We need to have education reform before we can start forgiving student loans
Days before his inauguration, President Joe Biden presented his $ 2 trillion spending proposal to control the coronavirus pandemic and revive the national economy. To the dismay of many young people, his plan made no mention of canceling the student loan.
To be fair, Biden already has a student loan forgiveness plan. He supports forgiveness of $ 10,000 in federal student loans. It also supports more generous forgiveness provisions in certain circumstances described. here.
But for many people, his ideas of forgiveness are not enough given the current collective student debt of $ 1.6 trillion in the United States. Especially if they have six-figure debt and their monthly payments don’t even cover accrued interest. Now that Democrats control the White House and a slim majority in Congress, this problem will eventually return after coronavirus control. Congress can introduce a bill pardoning a larger amount than that proposed by Biden. But as the amount of pardon increases, so does the chance that one or two Democratic senators will be skeptical. And there may also be a threat of a presidential veto.
The problem is, the wholesale cancellation of student loans is a very controversial issue and is no longer just a financial and economic issue. It has also become political, social, racial, fair and moral. This is because all forgiveness provisions will contain limitations on who is eligible. So people are going to argue over why one group should qualify and why another should not. Alternatively, forgiving unrestricted student loans will be unfair to those who sacrificed themselves and lived on the cheap to pay off their loans quickly. Contrary to popular belief on the Internet, not all people who have paid off student loans are rich.
Some have asked why not offer the best of both worlds – forgive student loans and pay off those who have repaid theirs. While that sounds good, it does mean that a $ 1.6 trillion problem is solved by spending at least $ 3 trillion. Even though government is supposed to be a nonprofit entity (and it certainly lived up to that image), a trillion dollar loss is not going to look good on your World Bank / IMF credit report.
Finally, suppose that all of the existing student debt is canceled now. In a few years, there will be a new crop of graduates with unsustainable debt. Moreover, these people will leave with the expectation that their student loans will be canceled as well, because a precedent has been set.
In short, there must be fundamental reforms in the education system before a viable and just forgiveness plan can be discussed and implemented. Otherwise, the loan cancellation will only serve as a band-aid that needs to be reapplied every few years. Right now, with the coronavirus changing the way schools conduct their curricula and with people questioning the value of post-secondary education, this would be the best time to have this discussion. Here are some ideas I have.
First, federal student loans should be widely available to everyone, but the amount should be limited depending on the type of job they plan to get after graduation. This is the case with undergraduate loans and should also apply to graduate or professional loans. The amount of debt may increase if they attend vocational school. This will ensure that the students will graduate with a limited amount of student debt. The criticism about this is that only the rich can afford to get an education. I do not agree. Some schools depend solely on tuition fees and will reduce costs to meet the student’s ability to pay or risk closing.
Second, federal and state governments should fund ongoing cost-cutting measures that will translate into lower tuition fees. This could mean purchasing contracts and energy efficient renovations to name a few.
Third, the government should explore the creation of inexpensive alternatives to university education. There are some like the community college system. There is also an expansion of online learning due to the coronavirus pandemic. These alternative systems can be supplemented by internships or apprenticeships.
I’ll leave it to the experts to expand on the above, but the general idea is to give potential students more options so that they don’t need to take out big student loans to study.
The current system of student loans is unsustainable and is causing economic damage to the younger generation. But canceling student loans has become such a controversial topic that whatever the proposal is, it will anger certain groups of people. So the long term solution is not to find yourself in this situation in the future. Even though we are in a pandemic crisis, it creates an opportunity for reform that should not be wasted. The government should create policies that remove the incentive for schools to raise tuition fees pretty much indiscriminately, which partly created this problem in the first place. I am optimistic that in the near future there will be alternatives to university education which will be respected by employers and society in general. Once student debt levels stabilize and hopefully begin to decline in the years to come, then we can discuss how to fairly deal with the student loan problem.
Steven Chung is a tax lawyer in Los Angeles, California. He helps people with basic tax planning and with resolving tax disputes. It is also sympathetic to people with large student loans. He can be contacted by e-mail at [email protected] Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.