Government

We Must Have Education Reform Before We Can Start Forgiving Student Loans

Biden supports forgiving $10,000 in federal student loans.

By  
on

(Image by Getty)

A few days before his inauguration, President Joe Biden presented his $2 trillion spending proposal to control the coronavirus pandemic and revive the national economy. To the dismay of many young people, his plan had no mention of student loan forgiveness.

To be fair, Biden already has a student loan forgiveness plan. He supports forgiving $10,000 in federal student loans. He also supports more generous forgiveness provisions under certain circumstances outlined here.

But for many people, his forgiveness ideas are not enough considering the current $1.6 trillion collective student debt in the U.S. Especially if they owe a six-figure debt and their monthly payments do not even cover the accrued interest. Now that the Democrats control the White House and a thin majority in Congress, this issue will eventually come back after the coronavirus is controlled. Congress may introduce a bill forgiving a larger amount than what Biden proposed. But as the forgiveness amount gets larger, so are the chances that one or two Democrat senators will be skeptical. And there may also be a threat of a presidential veto.

The problem is that wholesale student loan forgiveness is a highly divisive issue and is no longer just a financial and economic problem. It has become a political, social, racial, equitable and moral one as well. This is because any forgiveness provisions will contain limitations on who qualifies. So people are going to argue as to why one group should qualify and why another should not. Alternatively, forgiving student loans without restrictions will be unfair to those who sacrificed and lived cheaply to pay down their loans quickly. Contrary to internet belief, not all people who paid off student loans are rich.

Some have asked why not give the best of both worlds — forgive student loans and give a refund to those who paid theirs off. While this sounds good, this means that a $1.6 trillion dollar problem is solved by spending at least $3 trillion. Even though government is supposed to be a nonprofit entity (and it has certainly lived up to that image), a trillion dollar loss is not going to look good on your World Bank/IMF credit report.

Finally, let’s suppose that all of the existing student loan debt is forgiven now. In a few years, there will be a new crop of graduates with unsustainable debt. Also, these people will leave with the expectation that their student loans will also be forgiven since precedent has been set.

Sponsored

In a nutshell, there needs to be fundamental reforms in the education system before a viable and fair forgiveness plan can be discussed and implemented. Otherwise, loan forgiveness will only serve as a Band-aid that needs to be reapplied every few years. Right now, with the coronavirus changing how schools are conducting their curriculums and with people questioning the value of post-secondary education, would be the best time to have this discussion. Here are a few ideas I have.

First, federal student loans should be liberally available to anyone but the amount should be limited based on the type of job they plan to obtain after graduation. This is the case with undergraduate loans and should also apply to graduate or professional school loans. The debt size can increase if they are attending a professional school. This will ensure that students will graduate with a limited amount of student loan debt. The criticism to this is that only the wealthy can afford to get an education. I disagree. Some schools are solely dependent on tuition and will cut costs to meet the student’s ability to pay or risk closing.

Second, the federal and state governments should finance permanent cost-cutting measures which will result in lower tuition. This could mean buying out contracts and energy-saving renovations to name a few.

Third, the government needs to explore creating low-cost alternatives to a university education. There are some out there like the community college system. There is also an expansion of online learning due to the coronavirus pandemic. These alternative systems can be supplemented with internships or apprenticeships.

I’ll leave it to experts to elaborate on the above, but the general idea is to give potential students more options so they will not need to take out large student loans to get an education.

Sponsored

The current student loan system is unsustainable and is causing economic harm to the younger generation. But student loan forgiveness has become such a divisive topic that no matter what the proposal is, it will anger some group of people. Thus, the long-term solution is to not be put in this situation in the future. Although we are living during a pandemic crisis, this creates an opportunity for reform that should not be wasted. The government should create policies that removes the incentive for schools to raise tuition pretty much indiscriminately, which partially created this problem in the first place. I am hopeful that in the near future, there will be alternatives to university education that will be respected by employers and society in general. Once student debt levels stabilize and hopefully start decreasing in future years, we can then discuss how to equitably deal with the student loan problem.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at sachimalbe@excite.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

Topics

, , , ,