During his 2020 campaign, President Joe Biden promised that if he was elected he would cancel at least part of the loan debt owed by millions of student borrowers to the federal government. It now appears that Biden is close to trying to honor that pledge. Recently, he has suggested that he would cancel $10,000 in student loan debt per borrower. Though he noted that some income restrictions would apply whereby those with higher incomes would not be eligible, those thresholds are relatively generous. The President may take this action with the stroke of a pen through an executive order without any review or approval by Congress. Though the President is floating forgiveness of $10,000 in student debt, others at his party are recommending a write-off of $50,000 per student.
To provide some background on the student debt issue, currently 43.2 million people have student loans. The overall debt from those loans is $1.6 trillion. If Biden chooses to forgive $10,000 in loan debt per student, this would cost the nation $321 billion. To put this amount in perspective the Veterans Administration’s proposed entire budget for next year is $301 billion. Though student loan forgiveness would be a one-time deal and the VA budget is an annual request, the comparison provides some idea on how much the federal government would be spending or writing off.
For the millions of students with outstanding student loans, the proposed action by Biden is probably welcome news. For the 230 million other adults in the country without such debt, the news may be met with less enthusiasm and possibly frustration.
The impression for many appears to be that the government somehow can magically make the student debt vanish and there are no consequences associated with it. This couldn’t be further from the truth. Like most decisions, choosing one option comes at the expense of others.
The reality is that this debt just doesn’t disappear. Though the student may be relieved of that expense, the taxpayers are not. In fact those loan write-offs are absorbed by the federal government and have consequences. They translate into a greater national debt which all taxpayers will share in paying off. In addition, like other things in government, choosing to spend money in one area (or in this case write off) means that funds cannot be spent in other areas. If faced with the choice of billions going toward canceling student loans versus providing additional funds to veterans programs, low-income families or seniors, many of the public may choose those other causes. The problem is that the public is not aware of those trade-offs.
For many who have had a business, home, car or other loans where forgiveness was not an option, or those who lost their homes during the last recession, they may legitimately question why these highly-educated individuals merit special treatment.
There is also the question of fairness to those individuals who worked while they were in college to avoid taking loans, those parents who scrimped and saved to pay for their children’s education at the expense of their retirement fund, and the many others who worked a second job or economized on their expenses after college to pay off their loans. More importantly, how about those individuals who entered the military and served our country for the specific purpose of receiving funding for their college education? Many of those individuals placed themselves at substantial risk on our behalf.
What may be more irritating for those who chose not to attend college and in turn did not accrue the debt from it, is the fact that the Association of Public and Land-grant Universities has indicated that individuals with a bachelor’s degree earn $32,000 more annually during their lifetime than those whose highest degree is a high school diploma. So, those individuals who chose to forego college and may earn less over their lifetime would be helping to pay off the debt of those who would likely make significantly more.
Though many are not willing to write off any amount of these debts, we should look at options that may be helpful to the student in retiring them.
One option is to seek to have colleges and universities that helped to create this crisis to be part of the solution. According to US News and World Report, the average debt per student borrower rose by 26% from 2009 to 2020. A major factor behind this increased debt load was that tuition and fees at colleges and universities rose at a significantly greater rate than inflation. The average annual cost of a public university in 1990 was $3,349 while the average cost of a private university was $14,616. By 2020 the cost of the public university had risen to $9,349 and a private college to $32,769. Thus, over that 30-year period, college costs at public universities grew by 279% and 224% at private schools. In comparison overall inflation rose during that same 30 year time-frame by 98%.
During that same period we also saw the endowments of many of these same universities and colleges, where students with college debt attended, grow substantially. In fact over 60 universities and colleges now have more than $1 billion in endowment funds today. Only a limited number of those endowments are taxed at all, and that rate is modest. Asking these institutions to contribute part of their largess toward paying off the loans of students who attended those universities would appear fair.
A second option may be to offer these former students the option to pay off these loans in a different manner through public service. Having individuals as part of a contract agree to work several hours weekly in a homeless shelter, mentoring or tutoring disadvantaged students, assisting at a food bank, working with the elderly, and other activities, would help communities in meeting those critical needs. It also could be a source of pride for those individuals that they have satisfied a commitment that they made. An added benefit may be that some of these individuals may continue to volunteer with those programs after their debt has been fully paid.
In looking at the student debt issue, let’s remember that a college loan is something where a student made a conscious choice, much like obtaining a loan for a car or business. This is a commitment and this represents an important life lesson about taking responsibility for one’s actions. What message do we send to young people and others in our society if we allow them to walk away from their student debt? Do we make it easier for people to walk out on other obligations in their lives, such as child support or paying their taxes? The point is that we should look at options to help pay off student loans, but outright forgiveness of the debt should not be one of them.
Greg Fulton is the president of the Colorado Motor Carriers Association, which represents over 650 companies directly involved in or affiliated with trucking in Colorado today.
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