President Joe Biden’s executive order to help college graduates struggling with student loan repayments has won favor with students, but some experts have reservations.
This policy comes in response to the growing problem of students accumulating large debts. In the United States, undergraduate students who took out federal loans, on average, graduated with $28,400 in debt, according to bestcolleges.com.
Biden’s student loan forgiveness plan will forgive $10,000 in student debt and $20,000 in debt for Pell Grant recipients per person. This plan hopes to ease the burden that large amounts of debt are leaving for college graduates as the country continues to recover from the pandemic.
“I think the government has been really irresponsible with their loan programs and allowed really predatory loans to be given out to young people who are just trying to get an education,” said Eli Newland, a software engineering junior. “So I think it’s a good step to right that wrong.”
Newland points out that the cost of higher education has skyrocketed in recent decades, leading more students to feel the need to take out loans to attend college.
“The government grant rate for colleges has come down a lot, so our taxes don’t cover education as much,” Newland said. “I think we absolutely need to take steps to improve this, but we also need to help people who have taken advantage of these predatory loans.”
For many students, graduating with significant debt can delay many milestones that people typically look to when starting out in life.
“I graduated with my first degree in 2008, and a lot of my friends graduated with a ton of debt at the time,” said Christen Bain, an agricultural engineering graduate. “They’re still paying off those loans now and not owning a house and having a family the way I could because I went to school all the way.”
For graduates struggling to repay debt, compound interest can continue to put students further into debt even after graduation. Biden’s debt cancellation plan may ease that burden, but is only a fraction of the debt some graduates have racked up.
“You look at when you’re starting out and you’re like, ‘Okay, I’m going to be $40,000 in debt,'” Bain said. “You graduate, but it just keeps piling up, so your $40,000 becomes $120,000 becomes $200,000, and so even when you start and you get the idea that, okay, my career is going to make enough money for me to afford to pay off my loan, but that compound interest means that’s impossible.
Biden’s debt forgiveness plan helps people struggling to deal with the debt they accumulated while in college but has come under fire for several reasons. One criticism is that the policy addresses a broad population without considering the root of the problem.
“It’s a very blunt political instrument and not really targeted at the real problem,” said John Winters, an economics professor. “So I think that’s the thing where you look at economic policy, it’s not designed to really address the fundamental issues.”
Winters says another issue is the high income thresholds for those eligible for debt forgiveness. Single-income families earning $125,000 or couples earning up to $250,000 per year may qualify for student debt cancellation. This high threshold means that the plan targets a large part of the population instead of focusing on a low-income part of the population.
“You know, again, if you think about what’s going on here, I would consistently think there are other issues with student loans that deal with [the issue] in a different way,” Winters said. “And you know, there are already income-contingent repayment plans and things like that.”
Winters said that while Biden’s policy responds to a population’s need for debt cancellation, his loose targeting is aimed at gaining the approval of the relatively large population that is in the process of paying off student loans. Dirk Deam, a professor of political science, said the policy is about solving a serious problem, but many people are keen to point out that the policy is flawed.
“I think it’s unnecessarily cynical to say that’s the only reason it was done,” Deam said. “And I think a lot of people want to say there are other good reasons for things to be done.”
Biden’s plan targets low-income populations by doubling the loan forgiveness amount for Pell Grant recipients. Pell scholarships are awarded to undergraduate students who demonstrate exceptional need for financial aid, according to the U.S. Department of Education.
“It’s a way to ease the debt burden of students who have gone to college and who come from not very wealthy families,” said Karen Kedrowski, director of the Carrie Chapman Catt Center. “It’s a way of weighing the benefits for students who, when they walked through the door, were financially disadvantaged.
Kedrowski would argue that the Student Loan Forgiveness Plan considers low-income people as well as higher-income people.
“More generally, there is a problem here where [students start their] lives with a huge burden in terms of debt, which significantly limits what you can do,” Deam said. “It’s not particularly good for you, and it’s not particularly good for the country.”
In terms of good for the country and the economy, Biden’s plan helps people feel financially secure enough to participate in the economy.
“You go out into the economy and you spend your money on something other than debt relief for yourself, so that stimulates the economy,” Deam said. “It puts more money back into the economy. It’s good for a country that wants to have a strong and growing economy.
Deam said that in addition to fueling economic growth, the policy allows individuals to contribute things they would otherwise be too bogged down to contribute.
While Biden’s plan addresses the immediate problem of the population sinking into debt, it doesn’t address the problem at its root: the steep rise in the cost of higher education.
“You know, in the 1970s, state funding provided half or more of the actual cost of education at public colleges and universities, which meant the direct cost was relatively low,” Kedrowski said. “That has been significantly eroded to now 25% or less; there are states where it’s less than 10%.”