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The additional student loan cancelation does not address the root cause of the problem

The President of the United States recently announced the cancellation of nearly $5 billion in federal student loan debt for 80,000 borrowers. This move is the latest effort by the administration to address the growing burden of student debt, which currently stands at over $1.7 trillion in the United States.

The canceled debt comes from two main sources. First, fixes to the Income-Driven Repayment (IDR) plan, and second; improvements to the Public Service Loan Forgiveness (PSLF) program. According to the Biden Administration, while the IDR will provide borrowers with an accurate count of their progress towards forgiveness and address longstanding issues with the misuse of forbearance periods, the PSLF will help borrowers who work in public service jobs qualify for loan forgiveness after 10 years of payments, even if they didn't make all their payments on time or in full.

Those who praise this political action argue that canceling student loans will reduce the financial burden on borrowers as it will provide them immediate relief and the ability to invest in their future. Moreover, they also stipulate that canceling student loans will reducing the racial wealth gap. They contend that Black borrowers are disproportionately burdened by student loan debt. Canceling student loans would help to close the racial wealth gap and create a more just society.

The truth is that canceling student loans does not improve economic conditions, especially in the long-term. First and foremost, its cancelation is unfair to taxpayers because it costs trillions of dollars. This money could be allocated to better use. Its misallocation creates a moral hazard, where students are less likely to be responsible borrowers if they believe that their loans will be forgiven in the future.

Second, canceling student loans does not address the root cause of the problem, which is the high cost of tuition. The rising cost of college is the root cause of the student loan debt crisis. Canceling student loans will not solve this problem and may even make it worse. This is because since government guarantees borrowers loans and their cancelations, colleges then do not see the point in reducing their tuition costs. Thus, so long as government continues to guarantee student loans to borrowers, colleges will continue to raise the cost of their tuition.

Third, and more importantly, the cancelation of student loans is a regressive policy that would disproportionately benefit high-income borrowers, who are more likely to have large debt balances. This would be a regressive policy that would benefit the wealthy at the expense of the poor.

Student loans created the opposite effect of its intention. By giving loans to every person who wanted to go to college to do so, demand for higher education then rose faster than supply. When demand outpaces supply, then the price or the cost would automatically rise. The real way to address the rising cost of college tuition is to abolish student loans. The rationale behind this proposition is that abolishing student loans will force colleges to lower their tuition costs. If most people cannot afford to go to college because it is too expensive, then colleges will be compelled to lower their tuition costs to meet demand.


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