The Case Against Student Loan Cancellation

Here’s why student loans shouldn’t be cancelled.

Here’s what you need to know.

Student Loans

Should student loans be cancelled? That’s the question on the mind of 45 million student loan borrowers, some members of Congress, the president and other stakeholders. There are many reasons to cancel student loans. (You can read Part 1 of this two-part series on student loan cancellation here: 5 Reasons To Cancel Student Loans). The goal of this series is to provide some leading arguments on both sides of this important issue so that you can make a more informed decision. Some members of Congress and President Joe Biden want wide-scale student loan cancellation. However, they differ on how much student loan forgiveness. Biden wants Congress to cancel $10,000 of student loans, while Senate Majority Leader Chuck Schumer (D-NY) and Sen. Elizabeth Warren (D-MA) want Biden to cancel up to $50,000 of student loans by executive order. Biden says he doesn’t support cancelling $50,000 of student loans. Whether you support or oppose student loan forgiveness, it’s important to understand arguments from all sides.

Here are 5 reasons not to cancel student loans: 

1. Cancelling student loans is poorly targeted

Who benefits from student loan forgiveness? Opponents are concerned that wide-scale student loan forgiveness is poorly targeted and will invariably benefit wealthy student loan borrowers who don’t need their student loans cancelled. For example, graduate school debt accounts for more than 40% of all outstanding student loan debt. This includes student loans for medical school, dental school, business school and law school. Certainly, student loan borrowers who attend these schools can struggle with student loans too, and not all of them are high-income earners. That said, the concern is that many student loan borrowers with high income could get student loan forgiveness, even if they can afford their student loan payments. Schumer and Warren have said only student loan borrowers who earn less than $125,000 would qualify. Opponents say this threshold is too high, and they believe that if there is any student loan cancellation, it should be limited to borrowers with low income.

2. Cancelling student loans forgets everyone who didn’t attend college

The latest student loan debt statistics show that 45 million borrowers collectively owe $1.7 trillion in student loan debt. While 45 million is a relatively high number, it’s less than 20% of the approximately 250 million adults in the U.S. If you have student loan debt, and your student loans get cancelled, certainly it would benefit you financially. However, the vast majority of the adult population no longer has or never had student loans. This includes individuals who couldn’t afford college or never attended college, who also may face financial hardship and have been adversely impacted by the Covid-19 pandemic. So, the policy question becomes this: is it fair to cancel student loans for one group of people, and not provide the same financial relief to the majority of the population who also may have different financial struggles? The “poorly targeted” argument also has been extended to other forms of debt such as credit card debt, which also impacts millions of young people at much higher interest rates. Moreover, mortgage debt is the highest form of outstanding consumer debt in the U.S. Cancelling mortgage debt for millions of Americans arguably could benefit more borrowers.

3. Student loan cancellation doesn’t stimulate the economy

Warren says cancelling up to $50,000 of student loans per borrower could cost taxpayers $600 billion. However, that doesn’t mean that $600 billion goes back into the economy today. The $600 billion doesn’t go back into the pocket of student loan borrowers, who then can spend money on buying a home or supporting their local businesses. According to The Committee For A Responsible Federal Budget, cancelling all student loan debt would produce only $90 billion in available cash to spend in 2021 and only $450 billion over the next 5 years. Why? With one-time student loan cancellation, a borrower saves cash on their monthly principal and interest payment (not their full student loan balance), which could result in several hundred dollars in savings per month, on average. While that is a financial benefit, it’s different than getting their full student loan balance in cash. Opponents of student loan cancellation say that stimulus checks and unemployment benefits are better ways to stimulate the economy. If Congress wants to stimulate the economy, Congress would be better off giving stimulus checks to every American and encouraging them to spend money in the economy. 

4. Cancelling student loans doesn’t solve the high cost of college education

Opponents of student loan cancellation say that one-time student loan forgiveness is a band-aid on a much larger, unaddressed problem: the growing cost of a college education. College tuition is only getting more expensive. Cancelling student loans would help borrowers who have student loan debt, but it’s a one-time solution. Given the cost of college, there will be more student loan borrowers who will face the plight of previous student loan borrowers— except they won’t have the benefit of student loan cancellation. Rather than cancel student loans, Congress could find solutions to lower the cost of higher education for all Americans. For example, Biden has a plan to make two-year and four-year public colleges and universities tuition-free. 

5. Cancelling student loans is unfair to borrowers who paid off student loans 

Life is unfair, as the saying goes. For borrowers who recently paid off student loans, they would not benefit under current proposals for wide-scale student loan cancellation. You can call it tough luck. However, many of these borrowers also faced significant financial struggles, and they managed to pay off student loans. Many of delayed having families or getting married, worked multiple jobs, didn’t buy a home, and made other financial sacrifices to pay off student loans and demonstrate financial responsibility. This doesn’t mean that borrowers who paid off student loans 30 years ago should get compensated. However, if Congress cancels student loans for some borrowers, opponents say Congress should provide compensation to borrowers who paid off student loans recently so they are not excluded.

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