Student Debt Forgiveness: Treatment or Treachery

By Carter Burchi

With one in five Americans having accrued $1.65 trillion in student loan debt, the promise of “loan forgiveness” sounds tantalizing to a country with inflation rates at a 40 year high. On Aug 24, President Biden rolled out a plan that would allow the cancellation of $10,000 in student loan debt for eligible low to mid income borrowers, and $20,000 for eligible Pell Grant borrowers. 

Upon introduction, this statement and its contents have been a topic of heated debate, for a myriad of reasons. To many in and fresh out of college, this sounds like a saving grace, and even more so for the age group of 35-49 year old Americans who have the most amount of debt. 

Contrarily, those who paid off their loans, at great cost to them, will ultimately face punitive measures for doing so in not receiving the $10,000 themselves. However, something that appears to be missing from the focal point of the discussion is the most important aspect: the fine print.

Through major financial interjection and intrusion, the pursuit is reminiscent of the 2008 financial crisis. When large banks acted as predatory loan sharks, they went bankrupt, and the US government paid them back, not the people whose lives were destroyed because of their manipulation-and outright disregard- of the law. In that instance, why did the government back the “bad guy?” 

The truth is, if someone is on the same side as the “bad guy,” that makes them an enemy, too- and what we’ll find out is that when you make a “deal with the devil” as such, there is always a catch.

In June and July President Biden is one of the most unpopular modern president, laying on pressure to accomplish campaign promises- at any cost. $10-20,000 dollars being put back in the pocket of what could be 65.9 million Americans (estimate, applications haven’t opened) sounds too good to be true. 

Because it is. 

One hefty catch is entrenched in how the program changes the income-driven-repayment (IDR) system and financial incentivization for colleges as a product. The issue resides in the incentive for colleges and universities. No matter the loan amount, students will be paying the same percentage rate, allowing them to borrow as much money as possible. It is well known that college tuition is ridiculously expensive: Since 1963 it has increased by 747.8% after adjusting for inflation with no feasible finale in sight. In the beginning years of Barack Obama’s presidency, in attempts to make college more affordable, consequences akin to these were dished out.  

The pursuit was to overhaul private loans because they had a higher interest rate, encouraging a significant number of students to only take federal loans and not private ones. 

Prior to Obama’s policy, students were incentivized to borrow as little as possible because of the high interest rate in private lending, forcing colleges to lower tuition if they wanted people to attend. With an extremely low interest rate, colleges can charge however much they want because there is no limiting principle. Students have no immediate accountability for the amount borrowed, and thus little protest is made for the cost. 

If schools themselves don’t have the immediate accountability of financial duress of students, why would they not raise the cost of attendance? 

We saw this after Obama’s policy; efforts made to tackle the unaffordability of college underhandedly made the problem worse. Aside from a policy standpoint, there are moral implications and cautionary tales as well.

 Throughout all of human history, people have despised the nay-sayer; the person who outcries “the slippery slope” questioning, “If we let this happen, what will happen next?” To the dismay of most, the nay-sayers usually have a good point. Though this policy may appear to be all good and no bad, there will be consequences, and they will not be good ones. If intellectual consistency applies here, what other loans can be forgiven by the government? How will this affect inflation, our national debt, future lending interest rates for ALL loans, retirements, the stock market, all of it? Because even upon shallow evaluation of those categories, it does not look promising. Therefore, it seems like this “hot topic” is being used for good press and to satiate the masses of Americans crippled by student loan debt- for now.