Do you have student loans? If so, then you may be eligible for student loan forgiveness.
The student loan forgiveness program has been a hot debate recently. This may seem exciting for students that are under financial stress.
But what does this mean for the broader economy? And who’s going to pay for it?
In this article, we will discuss everything you need to know about the US student loan forgiveness program!
Student Loan Forgiveness Plan Summary and Overview
The combined student loan debt in America is estimated to be around $1.6 trillion and this trend upward is unsustainable. This is one of the reasons that the administration established the student loan forgiveness program. The program is trying to help borrowers who are struggling to repay their loans.
Under this program, individual borrowers can have up to $20,000 of their student debt forgiven. However, there are requirements borrowers must be aware of to qualify for this program. We’ll go over these requirements later on. But for now, it’s important to explain that there are approximately 45 million student loan borrowers in America. Only about 8 million borrowers will qualify.
This controversial decision has sparked a debate about fairness. After all, many people have already paid off their student loans without any assistance. And how come the other 37 million borrowers don’t qualify? We’ll explore these questions later.
Who qualifies for the Student Loan Forgiveness Program?
This plan only applies to federal student loans, not private loans. Private loans are the type of loans from a bank or another lending institution. Along with these requirements, one must consider other factors when determining whether or not a borrower qualifies for the program.
Individual borrowers must also make less than $125,000 per year. If you earn more than that, you do not qualify. However, if you are the head of the household or a married couple that makes less than $250,000 annually, you may qualify. (This is assuming you did not receive the Pell grant as an undergraduate student).
If you qualify as an individual, you can have up to $10,000 of your student loan forgiven. As a couple that is married or head of a household, the amount forgiven is up to $20,000. Now, this might not completely wipe out the debt for some people. However, it can go a long way in helping to reduce the financial burden.
If you are a Pell Grant recipient which loans held by the Department of Education, you will be forgiven up to $20,000 individually.
Who’s paying for this?
When the government needs to raise funds for programs such as debt forgiveness, there are typically two options. They can either raise taxes or print more money. The first option is generally not very popular with the public. This is because it means that people have to pay more in taxes. The second option is also not ideal because it can lead to inflation. So, how is the government going to fund this program?
It may be a combination of both, but higher taxes are the most probable outcome. This is because the government has already been printing more money which has led to inflation. And, as we all know, inflation is not good for the economy. You can also consider this economic phenomenon as a hidden tax on the American people.
Either way, it’s the general public that will be footing the bill for this student loan forgiveness plan. And, as we mentioned before, not everyone is happy about this. Some people believe that it’s not fair and that the responsibility of debt should fall on the individual borrower. This is especially true for those that already paid their student debts off. Worse, those that never even went to college are now left with the bill for paying for those that did attend.
As the saying goes, “There’s no such thing as a free lunch.” In this case, there’s no such thing as free money. Someone has to pay for it. Instead of being on the shoulders the individual borrower, it will be paid for by everyone through higher taxes.
Perceived Fairness of the Student Loan Forgiveness Program
The student loan forgiveness program has been subject to both praise and criticism. Some people argue that it’s unfair to those who have already paid off their loans without any assistance. And they’re not wrong.
It doesn’t seem fair that people who have already made the sacrifices to pay off their loans are being forced to subsidize the education of others. But on the other hand, this program could help to reduce the overall student debt burden in America.
When you consider that 37 million borrowers will still have to repay their loans (even with this program), it’s not as if everyone is getting a free ride. So, while there may be some fairness concerns, it’s important to remember that this program is designed to help those who are struggling the most.
Some people decided to go straight into the workforce and never had the opportunity to receive higher education. It puts into question whether or not they should receive an equal opportunity to receive a discount worth $10,000 or $20,000 if they’d like to go back to school.
After all, if they had the opportunity to go to college, they might have gotten a promotion leading to a higher-paying position that requires post-secondary school education.
Taxpaying Americans Will Foot the Bill
Remember that it’s the general public that will have to pay for this student loan forgiveness plan. So, while some people were working throughout their youth and others were able to enjoy the college experience and receive their degree, the ones who are currently working and paying taxes will have to shoulder the burden of this program.
In other words, those who have already made sacrifices to pay off their loans without any assistance now have to subsidize the education of others. Those that didn’t go to school and are struggling to gain a higher wage due to not wanting to go into student debt in the first place will also have to pay for this program.
Now, fairness is subjective, but it’s hard to argue that this program is completely fair to everyone involved.
Implications on the Economy
As a debt forgiveness program, investments into jobs are not a part of this program. This could hurt the economy as a whole because there would be less money to invest in job creation and other economic growth initiatives.
Sure, it will help a lot of people with their student debt, but it does not create productive opportunities for economic wealth. Less debt for individuals is great, but a reduction in the overall debt levels in the economy is imperative for there to be a real and lasting impact.
In addition, this student loan forgiveness plan could have implications for inflation. If the government prints more money to fund the program, it could lead to inflation. Inflation is a hidden tax that can erode the purchasing power of wages and savings. The timing of this forgiveness plan is something else to consider – inflation is the highest it has been in nearly half a century! Why add to the pain?
It’s something that needs to be taken into consideration when evaluating the effectiveness of this program. Remember that inflation rates compound negatively which means that over time, the effects of inflation can be significant.
With the U.S entering a recession, demanding the general public to inadvertently pay for this program through taxes can push some families over the edge. With rising costs of living, stagnant wages, and a lack of investment in job creation, this program could do more harm than good for the economy as a whole.
From a short-term view, it can seem like a saving grace for some people, but how will it affect the economy in the long run? The estimated cost of this plan over 10 years is over $300 billion, and this does not consider the broader effects of inflation.
Some economists have proposed an alternative solution.
Student loan refinancing. This would involve the government working with private lenders to provide lower interest rates for borrowers. This would make it easier for people to repay their loans without the need for forgiveness. It’s a more targeted approach that wouldn’t have the same implications on the economy.
The Bottom Line of Student Loan Forgiveness
It’s important to understand all sides of this issue before making a decision. All in all, the student loan forgiveness program is a complex issue. There are a lot of factors to consider before deciding whether or not to support it. With an economy in dire need of assistance, is this the best use of government funds? It’s something to think about.