US higher education needs reform despite student loan relief: experts
Kirill Krasilnikov – US President Joe Biden’s initiative to forgive at least $10,000 of student debt for each eligible borrower will not be enough to improve the situation for higher education in the United States, say experts and citizens surveyed by Sputnik.
Earlier in the week, Biden announced that the US government would forgive up to $20,000 to people who took federal Pell grants, while people who took regular federal loans could get up to $10,000 from canceled debt.
According to the Department of Education, the Biden administration’s student debt relief plan will require borrowers to pay no more than 5% of their Discretionary Income each month for undergraduate loans, up from 10% previously . The plan will also cover the borrower’s unpaid monthly interest as long as he makes his monthly payments.
The student loan forgiveness program will only apply to people who earn an income of less than $125,000 per year and will ensure that no borrower whose annual salary is based on the minimum wage of $15 will have to make a monthly repayment.
Additionally, the plan will cancel loan balances of $12,000 or less for each borrower after ten years of payments.
The federal government’s involvement in student loans dates back to the late 1950s when the launch of the Soviet artificial satellite Sputnik 1 prompted the United States to step up science and technology education through low-cost loans to math students. , science and foreign languages under the National Defense Education Act of 1958.
This was later expanded in the 1960s under Lyndon Johnson’s Great Society initiatives, culminating in the arrangement where the government serves as guarantor of loans made by banks and other private lenders to students, covering losses in event of borrower default.
Since then, the price of tuition fees has skyrocketed due to the growing demand for higher education and also, as many claim, due to government subsidized student loans, which allegedly caused universities to raise fees. fees and to fight to enroll as many students as possible. . Now, the overall federal student loan debt has reached $1.6 trillion, with many American citizens saddled with an exorbitant amount of debt and education that doesn’t translate into income to pay it off.
As a result, there have been calls to change the current arrangement, with some insisting on universal student debt cancellation and others opposing it, saying it would be unfair to those who had already paid off their debts.
“We will have the same discussions ten or twenty years from now. Canceling ten or twenty thousand dollars of student debt does nothing to solve the structural incentive problems in American higher education,” said Constantine Yannelis, associate professor of finance at the University of Chicago Booth School of Business, said, describing Biden’s announcement as “more of a band-aid than a permanent healing of a wound.”
According to Laurence Vance, columnist and policy adviser for the Future of Freedom Foundation and research associate at the Ludwig von Mises Institute, “government shouldn’t be in the student loan business in the first place.”
“Yes he [Biden’s initiative] will have the desired effect of easing the debt burden of many college graduates, except those who owe large amounts, such as over $100,000. But it’s no more the government’s job to relieve someone’s student loan debt than it is to relieve someone’s credit card debt,” Vance said, adding that “structural reform mass of American higher education is still needed”.
The sentiment that change is overdue is shared by many across the country, such as Fairooz Adams of Texas, who noted that “not everyone needs to go to college, and not all jobs don’t require a university”.
“We need to better assess the exact value of college and who should go. Until we dispel the myth that everyone should go to college, we will be wasting people’s time and increasing the costs of college. university because of demand,” Adams said.
An unnamed math doctoral student from New Jersey also told Sputnik that fewer people should be going to college, citing the low level of ability displayed by some students. They also suggested that “universities should reduce administration and remove bureaucracies, including the DEI [Diversity, Equity and Inclusion initiatives].”
Meanwhile, John of Virginia proposed that students have access to the bankruptcy mechanism as a way to deal with debt.
INFLATION DRIVER OR WEALTH TRANSFER?
One of the concerns about Biden’s debt relief plan is that it could exacerbate the country’s inflation, which has been rising and could potentially get worse.
“Although the money has already been spent – in some cases 20 years ago – this measure will create an additional burden on taxpayers due to the hundreds of billions of dollars that will not go to the federal treasury via refunds of Ultimately, this will spur inflation because the feds in conjunction with the FED will end up printing more money,” columnist Laurence Vance explained.
Yannelis, for her part, said that while there will be some effect of inflation, it will be quite small because “most people are not paying their student loans today, so the canceled payments would have happened. far enough in the future.”
“The impact of a resumption of payments could be larger, but it will be deflationary and still probably quite small. I think we should focus on the distributional consequences of student loans, not inflation,” he said. -he adds.
The issue of distributional effects is another salient point when it comes to canceling student debt, as a disproportionate share of debt is held by people from high-income households, according to Federal Reserve data. which means that various debt relief policies would generally benefit wealthy groups. at the expense of taxpayers, many of whom come from lower socio-economic backgrounds.
“This is a regressive measure that uses the broad tax base of workers without a college degree to further subsidize the education of graduates who have an average unemployment rate below 3%,” Vance said.
“I don’t have student debt, fortunately, but I’m afraid it works like a transfer of wealth. I’m also concerned about subsidizing degree programs that I don’t think benefit to our company,” John said.
Associate Professor Yannelis agreed that the pardon policy will primarily benefit upper-middle-class to upper-class people, as the $125,000 income cap is more than three times the median income and married couples are eligible even if they win $250,000.
“On the other hand, the new, more generous, income-driven repayment policy will primarily benefit the middle to lower class. Thus, the full distributional effects of the announcement are mixed, but the loan cancellation portion of the latter will certainly benefit at relatively high rates of wage earners,” he said.
Ultimately, the issue of student debt will continue to haunt the public until a more comprehensive reform of American higher education is introduced that meets both individual and national needs.
“I don’t really blame people in debt, but I’m hesitant to support this [move by Biden] because we have not made the changes necessary to relieve the demand for colleges to reduce it to something more in line with the real needs of the jobs and the talents distributed among our employees,” concluded Texan Fairooz Adams.
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