Arguing Against Complete Student Loan Forgivness
As wonderful as a world of complete loan forgiveness may sound to this generation of debt holders, it is a regressive and inflationary policy that will have devestating consequences for the economy and thus the people. The most likely scenario is that debt forgiveness will be paid through the deficit increasing it by $1.7 trillion. The government will most likely be paid through raising taxes. Even adjusted for tax brackets, middle class earners will be forced to pay 2 to 4 thousand dollars, according to the Taxpayers Union, while only 36% of middle class people attended a four year college, according to Reber ‘23. Akers ‘22 furthered that “Each dollar spent on loan relief is a dollar raised in taxes
Student-loan cancellation would bleed the working class to alleviate debt for those with more-lucrative career options.” This plan is extremely unfair to Americans who never attended college and don’t have student debt, which is mostly low income and middle class people. As Brookings ‘20 finds that, based on data from the Federal Reserve, almost 60% of all student debt is owed by the wealthiest 40 percent of households and only 5 percent by the bottom 20 percent. NBC ‘22 finds Full forgiveness would distribute about $190 billion to the top 20 percent of earners and only about $30 billion to the bottom 20 percent. The impact of this is increased poverty. It is proven empirically that even a small increase in federal income tax can push millions into poverty. Most recently, as stated by Luhby ‘23, “The share of Americans in poverty rose significantly due to taxes being raised by 1,000 to 1,600 dollars due to the child tax credit. This seemingly incremental change meant that “the supplemental poverty rate increased by 4.6% higher than it was prior to the pandemic.” If this smaller government program had such dire consequences to taxes and the people, then debt forgiveness would be devastating.
The real crisis in this country is not educated people with debt who can easily absorb rise in costs, it is those who can not even afford to keep a roof over their heads. While debt forgiveness may be a free gift to some, it would exacerbate the most dire inequalities in this country. Thus, this is an economic policy that is not just unfair and anti-progressive, but regressive.
Furthermore, put simply, inflation is when there is excess money in the economy and therefore increased demand without increased supply, thus leading retailers to increase prices. It is clear that putting 1.7 trillion dollars of unearned revenue into the economy would increase inflation, which, especially now when inflation is surging dangerously, would have terrible consequences for the US economy and for individuals.
During the pandemic, the Trump administration passed the CARE Act, which provided $1.8 trillion in direct aid to individuals and businesses, the largest stimulus package in U.S. history. According to the Federal Reserve, U.S. fiscal stimulus contributed to an increase in inflation of about 2.5 percentage points and the impacts of which are still being felt through rising inflation today.
These bills have a strong correlation with inflation. And what is essentially a 1.7 trillion dollar stimulus bill would skyrocket inflation.
According to a study by Richmond Fed, Debt cancellation therefore leads to a sudden decline in expected net revenues, which becomes insufficient to back the level of debt. Consequently, the price level rises to reduce the real value of debt.
This will erode all efforts to mitigate inflationary pressure. In one year these provisions would wipe away almost two times the 10 years’ worth of deficit reduction estimated to come from the Inflation Reduction Act.
Additionally, inflation would cancel out any gains in personal wealth caused by debt forgiveness. Over the past year, inflation has erased $5,100 of value from the average worker’s paycheck, which is far greater than the average annual student loan payment of $2,700.
The impact of this is poverty. High inflation, in short, tends to worsen inequality or poverty because it hits income and savings harder for poorer or middle-income households than for wealthy households. Households that have recently escaped poverty could be pushed back into it by rising inflation.
The Census Bureau’s Household Pulse Survey found that “97 percent reported that prices were increasing, and almost half of those individuals—47 percent—felt very stressed by inflation.” Meanwhile, according to Norton ‘22, only 17% of Americans even have student debt. It is clear that while complete student debt forgiveness may have some benefit for a minority of privileged people, it would hurt everyone through rising inflation, especially the most disadvantaged in this country who would be impoverished by it.
