The process for applying for student loans is quite onerous. You have to first get educated on the advantages between federal and private loans. Then, you have to fill out the FAFSA, which is a painstaking process in itself. And if what FAFSA is offering isn’t sufficient, you may have to resort to private loans which often have higher interest rates and fewer protections.
An even larger problem than the accessibility of student loans is the debt that can accumulate as a result of these loans. These fledglings that are just beginning to fly are faced with a choice that could make or break their financial well-being. With more and more jobs requiring undergraduate degrees, college has become a necessity for many. Colleges are capitalizing on this fact by hiking tuition resulting in increased interest rates and more debt. Mere 18-year olds are confronted to make a choice that has become increasingly more detrimental due to predatory institutions. As a consequence, many are not equipped with the financial literacy required to make an educated decision resulting in many accumulating debt and defaulting on their loans.
On August 24th, President Biden signed an executive order to help address the student loans debt crisis. The order details that for individuals earning less than $125,000, $10,000 will be removed from their balance and $20,000 for people who received Pell grants to go to school. Forgiving student loans is one of the things that President Biden ran on and has been an objective for the Democratic party for considerable time now. Although the Supreme Court expectedly deemed the executive order as unconstitutional, the more pressing question is whether forgiving loans is enough and actionable.
Loan forgiveness is a great idea in theory and certainly has its positives. It will assuredly alleviate the financial stress that many Americans are experiencing, especially after the pandemic. Although such a wide-spread forgiveness will significantly add to the national debt which will impact other social services and undoubtedly have negative economic implications. Moreover, a study in which researchers analyzed the effects of a blanket $10,000 student loan forgiveness found that the top 60% of earners post-college received almost 70% of the benefits. Income inequality is already a massive predicament that is spiraling out of control; policies like this will only add fuel to the fire. However, the most important thing that has continuously been neglected on the federal level is addressing the systems and institutions that have caused students to have these colossal debts. It’s comparable to the short-term tax breaks that many benefited from after Covid. Sure, it’s nice, but in a couple of months things will go back to normal and people will be under the same financial pressures. What America needs is institutional reform for colleges to regulate tuition prices and create a more robust and income-friendly repayment program. But hey, it’s just a thought!