By executive order, Biden has cancelled $10,000 in student loan debt for millions, as well as $20,000 to Pell Grant recipients. Tuition has skyrocketed due to increased demand for higher education. The Federal Reserve Bank of New York found that pouring more money only increased college tuition cost due to frivolous programs, higher salaries, and wasted spending but did not better prepare the students with a higher education. Loan forgiveness will only increase costs of a four year degree.
Student loan debt is about $ 1.6 trillion. Loan forgiveness will reduce the funding available for other more important uses. Of 250 million American adults, there are only about 45 million student loan borrowers. Of these borrowers (60%) make more than $74,000 annually. Thus student loan forgiveness disproportionately benefits wealthier Americans. Instead of loan forgiveness, Sen. Roy Blunt (R-MO) would rather increase Pell Grants to lower the cost for poorer students. The top 40% of American households hold 60% of the student loans.
Some argue that loan forgiveness would put more money back into the pocket of the debtor. Increased savings and consumption would add $100 billion per year for the next five years. However the Committee for a Responsible Budget believes a far less effect and actually leads to higher inflation.
Who will pay for this loan forgiveness? That is a loaded question. Forgiven debt is considered taxable income. Due to the ARPA (American Rescue Plan Act), the amount won't be added to a debtor's taxable income—at least through 2025. With this shortfall, the national debt will increase. Thus the Treasury Department will raise yields on securities to attract investors. Since more tax money will be paid out to cover interest on the national debt, it will mean less tax money for services. In the end, taxes for all Americans will have to increase to cover the benefit of loan forgiveness for only a few Americans. We need to tell Joe Biden this is a bad idea for the economy. Young voters who benefit need to realize that this ploy is to gain their vote in the Midterm elections but may ultimately hurt the country. It would force blue-collar workers to subsidize white-collar graduate students. Either way, Biden's plan may have an effect on the midterms. Voters need to research this issue before they vote in November.