Should We Forgive Student Loans Entirely?

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This crisis is unsustainable — but not unfixable.

Anxiety and frustration surrounding the student loan crisis has been simmering for years, but this summer it might finally reach a boiling point. That’s because the pause on federal student loan payments (which the Biden administration issued in response to the pandemic) officially ends in August, as of now. Additionally, the recent interest rate hike from the Federal Reserve is going to make it even more expensive for anyone who plans to take out loans in the years to come. So between current loan holders who might not be prepared to resume loan payments, and new loan holders who might have to sign on to loans at an even higher interest rate than before, experts agree that we’re about to reach a tipping point which could lead to unprecedented numbers of people defaulting on their loans.

So what happens now?

The argument over student loans gets more pointed every day: Those in favor of forgiving student loans say the system is corrupt, predatory, and flat-out unsustainable for even the most hard-working citizens. (Currently, the total outstanding student loan debt in the U.S. is $1.6 trillion.) Those against forgiving student loans say it’d be ethically and economically unacceptable to forgive billions of dollars of debt. (A common argument online from those who’ve paid their debts is that everyone else should follow suit, no matter how much hardship they might face.)

To get to the bottom of the debate, we spoke with Pattie Ehsaei, otherwise known as “The Duchess of Decorum.” In addition to being the TikTok queen of etiquette and financial advice, Ehsaei has spent the last 20 years building a multi-faceted career as a lawyer and manager in financial services. She has also, notably, just paid off $160,000 in student loans herself — three decades after she took them on to go to law school.

Below, Ehsaei breaks down each argument on either side of the student loan debate, and elaborates more on why the current proposal by the Biden administration (to partially forgive student loans to the tune of $10,000, and only for those earning a certain income) is not an acceptable solution. She also offers a potential fix that could make a difference — and might even be a compromise that could make both sides of this complicated argument happy.

Why We Should Forgive All Student Loans

The argument in favor of forgiving student loans has more to do with the economy than one might think. “Forgiving student loans promotes education,” Ehsaei explains, “and what people tend to forget is that an educated society has less unemployment, and reduced dependence on public assistance. As a result there’s greater tax revenue. Studies also show that a more educated society has a reduction in crime, and improved public health care.”

Another argument has to do with addressing racial disparities within the loan crisis. “The Black community tends to be a victim of predatory for-profit colleges that charge astronomical amounts for their education,” Ehsaei explains. “And because of that, 21% of Black people with loans default on their student loans, versus 4% of white people with loans. So not forgiving student loans disproportionately hurts the Black community.”

Another argument for forgiving student loans has to do with the impact this decision could have on small businesses. “Our economy is fueled by small businesses,” Ehsaei says. “So if you can’t get a loan for a first small business, you have fewer of them, which then means fewer jobs, less economic output, and less consumer spending. So it hurts the economy tremendously.”

Why We Shouldn’t Forgive All Student Loans

Plenty of people might be against student loan forgiveness for personal reasons. For example, if someone took out a loan decades ago and worked for years to pay it off, they might feel like it’s unfair that someone else might get their loans forgiven without having to endure that struggle. However, Ehsaei is quick to point out that this isn’t the most salient reason why we might want to avoid forgiving student loans.

Instead, we should consider this simple reality: It wouldn’t solve the root problem, which is that the cost of education in this country has become completely unsustainable. In fact, the rising price of education has grown at twice the inflation rate since 1985, which means that the cost of an undergraduate education is exponentially more expensive for today’s students as it was for those in the eighties and nineties.

“The reason that people have a lot of student loans is because the cost of education is so high,” Ehsaei explains. “So even if we were to forgive all student loans this year, what about the future? This is just a Band-Aid for a much bigger problem.”

As for Biden’s latest plan to forgive upwards of $10,000 in loans for anyone earning $125,000 or less, Ehsaei notes that this would actually exacerbate the problem, rather than helping it. “When you’re capping it at that number, what you’re actually doing is only helping the upper middle class students, because lower-income students are taking out much more than $10,000, or even $50,000. The loans of upper middle class children are getting forgiven in this instance, but you’re not really helping the lowest income people.”

For that reason among many, Ehsaei argues that we shouldn’t be talking about student loan forgiveness at all. Instead, we should be focusing on how to drastically reduce the burden of receiving an education in America.

“What we need is free education, period,” Ehsaei says. “If you provide free education, and free health care, everybody benefits from it. Studies have shown that the lack of these two elements are the biggest things that hinder the growth of societies. So we need universal health care, and we also need free education.”

How There Might Be Room for Compromise

For those who are feeling pretty hopeless right now, it’s worth keeping in mind that this battle over student loans doesn’t have to die in a stalemate. In fact, there’s one potential compromise that could make a big difference to millions of people — and might just satisfy both parties.

“If we’re going to give out loans, it should be a government loan at a very low interest rate, like two percent,” Ehsaei says. “Private loans should not be allowed for universities or education, period, because that’s when you get in trouble.”

She also suggests a system in which people have the option to defer their loans for a period of time without accruing interest during that time. She explains, “We need a system where a person can actually defer the interest for a little while, if you’re not making enough money, versus having the interest pile up.”