If you are like the over 60% of Americans who either have, are, or are planning to attend college in some way, then you may be considering taking on a substantial amount of debt. College tuition and fees have far outpaced inflation for a number of years. At our current point in history, we are no longer at a time where a median part-time job can pay for full-time college enrollment. Because of this, many students turn to financial aid. This can come in many forms (scholarships, grants, etc.), but the most common form is through student loans. Student loans offer students who otherwise might not have much credit history, a way to secure loans to pay for college. But are there consequences of student debt relief?
As you are likely aware, there has been a recent push for student loan forgiveness. The disproportional inflation of college tuition has many students looking at spending the rest of their lives paying off the debt (or even having to file bankruptcy) they took out when they were barely considered an adult. As recently as August of 2022, President Biden announced a plan to forgive $10,000 of student debts for those who had federally backed loans. While there is a spectrum of reactions to this decision, it is one that will have far-reaching consequences, both good and bad. Let’s take a look at some of the unintended consequences this decision might have.
There is no question that student debt is a hot topic. Proponents of student debt relief argue that higher education should be attainable by all. They claim it shouldn't just be for those who either already has money or want to enter a career field that would pay the loan back in a few years. Opponents argue that higher education is not a right, rather it is an option. They don’t want to have to pay for education for others. Both sides fervently believe in their position. Both cite major consequences that come from disagreeing with them. Here are just a few of the unintended consequences that might come as a result of President Biden’s recent decision to forgive $10,000 in student loans.
Interestingly, a rise in student debt relief may come at the expense of enrollment in the military. One of the most attractive parts of the military (for most) is the benefits you get from the GI Bill. Free education is definitely a persuasive idea. However, with student debt forgiveness, there may be a decrease in high schoolers deciding to make a meaningful pitstop in the military before rejoining the civilian world to further their education for free. While it can be argued that this is either a good or a bad thing, it is definitely interesting to consider.
There is a dynamic that we can see in humans as early as they can begin expressing emotion. If a sibling sees their brother or sister with a new toy, and they don’t have one, it’s just not fair. Fairness is what we use to argue that everyone should have access to the same resources with the goal of making the same outcome available. And while it is terrific for all of the students and graduates who will have a $10,000 weight lifted off of their loans, is that fair for the students who will begin college next year? Or the year after that?
Because we have begun the process of forgiving $10,000 in loans for this round of students, it's possible that every single year, as hundreds of thousands of students sign up for classes and take out loans, we will have another round of $10,000 in loan forgiveness. Is this a cycle our nation is able to uphold? Will we be able to fairly forgive $10,000 every time a new batch of students graduates?
One of the most expected, but unintended, consequences of student debt relief is a rise in college tuition and fees. While there are obvious reasons why college tuition has risen, there are other factors to also consider. It is easy to follow the trend of college tuition and see that it is detached from normal inflation. This pattern began when federal loans began being offered as a way to allow more students the chance of higher education. Because the federal government was willing to spot students as they entered college, institutions realized they could charge more. This cycle has continued to inflate the already disproportionally high prices of post-secondary education.
Now, with the government willing to outright forgive $10,000 per student, colleges see another opportunity. If they will have the money forgiven by the government anyways, colleges can charge even more knowing that Uncle Sam will pick up the tab.
The goal of forgiving some student loan debt is to make it easier for students and graduates to live productive and successful lives free from the financial burden that loans offer. But why stop at student debt? There are many other federally backed loans that could just as easily be forgiven that would be even more helpful to Americans! What about forgiving $10,000 off a federally backed home loan?
One unintended consequence might be that there is an expectation of loan forgiveness for other types of debt. This really is a slippery slope when you recognize the goal of student debt forgiveness and other types of federally backed loans. There is definitely a case to be made that FHA loans should be viewed similarly to student loans.
Finally, one of the most unintended consequences of student debt relief is an increase in non-substantive majors. For many, deciding to go to college is a calculated move. They realize they will be going into debt and will have to get out. Because of this, they major in something they know will provide a stable job with a decent income. However, without the pressure of needing to pay back the loan, there is a chance that students stop caring about the income cap on their area of study. Instead, they will opt for majors that fit their interests and passions. It is up to you whether that is a good thing or not.
In the end, whether you agree or disagree, it will be interesting to see how this plays out. What other unintended consequences might pop up in the aftermath of student debt relief? Only time will tell. If you would like to talk to someone about getting your finances in order after facing overwhelming student debt, then give us a call! We would love to help you get back on the path to financial stability.
