Tuition at Harvard Business School is now almost $80,000 per year; that alone justifies reading the article just released in their Working Knowledge Review of Student Loan Debt. The article supposes that relieving graduates from student loan debt enables them to have better-paying careers and contribute more to the economy.
As a parent that saw to it that none of his kids would have academic debt, through my conservative cash management and their supplemental income from college and summer jobs, I wonder about the benefits of student loan forgiveness. There are use cases that make sense. A new teacher launching a career in a poor neighborhood makes some sense. Offsetting college debt with a Peace Corp commitment is another. But, overall forgiveness of debt is beyond what is expected of adults.
From where our household sits, anyone can pick any college the want, take advantage of any financial aid they can, but don’t send your bill to us as we savor the impact of our responsible choices. Lend as much as students want, but make sure they have to pay it back.
The story begins:
- The study was co-written by Harvard Business School Associate Professor Marco DiMaggio, Indiana University Assistant Professor Ankit Kalda, and Vincent W. Yao of Georgia State University.
- The paper shines a light on a student debt crisis that Democratic presidential hopefuls have called a national emergency. Sen. Elizabeth Warren has proposed forgiving student loan debt for millions of borrowers on a sliding scale based on income, and Sen. Bernie Sanders has pushed for eliminating undergraduate tuition and fees at public colleges and universities.
- But it’s clear from the research results that student debt is acting as a strong drag on people’s finances, and several benefits would come from liberating people from these loans, he says.
The topic is a bit scarry, not just from a parent’s perspective, but a macroeconomic view. There is more than $1 trillion in student loan debt, overshadowing the total outstanding credit card debt in the U.S. Student loan delinquency almost doubled between 2008 and 2017. 37.9 people have current student loans today, and another 6.9 million have delinquent loans.
…even more crippling is that 18% of student loan borrowers have loans in excess of $50,000.
That’s not the way to start out life, but the fact is the students did take a loan. Loans need to be repaid, not forgiven as Bernie or Elizabeth suggest in their populist campaigns.
The article continues with some positive results should student loan debt be determined, though it is not too compelling.
- 30% are more likely to switch jobs
- $4,000 increase in income three years after debt forgiveness.
Where do you draw the line?
CNBC says that two out of three Americans can not pay off their hospital bills. Only a decade ago, the U.S. market went into crisis and 10% of homes were subject to foreclosure.
On the other hand there are people like me. I drove the same car as I shouldered tuition payments. It was not attractive but it helped keep everyone out of debt, including me. Similar to avoiding credit card debt, if you don’t have it, or can’t pay for it, don’t buy it.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
