The Biden Administration's Student Debt Forgiveness Plan – Different Generations, Different Perspectives
Now that the Biden Administration has followed through on a campaign promise to provide student debt relief and help those who are struggling to repay their student loans, people are weighing in with their thoughts. Why now? Is it fair? What took so long? Is this just a quick fix for a larger structural problem in our education system?
It’s certainly hard to ignore such obvious flaws in our current educational cost structure. The White House noted in their release, “Since 1980, the total cost of both four-year public and four-year private college has nearly tripled, even after accounting for inflation. Federal support has not kept up: Pell Grants once covered nearly 80 percent of the cost of a four-year public college degree for students from working families, but now only cover a third.”
Among our own Millstone Evans Group team, there are varying opinions about the Biden Administration’s plan. We’re sharing six of those viewpoints segmented by generational group – Gen Z, Millennial, Gen X and Baby Boomer.
We Love the Relief but Our Heads Spin from the Complex Questions that Remain
–The Combined Perspective of Two Gen Zers
As members of a generation that are, for the most part, still in college or just graduating, the new student loan forgiveness program is very real to us. For many of us, how we feel about this new program really depends on our financial situations. We live in a society that, essentially, demands that we go to college, earn at least one degree, and find a high paying job right out of school. For those that are fortunate enough to afford school without borrowing money, such as through scholarships, grants, family members (529 savings plans) and other funding sources), we appreciate the gift we were given, and understand that we did not have to sacrifice to acquire that kind of funding. For those of us that, in order to obtain a degree, were required to borrow money, we have now been given a break.
With the rising costs of tuition, having any portion of loans forgiven makes repaying the rest much easier, especially with the new loan terms. However, we can’t help but think of what this costs us as a society. Sure, this is beneficial for a lot of people, and comes at a time when many people really need it, but having just gone through the college experience and knowing the costs of college well, But it raises a few questions: Does this allow for schools to increase their prices faster than before? Where is the government getting this money? What about the legal commitment to repay the loan? Does this give borrowers a discount on their tuition relative to non-borrowers? What does this program teach current and future borrowers?
Bottom line: This is an incredibly complex program that creates several questions, and their answers are even more complex. There are so many small details that come to mind when asked about our perspective on this issue, it’s enough to make our heads spin.
We Have to Start Somewhere
For many low-income families, student debt can be emotionally as well as financially crippling. I never finished college and, as such, have no education degree but I’m still paying off my student loans from when I attended an in-state university over 10 years ago. Being raised by a single mother who was disabled, raising three kids, and had barely any income, I also received Pell Grants while in school. My mother was still paying off her own student loans when I was accepted to college, so paying for my education fell completely on me.
As with many families, there was no discussion of how I would pay for college. I just figured that getting accepted was the hard part and I’d figure out how to pay for school later. Being unprepared for how I would pay for college myself, I took out the full amount of student loans available to me every year and even had to take out some private student loans as well. Even working several jobs while in school, I was barely able to pay for some semesters. The decision to cancel some student debt will completely wipe out my remaining student loan debt, which has always been a huge burden for me.
In general, this is a good move since the debt cancellation will be life changing for a lot of people. For those who have been making payments up until now, they can get refunded for payments made since the payment pause started in May 2020. Additionally, this plan has also been paired with the resumption of student loan payments for many others, which will have a deflationary effect on the economy.
Bottom line: We must start making conditions better for people and this means we have to start somewhere. Personally, I think anyone who is really upset about this plan either never had to take out student loans or was fortunate enough to be put in a position where they could pay those loans off. I have plenty of friends who worked at bars for years after graduation because it was so hard to find a job with the degrees they obtained.
A Band Aid on a Cut That Requires Reconstructive Surgery
As a Millennial who has paid off all their student loans, naturally I am a bit jealous that I will not benefit from loan forgiveness. On the one hand, I am happy that I was fortunate enough to be able to obtain a college degree and find a career that allowed me to pay off my debt. On the other hand, I can't help but to wonder how great it would have felt to have $10,000 of it forgiven. No one told me when I took out my loans that I may not have to pay them off. I did what I thought was the responsible thing and paid off the loan that I took out.
That noted, I'm happy for those who are beneficiaries of this plan. It provides huge relief to many Americans who have delayed purchasing homes or starting small businesses because of the burden of their school loans.
However, I'm fearful this will make the student loan problem worse. The system is broken and needs to be fixed, but I do not see this forgiveness doing the trick. We've put a band aid on a cut that requires reconstructive surgery. I worry that this will set a new precedent that students shouldn't be concerned with how much they take out in loans because the government will step in one day to fix it. I have plenty of friends who already have this attitude, and that is a dangerous mindset to have.
Student Loan Forgiveness is Great, But Let’s Also Make College More Affordable and the Tuition and Funding Process More Transparent
The Biden Administration’s student loan relief actions provide a good framework to begin addressing the student loan crisis in America. The debt relief, along with reducing monthly debt payments to 5% of discretionary income and only having to make payments for 10 years, will help millions of people dig out of a daunting hole. However, policy makers still need to do more to address the root cause of the issue.
How is it that the cost of attending a four-year private college has roughly tripled in 40 years, even after accounting for inflation? Most students do not pay the sticker price for college, but most Americans have no idea how to find financial and merit-based aid opportunities or identify which schools are best suited for them. There are hundreds of colleges to consider, and most students do not have the resources to do a cost-benefit analysis of attending each one. As a result, most students end up overpaying for college, borrowing much more than they can or should afford, and attending colleges that are not the best fit for them.
Law makers, educators, and colleges need to do more to keep fees in check and help students understand the costs and benefits of attending different schools and taking on different levels of debt. There should also be more systems in place to ensure that students cannot borrow more, and colleges cannot charge more, than the average graduating student can pay back. The recent announcements are a welcome band-aid – and the plans set forth by the Department of Education are ambitious and very promising. The work is cut out for us. There is much to do to make college more affordable and make the process more transparent.
It's Good to Invest in Young People
In principle, my belief is that if you take out a loan, you should pay it back. Whether you borrow from a parent, a friend, the bank – and despite whatever you’re borrowing the money to buy – pay it back. And if you are unable to pay back the loan, you should communicate and negotiate an adjusted repayment amount and schedule.
This is the responsible approach and following it leads to positive life skills. But I am also aware that for younger people, it’s a lot to ask that they adhere to this approach from the start, especially when they may have no experience with managing money.
The great news is that teaching an important lesson is exactly what the Biden Administration is doing by reforming student loan repayment plans for both current and future low- and middle- income borrowers. They are making monthly student loan payments smaller and more manageable. This action around student debt/loan reform is long overdue.
Carving out some student loan forgiveness for the low- and middle-income student who has become increasingly burdened by the current complex version of their loan repayment plan will offer that student some space to breathe. It will offer the student a little space to plan for a successful future which increasingly seems to move further away and become more unattainable because of some big systems that need fixing. Bottom line: The Biden Administration’s plan is a good thing for young Americans – we are investing in our young people.
The Biden Administration is Making Progress Fixing Student Loan Programs – But There’s a Missing Piece
I am heartened to see President Biden and the Department of Education (DoE) addressing student debt issues with a seriousness of purpose.
Government statistics tell us that 33% of those who still have college loans have the debt but no degree; 16% of borrowers are in default; and that the student debt burden falls disproportionately on borrowers of color. 93% of Pell Grant recipients came from a family that made less than $60K per year. Pell Grant recipients are more than 60% of the borrower population. DoE providing up to $20,000 in debt cancellation to Pell Grant recipients will make a huge difference in their lives.
DoE estimates that among borrowers who are no longer in school roughly 90% of relief dollars will go to those earning less than $75,000 a year. Up to $10,000 in debt cancellation will go to non-Pell Grant recipients as long their income is under $125,000 if single; $250,000 if married.
Going forward, DoE will be changing student loan repayment plans so low- and middle-income borrowers will have smaller and more manageable monthly payments. A typical construction worker makes $38,000 a year, a typical public school teacher makes $44,000 a year, a typical nurse makes $77,000 a year. The changes will be made through income driven repayment plans that cap what borrowers pay each month based on a percentage of their discretionary income.
There are also plans to reform the Public Service Loan Forgiveness Program so it does, in fact, forgive loans for borrowers who have worked at a non-profit, in the military, or in federal, state, local or tribal governments for a designated period of time. The government admits that “because of complex eligibility restrictions, historic implementation failures, and poor counseling given to borrowers, many borrowers have not received the credit they deserve for their public service.”
The above changes are only some of the proposed changes the Biden Administration plans to implement, which very likely will result in a major improvement in the mechanics of college financing programs.
That said, my strong view is that we desperately need one other component to help student borrowers: we should provide and require classes in basic personal finance for all high school students in their junior or senior years, and we should provide the same for any college student who has not had such a class before he or she is allowed to take out a student loan.
High school students and college freshmen need to understand how credit cards and education loans work, what behaviors can cause them problems, the importance of maintaining good credit, and what their options are to get help if needed, BEFORE they sign on the dotted line for a student loan or a credit card. If we do not provide good personal finance education for all young people, I believe we’ll have limited success no matter what program is in place.