Are you in favour of forgiving student loans? Joe Biden is trying to do just that in the USA. That means Justin Trudeau won’t be far behind if Biden gets his way, especially with federal elections looming (2024 for the US, 2025 in Canada). Is this move a bid to win votes?
The Advantages of Forgiving Student Loans
The advantages are somewhat obvious, especially to those eligible for the program. Paying off (or at least reducing) the massive debt owed by students will certainly boost their economic status.
A Divisive Move?
Some feel this move will be divisive, just what any country does not need right now. The students (or former students) whose decisions on what degree to aim for and where to go were based solely on their economic status.
I am one of those. I would have loved to go to university to pursue a career in accounting or teaching. I could not afford it, nor could my parents afford to help out. As the fifth of six children in our family, I was only eligible for a small student loan and no grant. Instead of following my dreams at an out-of-town university (there was not one in the small town I grew up in) I lived at home and went to our community college. I still barely managed to afford this choice, with a student loan to pay off as a graduation gift.
Did these facts make me work harder to achieve my diploma in medical laboratory technology? They sure did. Does that mean I don’t see the need to help some students deserving of forgiving student loans? No, but I would like to see lots of conditions so two steps forwards don’t result in four steps backward for the economy, inflation rate, healthcare, and so on.
Will the Rate of Inflation Rise More?
The Federal Reserve Bank of Richmond (in the US) believes it will:
There could also be some stimulating impact, as the debt cancellation could free up borrowers’ cash flow, and the additional spending may create more tax revenue.
However, at the same time, this is also likely to be inflationary.
A key concern about the debt forgiveness program is its inflationary impact in an environment where inflation has been persistently elevated for over a year.
Shifting the Burden to Taxpayers
The Conservative argument is that forgiving student loans would simply (and unfairly) shift the debt from the students to their federal government. And we all know taxpayers pay for government debt. Unfortunately, when money gets funneled into one program, other programs suffer. So, students like myself that struggled to pay for their own education will now pay taxes so others do not have to pay for theirs.
Biden’s Proposal for American Students
Biden’s proposal says borrowers with an annual income of up to $125,000 or households with a combined income of up to $250,000 are eligible to apply for $10,000 to reduce their current student debt. However, those currently with an outstanding debt of less than $10,000 will only get reimbursed for whatever their balance is. According to the Congressional Budget Office, up to 43 million applicants will qualify for at least partially forgiving student loans.
The Canadian Version
In Canada, the National Student Loans Service Center (NSLSC) implemented its own version for forgiving student loans. Sort of. They, from April 2021 to March 31, 2023, eliminated the interest accrued on student loans. However, any interest accumulated before that date is still owed. This interest elimination was recently extended permanently after April of 2023.
In November of 2022, some Canadian provinces lowered maximum payments to 10% of household income from 20% and changed their zero payment income thresholds. To apply for their Repayment Assistance Plan (RAP), log into your NSLSC account. So far, only students from New Brunswick, Newfoundland and Labrador, Manitoba, and Saskatchewan are eligible. Hopefully, other provinces will follow suit.
I believe, and I realize this may sound selfish, that the majority of our taxes should be for improving the core services our citizens rely on. Stuff like roads and infrastructure, garbage collection, snow removal, and especially our flailing healthcare system.
Since graduation years ago, we (hubby and I) paid lots of tax dollars to raise three now self-sufficient children in a comfortable lifestyle. We chose to have three children because we believed that if we worked hard we could afford to feed, clothe, protect, entertain, and yes, educate them.
Of course, like most other citizens, we continue to pay taxes too.
Now seniors, we have reached the age where affordable, efficient, and available healthcare is more of a priority to us than forgiving student loans.