Economic pros and cons of student loan forgiveness

In the old days when economics was first invented, economists were positivistic (focused on facts or what is), not normative (what should be or what is good or bad). So, folks, just the facts as I review the pros and cons of student loan forgiveness.

Believe it or not, I attended college and actually finished. While in college, I worked full time, took no student loans, and paid my way all the way through. In graduate school, I had partial assistantships and delivered pizzas, worked fast food and washed dishes. I celebrate the fact that I was fortunate to have no student loans when I graduated in the late 1980s with my doctorate. Boy, am I glad. Today, student loan debt is over $1.7 trillion, and I have no part in that. The newly announced loan forgiveness program forgives debt for up to $20,000 for those who qualify for Pell Grants, $10,000 for those who do not qualify for Pell and make less than $125,000 (individuals) and $250,000 (couples).

Here are some salient statistics on college loans from various sources such as nitrocollege.com, educationdata.org, and Community College Review:

• Current U.S. student loan debt is $1.75 trillion.
• 1-in-4 Americans have student loan debt (44.7 million people).
• The average student loan debt is currently $37,693.
• The average student borrows over $30,000 to pursue a bachelor’s degree.
• 20 years after entering school, half of student borrowers still owe $20,000 each on outstanding loan balances.
• The average public community college debt for graduating students is approximately $11,261.
• The average amount Monroe County Community College students borrow per year is $5,485.

Now to the gist of this article.

The pros:

• For those who have debt, loan forgiveness is a good thing, which allows them to utilize those funds elsewhere. According to a study by the Roosevelt Institute, “The positive effects of an evidence-based student debt cancellation policy for individuals and households extend far beyond the immediate need of removing burdensome debt. The ramifications for financial and personal well-being, credit, job stability and satisfaction, homeownership earlier in the life course, capacity to build wealth for emergencies, human capital investments, family stability, and accumulating wealth can multiply throughout a person’s life.”

• It will help boost the economy, benefiting many.

• It will help rectify racial inequity, especially for Black students. According to research from Columbia University, Black students have twice as much debt as white students and have a default rate of 21% compared to 4% for white students. The debt prevents wealth building.

• It allows some relief, since bankruptcy from student debt is not allowed, as it is for most other debts.

The cons:

• It may be considered unfair to those who have no loans or have paid off their loans. Those who took the loans made a personal choice and must pay for it.

• Most of the benefits may accrue to those on the high end of the scale who are better able to pay, as they hold the most debt and benefit more.

• There are already other loan forgiveness programs, so this may be a temporary solution for the larger problem of over-inflated college costs.

• It may be an incentive for people to borrow more in the future, expecting to be forgiven. Some may take larger loans with no intention of repaying.

• It could worsen inflation as more money is put into the economy.

• It creates a burden for taxpayers, who will eventually have to pay this money back.

So, while we are unsure exactly how this new debt forgiveness plan will wash out, it is important for us to understand the economic ramifications.

Unfortunately, while all colleges are lumped together for these statistics, as we can see for community colleges such as MCCC, student loan debt is significantly less. This is why it makes so much sense to start at your local community college and incur little or no debt. Besides, now, if you are 25 or older you may be eligible for free tuition through the Michigan Reconnect program. Just the facts.

Kojo Quartey is president of Monroe County Community College and an economist. He may be reached at kquartey@monroeccc.edu.