Posted By Eleanor
Why Student Loan Forgiveness is not a Good Idea for the Students or the Economy

Introduction

Student’s loan is a flat form, which was started in the USA to ensure that all of the students who are willing to pursue their studies to the tertiary level, acquire money to pay for their tuition fee without a problem. This was to ensure education for all students, despite their social status. The main issue is on the repayment, where they are required to repay back their loans on completion of their studies. Some of the arising issues are on the oversized student debt, whereby they have an obligation to pay much more to the banks than what they received. This has made most of the graduates to default on loan repayment, hence threatening the ability for other students to access future credit. Such kind of exploitation, do arise because the students and their families are not aware of the real myriad repayment options. Another category of students who have caused problems in the loan repayment are those that left college before graduation, therefore raising claims that they cannot pay debts without having their certificates.

The problem of loan repayment has caused many problems to the college graduates. Whereby, most of them focus on means of repaying the loans rather than applying the skills they have gained so as to prosper in life and contribute to the American economy (Huang and Shen pg.9). Such kind of loans is the reasons why most of the American youths have decided to venture into business to get money to repay the loans. Most of the youths have also delayed in marrying and getting married. Instead, they prefer staying with their parents so as they can be provided with the basic needs. Most of them have also reduced their expenditures hence leading an undesirable life.

To deal with the burden, some of the scholars have suggested that, the student’s loans should be removed or totally forgiven. This is the claim that the removal of the loans will accelerate the economic activity by giving most of the American citizens more money to spend on purchasing goods and services. It is argued that in return, the spending will create new jobs, increase business and therefore leading to a growing economy. But in reality, the idea of debt forgiveness, that is stated in this student loan debt forgiveness act is not a good idea that cannot influence the economic growth. The reason being, the economy is not a machine that can be manipulated. The only recognized factor that can lead the growth of the economy is to increase productivity by improving on the innovations and savings of that country.

Some of the advocates of the idea of loan forgiveness, suggests that, removing the loans will lead to other benefits such as enabling more people to join college. Such scholars don’t focus that the idea will affect only those students who have gone through the college education, but it will not have any impact on the rest of the students who are yet to join colleges (Figart pg.13). Unless the USA government guarantees students that, the future loans will also be forgiven; otherwise, the idea will have many negative consequences. Such consequences may include the increase in the college tuition fees.

Some of the people, who are supporting the idea of loan forgiveness, have raised a claim that the loans should be removed because most of the banks have taken advantage of the students, and they are exploiting them by judging high-interest rates. Such scholars have ignored that, the loans are given on a voluntary basis. No student is forced to apply for the loans. Therefore the claim is not reason enough for them to default on the loan payment. Since the loan was given upon laid down agreements. Although some of them rose more complains that the agreement was made when they were too young to understand the underlying terms of the agreement. If some of this complained are emphasized, it will deny some young Americans an opportunity to join the tertiary institutions.

One of the majorly known facts in the USA is that the student’s debt is a bigger financial debt as compared to the credit card debt. And therefore removing the loans will seriously deteriorate the American economy. One of the scholars known as Justin Wolfers explains the idea in five perspectives namely: distribution, microeconomics, educational policy, political economy and by politics (Huang and Shen pg.17). According to him, if money will be given out, it should not be given to graduates at all cost. The reason being, graduates are people who are known for their high incomes, and their earnings are growing annually over the past decades. Therefore forgiving them of their loans is just like adding them more income. Hence increase the gap of the income distribution.

The second perspective is in macroeconomics. According to that point of view, the college students are used to spending. And therefore, even if they are forgiven of their loans, they will not have something constructive to do with the money (Figart pg.22). Instead, they will think of spending the money within the shortest time possible. This will not be of any benefit to the economy of the country. The third perspective is the education policy.  This policy makes most of the people think that, by supporting the idea, many people will be able to acquire education. But on the contrary, the idea of forgiving loans is just a proposal of forgiving the folks who have already attained education. But the alternative solution to acquiring the education is increasing loan availability and introducing subsidies to those students who are willing to study.

The political economy focuses on those students who are not willing to repay back their loans. Such kind of behavior will encourage the mannerism of lobbying for more money, rather than venturing into something that is constructive. Moreover, if these guys are forgiven of their debts, it will encourage others to contest for the same idea and therefore having the least contribution to the economy of the country. Lastly, the perspective of politics will encourage the students to demand more free money. This idea brings to the economic principle of opportunity cost which states that “compare your choice with the best alternative.” But in this case, the students will be comparing themselves to the worst alternative.

Conclusion

Idea of loan forgiveness is the worst ever idea which cannot be supported by any single economist due to its adverse consequences on the economic sector. This is because the loans will bear the country a lot of burdens since this kind of debts is worse than the credit cards. Also, the economy of the country does not depend on the increased expenditures, but it depends on the innovations and the productivity of the country. On the other hand, the idea may be supported by the students who has already benefited from the loans, but it will be a hindering factor for those students who are aspiring to further their studies.  Therefore the repayment of the student’s loan is very much crucial since it will enable universal attainment of education.

 

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