. Would forgiving the 1. 5 trillion dollar amount over the next decade be a costly investment? The majority party does not agree, at least not when it is that the wealthiest Americans and most profitable corporations are benefiting. However, if that money is to be used to for the benefit of the middle-class and the working-poor, then that is unreasonable. Conservatives need to get on board with relieving the burden of the American middle-class, reform education, and actually make America great.
