Should Congress Consider Canceling Student Loan Interest?
Photo Credit: Louis Velazquez
Young people are getting overwhelmed with the hidden burden of student loan interest.
The annual cost of a college education continues to skyrocket even in the current COVID-19 environment of virtual classes. Ask any current college student or parent about this fall's tuition costs, and you will hear a similar story. What few realize is that hidden within the increasing education costs and student debt lurks the scrooge of student loan interest.
Since 2003, the US's Total National Student Loan Debt Balance has exploded from $250 billion to $1.73 trillion.
So why is student loan debt growing at such an incredible rate?
Universities and the U.S. government are encouraging students and parents to go all-in when it comes to utilizing student loans. Universities have picked up the sales pitch of typical for-profit businesses by selling the new American Dream, which requires every young person seeking a worthwhile career to get a college degree. Never mind the value of entrepreneurship and the lower cost students can find in a trading school. In addition to the universities' sales tactics, the government supports the recruitment effort by giving students access to unlimited funding via student loans.
Reasons for canceling student loan debt include the following points:
Canceling student loan debt would give financial breathing room to those needing disposable income.
The economy could see further stimulation with younger people having the ability to divert their income to purchasing a new home or car or starting a family.
The reasons against canceling student loan debt include:
Only a certain percentage of the population has a college degree, and this group is primarily skewed towards the wealthy.
Student loan forgiveness would be a benefit that disfavors those who did not attend college.
It would be unfair to the financially responsible borrowers who have paid off their debt.
Both viewpoints have merit, as one side implicates the US government as having an inherent interest in raising the standard of living through education while investing in the economy. And the other viewpoint demonstrates the importance of hard work and building good financial habits by meeting a person's debt obligations.
Although I am not a proponent of canceling student loan debt, I believe that students and the US economy would be better off if student loan interest is made forgivable.
So let us review the latest student loan debt statistics.
$1.73 trillion in total US student loan debt with $1.56 trillion in federal loans.
5.8% average interest rate for US existing borrowers.
$30,300 average student loan debt for a bachelor's degree.
A Typical Student Loan
With the federal government holding $1.56 trillion in student loan debt at a 5.8% average interest rate, the US government now earns an average of $93 billion a year in interest on our fellow students.
Assuming $30,300 for the average bachelor's degree student loan, a 5.8% interest rate, and ten years to pay back the loan, future college graduates will be looking at a monthly payment of $332.
Using the same numbers, but with a forgivable interest rate of 0%, the monthly payment is a more reasonable $252.
This savings of $80 per month per student debt holder would significantly affect the US economy.
On August 6th, 2021, the US Department of Education issued a final extension of the student loan payment pause through January 2022. Relief measures include a 0% interest rate, suspension of payments, and a halt on collections.
Should the US government be profiting off of student loan interest?
My opinion is that our economy would be better served by allowing students to be in a position to provide a stimulus to the economy.
The only interest the government should retain in student loans is the interest of an educated population. An educated population drives innovation, economic growth, and sustainability.
We may never agree on the merits of canceling student loan debt, but we can all agree that Congress needs to make student loan interest forgivable. We can decide if our government should be in the business of making money and adding misery to our fellow constituents or take the high road of removing this unnecessary burden to facilitate the economy and promote social growth.
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