GLOBAL (CU)_ Besides mortgage loans, student loans are currently the second-largest form of household debt in the United States. According to Federal Reserves, an average of $222 dollars is spent every month on student loans. Economically, this would result in a downturn as lesser disposable income would be spent on products and services as most of the earnings would be saved up to pay off loans.
In order to curb this problem, President Joe Biden announced the cancellation of up to $10,000 in federal student loans, used to cover costs of tuition and tertiary education, for those Americans who have an income of $125,000 or less on an annual basis. He also announced the dismissal of debt of $20,000 for students on Pell Grants, who are facing severe financial difficulties.
Political analysts view this as an attempt to win the votes of the youth ahead of the November midterm elections as most of the demographic subject to student loans is younger than 35 in age. Sharing his view on the matter, Ben Tulchin, a Democratic Pollster said, “So I think it is very helpful to kind of boost turnout among young voters and typically when younger voter turnout is higher, Democrats do better.”
However, the student loan plan is estimated to cost a hefty amount of $300bn and has its detractors who debate on the idea that it may not provide the necessary help to the ones who deserve it most.
Currently, the total student federal debt is at 1.6tn after having tripled over the last fifteen years.
Whilst forgiving the debt may help a certain segment, it may also lead the way to bigger economic problems such as inflation where prices will increase with higher buying power as those in debt will now have more money to spend. Schools may also raise their tuition fee bringing the situation back to base and this strategy may not succeed in helping all, or especially those who need it most. Hence concluding, that there are a lot of variables that need to go right for this idea to work effectively.
