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One Borrower’s Take on Biden’s Student Loan Forgiveness Plan

One Borrower’s Take on Biden’s Student Loan Forgiveness Plan

Student Loan Forgiveness

Growing up, I always knew I would go to college, but what I didn’t know is that I’d be entering into a system that has the most expensive cost of tuition in the developed world and condemning myself to join the 43.3 million Americans suffering the consequences of student loan debt. However, I’m not sure that Biden’s student loan forgiveness plan is going to help.

College was always a discussion in my household, usually intertwined with one of dad’s favorite phrases, “The next generation has to do better.” He had set that precedence when he joined the military at 23 and raised us both out of poverty and into the middle-class life I enjoyed most of my adolescence. As his eldest child, I knew I’d be the next one to raise the lineage into a higher tax bracket, but the part that was lacking in our conversations was the how. How to pay for it, and how it works.

After getting married, learning the difficulties of switching colleges, and getting my associate’s degree along the way, I finally made it to the last stop in my college career, Colorado State University. I was admitted in 2020 with an out-of-state tuition of about $25,000 per year—It is currently $32,734 per year—which I paid for with private and federal loans. The following year, my husband completed his military contract, which, to our surprise, left me without a qualified co-signer. Federal loans and the scholarship I’d acquired weren’t enough to foot the bill, and without paying off the remaining $8,200 I owed but didn’t have, the university barred me from registering for the next semester. I left university with $54,900 in debt—$21,100 of that being federal—and no degree.

When I heard about the loan forgiveness plan, I  was taken aback and I’m sure so were the other 65% of Americans who told CNBC in January that Biden should move forward with some kind of student loan forgiveness. Despite my hope that come January I will be without $20,000 in student loan debt, I worry about the consequences of the program and whether I will continue to pay this debt back in the inflation of food, gas, rent, and if I ever have the ability to return to school, in tuition.

For now, let’s explore what it looks like to have student loan debt in America and why Forbes reports that “tuition has risen at a faster rate than the cost of medical services, childcare, and housing.” According to the White House, costs at four-year colleges have tripled since 1980, even after accounting for inflation.

Why Tuition has Tripled

The most popular reasoning for this phenomenon is the Bennett Hypothesis. According to the Mercatus Center at George Mason University, in 1987, Secretary of Education William J. Bennett wrote the New York Times opinion editorial, “Our Greedy Colleges,” where he describes the correlation between increased federal aid and increased college tuition. In the op-ed, he suggests that the aid decreased affordability and accessibility because colleges utilized it to improve their prestige.

Following the review of various studies testing the hypothesis, Mercatus states that evidence suggests institutions capture need-based federal aid by reducing the amount of institutional aid they offer students. Ultimately, in 2019, for every dollar received in federal aid, students lost between 60 and 83 cents in institutional aid. Furthermore, between the years of 2005 and 2009, colleges that were, “eligible for federal aid raised tuition by as much as 78 percent more than colleges that” were not eligible. Mercatus concludes that increased federal aid is likely the cause of the 102% increase in college tuition from 1987 to 2010.

In a 2020 report, economist Beth Akers explores other possibilities for inflated tuition. She says 90% of students, “report that improved earning opportunities are the number one reason they enroll in school.” This creates the general consensus that every degree holds a high value and is the single path toward breaking into the middle class or pursuing the American dream,; it’s what Aker coined the “golden ticket” fallacy. This ticket to financial stability increases prospective students’ willingness to pay tuition and inflates costs.

According to Preston Cooper in a Forbes article discussing the study, this fallacy, followed by a lack of information on the amount of aid a student will receive and other student barriers such as geographical constraints—suggests that in-state students pay less in tuition than out-of-state students—and application fees that stifle the number of schools a student can apply to incentivize colleges to offer less financial aid because realistically, students don’t have as many options as there are colleges. The final piece in Akers’s hypothesis discusses regulations that create a barrier to accreditation.

“Accreditors often judge schools based on factors such as curriculum and faculty rather than whether they achieve better student outcomes for a lower price,” writes Cooper. “This system disadvantages schools with newer and cheaper but potentially more effective models.”

Who Student Loan Debt Affects and How

According to the Education Data Initiative, out of 333 million Americans, 92.2 million have had federal student loan debt, and 43.4 million still do. The initiative reports that the majority of borrowers are women—25.3 million— and the age group with the most borrowers is between 25 and 49 years old, estimated at 28.8 million borrowers. CNBC states that the race most likely to have student loans are Black adults. twenty-four percent of Black adults have student debt followed by 15% of Hispanic adults, 14% percent of Caucasian adults, and 11% percent of Asian adults.

Out of all the borrowers, TeenVogue reports that about 16.6 million have debt but no degree six years after beginning college, 81% told CNBC in January that, “They’ve had to delay key life milestones such as saving for retirement or buying a home in order to pay off their student loans,” 24 million make less than $50,000, and 65% say the debt negatively affects their mental health.

However, not everyone views their student debt as a burden. Although 54% of adults with student loans say it wasn’t worth it, some disagree. According to CNBC, 52% of Gen Z borrowers say it was worth it—the highest percentage out of other generations such as Millenials, Gen X, and Boomers—and so do 57% of students who completed a four-year degree, 55% with a masters degree or PhD, and even 36% of people who never graduated.

Regardless of our perspective of student loan debt or our views on whether it should be forgiven, Aker tells us one thing that we all know to be true: “Reforming student lending or any other aspect of the federal student aid program without addressing tuition inflation is akin to treating the symptoms without addressing the cause.”

The White House fact sheet pertaining to the student loan forgiveness program states that the Department of Education is taking steps to strengthen accountability among institutions and intends to “propose a rule to hold career programs accountable for leaving their graduates with mountains of debt they cannot repay,” but just like my view on the student loan forgiveness, “I’ll believe it when I see it.”

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