One of president Joe Biden’s initial campaign promises was wiping $10,000 per student borrower currently in debt. The president has been more than occupied with dealing with the fallout of the COVID-19 Pandemic and geopolitical tensions, but now it seems he is able to add some resolution to this current predicament. On April 18th, Biden announced that 3.6 million borrowers indebted will receive some form of aid as they look to repay outstanding debt. He also promised complete forgiveness through the IDR (income-driven repayment program) after 20-25 years of interest paid. This move was necessary as student debt has reached unprecedented levels extending to $1.75 trillion at the end of 2021. The question becomes, are the president’s efforts enough to tackle this problem head-on? What does the future of student debt forgiveness look like once this precedent is set?

The recent action was taken by the administration only canceled a fraction of student debt outstanding specifically a little over 1% of the $1.75 trillion. According to press secretary Jen Psaki, cancellation of student debt could still be “on the table” as the administration looks to further provide relief for millions of more Americans. As discussed in the last post, canceling student debt entirely is dangerous as it sets a precedent for future delegation of debt problems when borrowers begin to tread water. The future of debt forgiveness is an important topic to discuss as it affects millions of Americans explicitly and tens of millions more implicitly.

The escalation of student loans 2008-2021 (cnbc.com).

Another truth is that the United States is currently in about $30 trillion worth of debt itself, a figure that has risen ever since 2001. The U.S. government must be vigilant about excessive spending, especially in such a precedent-setting event that total debt forgiveness would create. Honestly, I believe president Biden is currently pursuing the best course of action by providing nominal amounts of support based on scheduled payment plans. The IBR (income-based repayment) was created in 2009 and has served useful by allowing students to plan for payments and receive forgiveness based on their responsible decisions. President Biden plans to revamp this program and look to make it more effective in use for all Americans.

In 1999, then-president Bill Clinton started an initiative to make America debt-free by 2013, an initiative that clearly reversed (rollcall.com).

The future of debt repayment relies on correcting the mistakes of the past. For too many years, borrowers were steered in the wrong directions which caused the ultimate fallout that currently exists today. President Biden has a challenging task of reforming programs such as IBR to make them more centric around the borrow rather than collection agencies looking to make a profit off of extended interest time frames. The government does not exist to bail individuals out and cancel debt entirely, but instead as an organization that creates a solid foundation for its constituents and offers advisory and assistance along the way. We are currently at a crossroads where the outcome of this adversity is solely in the hands of the president and congress. Time will tell if payment plans are reformed and if millions of Americans can find their way back to being debt-free.

On April 6th, the Biden-Harris Administration chose to extend the student loan pause while the economy recovers from the tumultuous pandemic. In this period, all student loan repayment is paused including interest and collections until August 31st, providing borrowers time to organize and create a repayment strategy. As discussed in prior installments, the student-loan debt problem has worsened over the last decade as borrowers fell behind on payments due to adverse economic conditions as well as out-of-control unemployment during the pandemic. While this announcement provides in-debt individuals with time for repayment, will the administration provide additional guidance and assistance or will it continue to prolong addressing this problem until it suffocates the very people it is supposed to help?

From day one, President Biden has made it his goal to tackle student debt, but has been unsuccessful due to other economic issues (wsj.com).

Another idea that has been thrown around by the administration is “canceling student debt” across the board and providing each and every person with a new slate. In an idealistic world, sure this would solve the issue; however, the current condition of the economy rules this idea out. The U.S. government has just transitioned from a period where stimulus was dispersed widely across the country at unprecedented rates. The amount of money circulating in the economy has caused dangerously high inflation levels and has placed the Federal Reserve in a sticky situation. Canceling student debt would only further increase the amount of money within the economy, force higher price levels, and effectively drive up inflation further.

So if canceling student debt is not the solution, what is? A potential solution is decreasing the interest rate attached to student loans following the period of pause. This could ease the minds of borrowers as they can create longer payback plans based on available cash. Here repayment could be on their terms, yet borrowers would still be incentivized to pay back loans and lenders can receive payment. The truth is, cancellation of student debt is not only unreasonable but it is irresponsible. Incentives should exist, and while economic conditions are tough, borrowers have an obligation to repay the commitment they made before earning the degree of their choice.

We are currently living in the reality of reckless decision-making. The current market conditions are a direct reaction to a period where quantitative easing and pumping the economy full of the stimulus was the direct solution to battling the economic conditions brought on by the pandemic. Jobless claims, a measure of unemployment, were reported at a 60-year all-time low just the other day. While on the surface this looks like a good thing, the reality is that no one is looking for jobs. Unemployment is artificially low because the U.S. government and Federal Reserve enabled jobless Americans to not look to find work.

A graph illustarting the drop in continued claims, or indivduals continuing to claim uneployment after one week of searching (Fred.com).

This example alone exists only to show the need for incentives. Canceling student debt would only destroy accountability and make economic conditions worse. While I believe that certain measures such as lower interest rates on student loans should be enacted to stablize the student debt problem, the U.S. government does not need to bail indivduals out who got themselves into this very predicament. The gracious pause period represents an opportuntiy for borrowers to reaccess their current situation and produce a plan of repayment. Time will only tell if this will actually happen.