On Jan.19, the White House formally announced the cancellation of another $5 billion in student loan debt for almost 74,000 Americans. The decision comes months after the Supreme Court struck down Biden’s largest loan forgiveness plan, which would have theoretically erased the debts of more than 20 million people. Even so, the president has managed to cancel a total of $136 billion in student debt since taking office.
Student debt is rapidly becoming one of the biggest crises in the nation, having almost tripled in size over the last 15 years according to USA Today. More than half of college students rely on loans to graduate, owing a total of $40,000 on average. An outstanding 13% of all U.S. residents currently have student loan debt, threatening the possibility of a looming economic recession for the country in years to come.
Last summer, the Supreme Court declared Biden’s $400 billion debt forgiveness packet unconstitutional for overreaching its executive power. Since then, the administration has opted for small but numerous bundles of debt forgiveness to avoid lawsuits and other legal challenges. The new $5 billion incentive is part of those strategic packets.
Dr. Randall Waldron, Professor of Economics and International Business at JBU, explained how this program works: “The push for government to pay off student debt has stemmed from the good intention of some politicians, especially from the Democratic Party. There are people at JBU who would benefit immensely from it. But there is a negative side as well.”
One of these downsides is the fact that student loan forgiveness stimulates a rise in tuition. According to Cato Institute, college institutions would be encouraged to raise the costs of studying, seeing a loss in their loan repayments. The other problem is more straightforward: addiction. The mere possibility of the government paying debt could easily lead students to borrow more without necessity. Finally, millions of hard-working students would be disincentivized from paying their dues, accelerating the already upward trends in college debt across the country.
“There’s a certain amount of unfairness, and it becomes a vicious cycle,” Waldron said.
The United States national debt, which just rose to $34 trillion last month, will be a defining topic for the 2024 presidential elections. Foreign countries have backed American currency for decades, but fiscal carelessness could jeopardize the future permanence of the U.S. dollar on the world stage. Republicans, who traditionally oppose student debt forgiveness, are now preparing an effort to “roll back” Biden’s $5 billion packet from the House. The probabilities of this passing through Congress are low, however.
“Both this administration and the previous one have been very irresponsible by adding to the national debt, but the best thing we can do is to ensure a money-sound economy to the next generation. I think it is a moral principle that, when we borrow money, we repay it,” Waldron said.
Photo courtesy of Stanley Morales