DWASARI: Student debt relief program — good idea, bad policy
Column: Cut the Bull
President Joseph R. Biden Jr. recently announced the cancellation of loans for middle to low-income borrowers, creating immediate relief for many college students. The breakdown includes a minimum of $10,000 for non-Pell grant students below the income threshold and up to $20,000 for Pell grant recipients, according to the White House. At the same time, the government will extend the pause of student loan payments to December 31 and offer various benefits to help manage and soften loan payments.
With the policy in place, I recommend all take advantage of this opportunity to mitigate their debts. At the same time, it is important to keep in mind that this reward does not come without its consequences.
Remember the corny economic principles like “there are no free lunches.” Biden’s “free lunch” in tuition relief does not bode well for taxpayers of America. Many will see increases to fund this program that the government cannot afford, considering the large amounts of pandemic relief they provided.
The country is currently facing a rocky economic situation with rampant inflation and the Federal Reserve is using aggressive contractionary monetary policy to combat it. This policy is attractive in how it counters the current actions to curb economic events.
While I agree that this so-called “gift” will have negative long-term implications on taxpayers, I believe it will not impact inflation much. The average person has around $36,000 in student debt, and the plan would only make it easier for them to repay the remaining amount.
The total sum may seem significant at first sight but its objective is to make it more feasible for people to meet their payments. In 2019, about a quarter (approximately 10 million people) defaulted on their payments. This plan looks to provide a platform to decrease the delinquency rate in 2019 rather than repeat itself as we go into the post-covid era.
In my frank opinion, I believe the intentions are too ambitious for the Biden administration to consider this bill will decrease delinquency rates. With the current state of the economy, conditions will only likely get worse than better for most mid- to low-income families. Inflation peaked at 9.1 percent in June and is starting to go down, but that downturn will likely take an extended period of time.
Creating this short-term buffer will only create a short-term downturn in delinquency rates that I expect to come back up when the economy improves. The mishandling of loan agencies is a problem in the process but there is a greater factor in the degrees that students earn.
It is no secret that certain degrees yield a more fruitful job outlook and pay than others. But school tuition is not based on the degree you are working toward. For example, one student may major in computer science and another may be a communication major. Throughout the U.S., the computer science major has a median salary of $71,156, while the communication major has a median salary of $45,257.
Both are paying the same tuition amounts (assuming they received the same or no scholarships), and the disparity in wages contributes more highly to the lack of making repayments rather than the system itself.
While in good faith, the policy is a gift that only creates more significant consequences for American taxpayers and short-term relief for those susceptible to student loan delinquencies.
Akhil Dwasari is a Rutgers Business School junior majoring in finance and minoring in political science. His column, "Cut the Bull," runs on alternate Wednesdays.
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