Student loans may prove to be the nail in the coffin of post-COVID economic recovery.
By Tom Jankowski
The debate about student loans has been fiercely ongoing for the few decades since tuition, room, and board fees have been rapidly increasing since the 1990s. In 2019 the total average cost of attending a four-year college has reached an all-time high of $49,870 causing the subject to be at the forefront of the current presidential race. Aside from arguing for lower costs of universities, many candidates, including the democratic nominee Joe Biden have pushed for some sort of federal debt relief program to help those burdened by the prospect of paying off loans far into their 40s. Inevitably such proposals have received varying responses from the different generations. Those who attended college prior to the 1990s have faced the average loan of approximately $1,000 a year. Today, that number is closer to $7,000.
Those who oppose the relief programs argue that because they were able to pay for college swiftly and independently, then so should the millennials and Gen Zs. While this in itself is a very flawed argument since the costs students face today are a far cry from what they were when our grandparents were in college, a new and perhaps more compelling reason for the older generation to get behind debt relief programs is that the 1.6 trillion dollars in student loans Americans hold today will directly impede the economic recovery of the United States post-COVID 19.
Debt makes economic recovery slower as households, instead of spending, cut their liabilities. After mortgages, student loans, as of 2020, make up the greatest percentage of debt that households hold. In an age where US consumption is radically contracted compared to what it was a year ago during the longest expansion in the country’s history, the lack of cash in the economy caused by student debt in particular may be the difference maker between a recovery that will last years versus decades.
Adversaries of debt relief, however, may still argue that there are plenty of Americans who are older and without student loans and that they will be the backbone and key to this recovery. While partially true, this does not account for the fact that as time goes on, more and more members of the workforce will be millennials and Gen Zs (otherwise known as the “debt generation”). Currently, approximately 30% of adults ages 18 to 29 have student loans. This may mean that we will find ourselves in a position where in the not-so-distant this group will make up the majority of the workforce. This unfortunately provides validity to some of the starker projections that anticipate the recovery to last decades and not just a few years. Therefore, if instead of spending and supporting business these people will be preoccupied with paying off their loans, we may find ourselves in a worse situation than anticipated.
Going forward, it is increasingly becoming evident that student loan relief and aid is no longer an issue that concerns just the loanees nor should it be politicized. It is now in the interest of all to get behind programs such as Joe Biden’s which proposes to forgive $10,000 of student loans to all borrowers.
The situation we find ourselves in also demonstrates how unsustainable the current prices of a college degree are. While a short-term debt relief program is a step in the right direction, it will put an unavoidable strain on the government budget which already finds itself in a great deficit. The conclusion is therefore obvious: in order to ensure future economic stability and growth for America, legislation needs to be put in place that will lower today’s obscene costs of a diploma or the repercussions will be dire. □
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