As of June 2021 43 million borrowers – approximately 14% of the adult citizens within the U.S. – owed approximately US$1.59 trillion in outstanding federal student loans. While in many instances there has been a focus on those with huge balances, such as the dentist who owes one million dollars in loans to students, there is smaller $39,351 per borrower, with a monthly average installment of $393 per month. The typical repayment term for student loans of $39,351 has a period of 20 years.
Amount of loans outstanding is a lot dependent on the degree that is pursued. The average debt for a bachelor’s degree is less than $29,000, while the debt for dental schools is 10 times more at $290,000. In general, students who choose careers with less pay are less likely to be liable for student debt.
If the borrower’s loan amount was up to $10,000 was to be cancelled for all 43 million borrowers of student loans that would cost $377 billion. This would totally eliminate student loan balances of over fifteen million of the borrowers. The cost of forgiveness up to $50,000 to each of the 43 million borrower is around 1 trillion dollars. This would also erase the student loan debts of over 36 million borrowers. A limited amount of student loan forgiveness has already been implemented. In the Biden administration has cancelled more than $3 billion in student loans to 131,000 borrowers who have been misled by their schools or suffer from permanently disabled and total disability.
The impact of the effects of loan forgiveness
Certain economists consider the huge amount of student debt as a stumbling block to the economy. Some economists believe that repayment of student debt could increase the economic activity. Yet, I and other economists claim that any benefit in the economy resulting through student loan forgiveness would be insignificant relative to the cost to taxpayers.
If a borrower receives $10,000 granted, it’s not like the borrower received $10,000 to spend now. Instead, it is estimated that it would take 100 dollars per month for an average borrower to invest or save over the course of 10 years. When all $1.5 trillion of Federal student loan debt were cancelled and the average borrower could be able to borrow an extra $393 a month. It is thought that the economy would just grow by 100 billion dollars, or 0.5 percent, if the entire $1.5 trillion of the federal loans for students were to be cancelled. In terms of an example, it’s equivalent to earning $20,000 per year and receiving a one-time increase of $100, which would result in a salary of $20,100. However, it would cost the business $1,500 right now to grant you the raise of $100.
The economic impact on the immediate future would likely be less, since it is the Department of Education is currently permitting 90 percent of borrowers not to make the monthly payments they are required to until September 2021, due to the pandemic.
Because the majority of borrowers are not making repayments on debts for student loans, that financial gain is likely to be already reflected in the current state in economic growth.
The evidence suggests that loan forgiveness on a broad basis could have a small positive effect in the overall economy. The estimates suggest that each dollar of student loan forgiveness amounts into between 8 and 23 cents in economic benefits. In contrast, stimulus checks were estimated to have an economic value of 60 cents per dollar given to taxpayers.
Eliminating a portion or all of student debt could assist with other problems that are not related to the economy. Some people delay getting married or even buying a home because of the student loans they have to pay. The burden of student debt has been proven to be a major cause of physical and mental health problems as well as “less overall satisfaction with life.”
One issue with the idea of granting student loans to everyone is that the bulk of the benefits will go to people who earn more. Additionally, a small portion of the benefits will go to those who borrowed money to pay for an undergraduate degree. Sixty-eight percent of students who took out loans for students to complete their bachelor’s degrees borrowed under $10,000.
Just 2% of people had borrowed greater than $50,000. The borrower with the largest loans tend to have graduated degrees that earn higher salaries. Families earning more than $74,000 are responsible for about 60% of unpaid student loans.
If the goal of the idea of loan forgiveness is to help stimulate economic growth, then I think that the loan aid should be given at people who are most likely to make use of any savings that result from the forgiveness of student loans. This means that student loans should not be targeted at those with low incomes with less than $10,000 of student loan debt, but tend to be in default on the loans.
Any relief program for student loans should be evaluated on the impact it might have on the those who are borrowers, as student debt can affect certain groups more severely than other. For instance, women are liable for around two-thirds of outstanding student loans. Around 69% of college graduates who are white have student loan debt, which is compared to 85 percent of Black college graduates. It is important to note that women and those from different races would benefit most from the forgiveness of student loans.
If the government is able to forgive current student loans , and continues to issue new loans to students it could lead the future students to borrow under the hope or assumption they will see the federal government eventually cancel their loans as well.
Another issue with any student debt forgiveness scheme is the perception of injustice or fairness that the policy is perceived to have. Let’s say two students completed the same degree at an undergraduate level, and took out the identical amount of student loans to pay for their education, and were able to secure jobs that paid the same in cities in which costs of living are comparable. Both borrowers have made their monthly installments for the past five years, but the borrower number 1 has made higher payments than what was required. This is why the borrower 1 is currently the repayment of their loan and borrower number 2 is still in debt. Does it make sense for the the loan of borrower 2 to be repaid? Should the borrower 1 , be compensated by the cost of paying the loan earlier? The lawmakers will have to think about the question of fairness.