According to Anthony Davis, an economics professor at Duquesne University in Pittsburgh, people are talking about the Biden administration’s student loan bailout plan “as if these loans would magically disappear.”
The problem is that they don’t.
On August 24, the government announced plans to forgive student loans of up to $10,000 for non-Pell Grant recipients and up to $20,000 for Pell Grant recipients. Individual borrowers and married borrowers with incomes less than $125,000 and her $250,000, respectively, are eligible for relief, potentially benefiting about 43 million Americans.
The University of Pennsylvania estimates that canceling this debt will cost between $469 billion and $519 billion over a 10-year budget window.
The federal government now has several options, Davis said.
To make up for the cost, it may cost less than other methods. Taxes may be increased to cover payments that would have been received from the borrower. Alternatively, it could print more money, exacerbating the inflation problem.
“We don’t allow student loans by any means. We simply moved them from students to the general public,” Davis said.
As borrowers prepare to apply for relief in October, an economics professor in western Pennsylvania predicts a lasting impact on the economy and higher education.
Benefit or burden?
Supporters of student debt forgiveness say the relief will revitalize the economy and benefit low-income borrowers, according to Najeev Shafiq, a professor of education, economics and international affairs at the University of Pittsburgh.
Borrowers now have the opportunity to spend and invest more, Shafiq explained. For those struggling to make ends meet, debt relief can help them buy a home or start a small business.
“At a core level, this is the main justification for the Biden administration, and this will ease people’s suffering,” Shafiq said.
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However, the money has to be paid somehow. Shafiq anticipates the possibility of future tax increases and inflationary pressures.
It’s unclear how much the tax will increase.
“Both the Biden administration and politicians are reluctant to share these details accurately and honestly,” Shafiq said.
He added that it was “unclear” if this was the best use of government funds. For example, money used to write off student debt could have been used to support universal early childhood education, an area the United States is lacking, Shafiq said.
Davies is concerned that the decision could set a precedent. He called the cancellations a “burden” for taxpayers and fears the country’s deficit could rise dramatically in the years to come.
There is a possibility of store change
Zachary Davis, assistant professor of economics at Unity’s St. Vincent College, believes this debt relief could start “a cycle of more debt forgiveness.”
Davis was reluctant to trust estimates of the cost of debt cancellation because he believes future loans will also be cancelled.
This could draw more students to higher education institutions, assuming their loans are cancelled. Colleges and universities may also increase tuition fees, which could result in more expensive loans.
Shafiq believes it is “very likely” that tuition fees will go up.
He explained that critics believe loan relief is at odds with higher education cost reform. and hoped that colleges and universities would respond by lowering tuition fees to attract more students.
Now, if the federal government actually pays a portion of the cost of educating students, colleges and universities can avoid charging even more.
“[The government]has basically taken away an important mechanism that was needed to govern institutions of higher education,” Shafiq said.
Davis fears that if the federal government continues down the road of canceling the loans, it will eventually pay for all higher education.
Politicians, then, may wonder why they don’t have a say in what college students learn in the classroom, he said. He fears this could create a “Public School 2.0.”
“A college education is either worth it or it’s not,” Davis said. “If it’s worth it, it pays for itself, so there’s no need to subsidize it.”
political influence
In Shafiq’s view, one of the most serious consequences of this decision is the potential ‘resentment’ between working-class families and universities.
“The fact that colleges are likely to continue raising prices will be viewed by most blue-collar families as something of a great deal between Democrats and colleges,” he said.
Those who chose to look cynically at the situation might think the Biden administration chose to cancel loans to benefit the Democrats rather than benefit society, Shafiq said. rice field. Politicians on both sides of the aisle often make decisions with political goals, rather than public policy, at the forefront.
With the midterm elections just two months away, this could be seen as a way to “revitalize the Democratic voter base,” Shafiq explained.
“Given how narrow some of these races are, it could work,” he said.
However, loan cancellation may still be unclear. If challenged in court, its fate could ultimately rest with the conservative Supreme Court.
“I think it’s very likely that this will go to the Supreme Court,” Shafiq said.
Maddie Aiken is a staff writer for Tribune-Review. She can reach her Maddie by email at maiken@triblive.com or on her Twitter. .
