Yesterday, we discussed the generational cycle of student loan debt: how the pressure from parents, the (unfulfilled) promise of better economic fortunes and skyrocketing tuition over the last several decades have contributed to $1.7 trillion in national student loan debt, with Millennials bearing the brunt of the burden.
If the “I paid mine, you pay yours” argument is an issue of fairness, the other argument is one of fiscal responsibility. What happens to the economy if the government forgives $1.7 trillion in loans?
First, you have to understand who has the loans. According to 2020 research from the Brookings Institute: “The highest-income 40% of households (those with incomes above $74,000) owe almost 60% of the outstanding education debt and make almost three-quarters of the payments. The lowest-income 40% of households hold just under 20% of the outstanding debt and make only 10% of the payments.”
Well, yeah. People from higher-income households are more likely to: want to go to college, have others in their family who have gone to college and have family who can help them pay for college. That last part may sound counterintuitive: If their family can help them pay for college, then why do they have the most student debt?
Because “highest-income” and “help” are relative. While “highest-income” does include the very wealthy, a household income of $74,000 is solidly middle class. (Pew Research Center defines middle class as individual earnings of $30,000 to $90,000 or a family of four earning $60,000 to $180,000). These are people who probably pay a mortgage instead of rent and have enough disposable income to have one nice vacation a year. But they don’t have enough to always own the newest toys and gadgets and already have their retirements paid for. These are the people who can slip their kid a couple hundred bucks a month for expenses, but they can’t afford to pay tuition out-of-pocket — and their kids don’t qualify for needs-based scholarships and grants.
It also makes sense, then, that these graduates make the most payments. When they get out of school, they (hopefully) get a middle-class job that allows them to meet their monthly payments. Or, they end up working minimum wage, because there are more service jobs than office jobs, and their parents continue to help financially.
Conversely, lowest-income people have greater access to grants and scholarships (which do not need to be repaid) based on economic needs and financial hardships. For example, the federal Pell Grant is based on income and students applying for their bachelor’s can receive up to $6,895 for an academic year. For low-income graduates who supplemented with loans, repayment programs often have an income-based payment plan or deferment periods.
When people argue against full or partial student debt forgiveness, they often cite those Brookings numbers and say forgiveness helps the top-earners. But when you look at all of the above, you can start to see why “top-earner” is a misnomer and that loan forgiveness still helps low-income individuals.
The reality is that student debt has severely limited people’s — particularly Millennials’ — ability to participate in the economy and to reach milestones taken for granted by previous generations. Between ballooning tuition and inflation that has vastly outpaced earnings, even before the pandemic, the income young adults bring in now has less spending power than their parents’ income did. When you add up all the expenses that many face on a daily basis, it’s no wonder so many young adults are waiting until they are in their 30s or 40s — and have paid down some of their debt — to do things that their parents and grandparents did in their 20s, like buy houses and start families.
But some people never earn enough to pay everyday expenses and put a dent in their student debt. (“Get a better job” is easier said than done.) Forgiving even a fraction of borrowers’ student loan debt frees them to more actively participate in the economy — as consumers, but also as entrepreneurs and innovators.
And it gets them closer to enjoying the same opportunities their parents and grandparents did, back before college was considered the only road to success and loans became the only way to pay for it.
