I have been thinking about Biden's student debt forgiveness announcement all day and have felt every single perceivable emotion throughout that process.
Let's get the low-hanging fruit out of the way first: I am very happy for all the college graduates who just had debt cancelled. So many people my age just got a $10,000 or $20,000 lotto ticket, and they have every right to celebrate.
But my thoughts beyond that can only be described as a spaghetti bowl of half-baked conclusions, none of which are definite because we literally have no idea what exactly this announcement will impact.
If this debt forgiveness was a one-time correction to set our country on a better long-term path toward sustainable loan balances and more affordable higher education, I would be all for this. But this debt forgiveness feels toothless when it's happening in a higher education system that is still fundamentally flawed. A lot of young people are conditioned to believe they will be panhandling on street corners unless they get into a top-tier university, all the while those top-tier universities are charging upwards of $80,000 annually and finding ways to justify raising that cost of attendance every year, leading young people to take on suffocating loans that handcuff them so much in the early stages of their adult life that they struggle to ever build the financial stability and wealth of their parents. It's a tale as old as time and it's only getting worse. Young people are taking this debt on "voluntarily," but when you're told from a young age that a college degree from a great university is the best path to career success, it's hardly voluntary.
Nothing about the way this system works is fundamentally changed by this student debt announcement. Biden's loan repayment cap of 5% of your monthly income could help, but none of the issues at the source have been solved. Dumping out a bucket of water from inside a leaky boat helps, but not really. The system is toxic and will remain toxic even after the banks write a "(10,000)" on your next statement.
So then inevitably the question becomes: what do we do when this debt crisis inevitably happens again in 20 years? Do we just forgive it again? Do we say those students are SOL because they were born 20 years too late? What about the people who just paid off their loans and would have been financially better off now if they waited longer and didn't pay those loans off so diligently? It's hard to say.
Even given all these factors, a college diploma is still worth the investment, provided you're not going into a level of debt that would make even your banker shiver. Estimates vary, but one report shows a college graduate aged 22-27 will make roughly $14,000 more per year than a similarly aged non-college graduate. The average student debt for an American with a college diploma is a little over $32,000, so that college diploma pays for itself pretty quickly, and that return-on-investment only grows as that graduate continues scaling their career.
So we're in a place where the average college graduate realistically should be able to afford their degree, and for those who are so ridiculously buried in debt that it will take half their lifetime to recover, we are still not addressing the core issues that put them in that spot in the first place. Much like the COVID stimulus payments, this student loan forgiveness feels like an inefficient and poorly targeted use of government funds. Wharton has estimated this program will cost the country $300 billion, and I would venture to believe there are many groups of people who could benefit much more from this $300 billion than highly educated young professionals in the world's largest economy. In other words, everyone receiving this $10,000 could use the money, but I'm not sure how many people really need it.
And besides. Inflation is at 8.5%. We really don't need more stimulus right now. Maybe we shouldn't hold back long-term economic benefits like loan forgiveness because of hopefully short-term inflation numbers, but it still seems like a particularly poor moment to be giving people thousands of extra dollars.
But don't mistake all of that as me overlooking the clear benefits this decision will have on boosting the younger generation. The biggest thing I hope this decision kickstarts is homeownership. It's no stretch to say owning your home is the single fastest way to build wealth in America, yet homeownership rates among millennials have been notably lower than those of previous generations, and I don't see Gen Z bucking that trend anytime soon. If this spurs a percentage of recent college graduates to stop renting and buy their own home, then the long-term economic benefit of this stimulus is drastically more than $10,000.
And I do want to reemphasize the fact that I believe recent college graduates have gotten screwed by higher education institutions who have been allowed to raise their tuitions virtually unfettered for years. In 2000, Harvard Tuition was $22,054. Today, it is $54,768, a 44% increase from 2000 after inflation is accounted for. If Biden is forgiving $10,000 in debt per borrower, that works out to $2,500 per year for those in a four-year Bachelor's program, and students have clearly been screwed out of well more than $2,500 per year in university greed. It almost feels like a class-action lawsuit settlement for students, although in most class-action suits it's not taxpayers who have to front the bill for the settlement.
So that's where I stand. I'm conflicted, I'm speaking in contradictions, and I'm sure I'll change my mind on some of these things by the morning. But while I agree students have been getting screwed for decades by rising college tuition costs and this debt forgiveness will likely put young adults in a much better position to begin building wealth, this plan feels to me like a poorly targeted Band-Aid on what remains a systemic issue for the country. I'm not convinced by it yet.
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