Should we forego student loans entirely?
This crisis is unsustainable – but not insoluble.
The anxiety and frustration surrounding the student loan crisis has been simmering for years, but this summer, could finally reach a boiling point. Indeed, the pause on federal student loan payments (which the Biden administration issued in response to the pandemic) officially ends in August, effective now. Plus, the recent interest rate hike from the Federal Reserve is going to make it even more expensive for anyone planning to take out loans in the years to come. So between current loan holders who might not be ready to resume loan repayments and new loan holders who might have to take out loans at an even higher interest rate than before, experts s agree that we are on the verge of reaching a tipping point which could lead to an unprecedented number of people defaulting on their loans.
What shall we do now?
The student loan argument grows sharper every day: Proponents of student loan forgiveness say the system is corrupt, predatory and downright unsustainable for even the hardest-working citizens. (Currently, the total outstanding student debt in the United States is $1.6 trillion.) These versus Forgiving student loans say it would be ethically and economically unacceptable to forgive billions of dollars in debt. (A common argument online from those who have paid their debts is that everyone should follow suit, no matter what difficulties they might face.)
To get to the bottom of the debate, we spoke with Pattie Ehsaei, otherwise known as “The Duchess of Decorum.” In addition to being the TikTok queen of etiquette and financial advice, Ehsaei has spent the past 20 years building a multi-faceted career as a lawyer and manager in financial services. She has also just, notably, repaid $160,000 in student loans on her own — three decades after taking them on to go to law school.
Below, Ehsaei breaks down every argument on either side of the student loan debate and explains in more detail why the Biden administration’s current proposal (to partially cancel student loans up to $10,000, and only for those earning some income) is not an acceptable solution. She also offers a potential solution that could make the difference – and could even be a compromise that could make both sides of this complicated argument happy.
Why us Should Forgive all student loans
The argument for canceling student loans has more to do with the economy than one might think. “Giving up student loans promotes education,” says Ehsaei, “and what people tend to forget is that an educated society has less unemployment and reduced reliance on public aid. Therefore, tax revenue is greater. Studies also show that a more educated society has reduced crime and improved public health care.
Another argument concerns the fight against racial disparities in the context of the loan crisis. “The black community tends to fall victim to predatory, for-profit colleges that charge astronomical sums for their education,” says Ehsaei. “And because of that, 21% of black people with loans don’t repay their student loans, compared to 4% of white people with loans. So not forgiving student loans disproportionately hurts the black community. »
Another argument in favor of canceling student loans concerns the impact this decision could have on small businesses. “Our economy is fueled by small businesses,” says Ehsaei. “So if you can’t get a first-time small business loan, you have less, which then means fewer jobs, less economic output, and less consumer spending. This is therefore very harmful to the economy.
Why us Should not Forgive all student loans
Many people might be against canceling student loans for personal reasons. For example, if someone took out a loan decades ago and worked for years to pay it back, they might feel like it’s unfair that someone else can get their loan cancelled. his loan without having to endure this struggle. However, Ehsaei is quick to point out that this is not the most important reason why we might want to avoid forgiving student loans.
Instead, we should consider this simple reality: it would not solve the fundamental problem, which is that the cost of education in this country has become completely unsustainable. In fact, the rising price of education has increased at twice the rate of inflation since 1985, meaning the cost of an undergraduate education is exponentially more expensive for students today than it is today. it wasn’t for those in the 80s and 90s.
“The reason people have a lot of student loans is because the cost of education is so high,” says Ehsaei. “So even if we were to cancel all student loans this year, what about the future? It’s just a band-aid for a much bigger problem.
As for Biden’s latest plan to cancel more than $10,000 in loans for anyone earning $125,000 or less, Ehsaei notes that it would actually exacerbate the problem rather than help it. “When you cap that number, you’re really just helping upper-middle-class students, because low-income students are getting a lot more than $10,000 or even $50,000. Upper-middle-class child loans are forgiven in this case, but you’re not really helping low-income people.
For this and other reasons, Ehsaei argues that we shouldn’t talk about student loan forgiveness at all. Instead, we should focus on how to drastically reduce the burden of getting an education in America.
“What we need is free education, period,” says Ehsaei. “If you provide free education and free health care, everyone benefits. Studies have shown that the lack of these two elements are the greatest obstacles to the growth of companies. So we need universal health care, and we also need free education.
How there could be room for compromise
For those feeling rather hopeless right now, it’s worth keeping in mind that this battle over student loans doesn’t have to die in a stalemate. In fact, there is a potential compromise that could make a big difference for millions of people and just might satisfy both parties.
“If we give loans, it should be a government loan at a very low interest rate, like 2%,” Ehsaei says. “Private lending shouldn’t be allowed for universities or education, period, because that’s where you get in trouble.”
She also suggests a system in which people have the option of deferring their loans for a period of time without accruing interest during that period. She explains, “We need a system where a person can actually defer the interest for a little while, if you don’t make enough money, rather than having the interest accrue.”