• Michael Huskey

Why Forgiving Students Loans Will Not Fix the Wealth Gap

It will actually make the problem worse not better

If you aren’t a big political junky, you probably didn’t see the headlines around student loan forgiveness. Some Democrat Congresspeople were pushing for President-Elect Joe Biden to pass Student Loan Forgiveness immediately upon entering the White House either through legislation or executive order.

Senator Elizabeth Warren and former presidential candidate tweeted this out on Monday

Democrats have said this would help close the wealth gap that has opened up in our country and could also help minorities who are most affected by student loan debt.

I don’t think this will help at all, and it will actually make the matter worse.

If you want to see why to continue to my blog

Rich Get Richer

Let’s assume Senator Warren is correct, and once people’s loans are forgiven, they start buying homes. What is that going to do?

That is going to raise the prices of homes all over the country. There will be this flood of money moving into a market that is already red hot. Who does this help? Not the buyer, but the seller. This policy will make the rich richer. It will end up increasing the gap, not close it.

Let’s take another scenario. People take this loan forgiveness and use it to buy stuff. This will lead to increased corporate profits, potentially leading to more hiring, which is a good thing. But it will also lead to increased stock prices, which again benefit the people who already have stock.

This policy that is supposedly aimed at closing the wealth gap will have the exact opposite effect and will hurt the same people it was trying to help.

What has caused the Student Debt Crisis

Against widespread knowledge, rising tuition prices are not the sole reason for the debt crisis. It is a lack of fundamental knowledge about how the job market works.

This has led an entire generation of students to borrow trillions of dollars to spend on education, which would not lead to a job that would give the capacity to pay it back.

Education alone does not bring prosperity. Education plus a paying market for your acquired knowledge does. If you learn about things people don’t want to spend money on, it should come as no shock to the student that they may not be able to make a living off what they studied.

The fact that our high schools are not teaching students this before deciding on a college degree makes no sense to me. This lack of understanding has led thousands of students to mortgage their futures to gain knowledge that will only satisfy their curiosity and not provide the advertised socio-economic freedom.

Forgiving the Loans rewards a Faulty System

If the federal government forgives these loans, it is just rewarding a failing system, a system that places numbers over student outcomes.

High schools commonly advertise the number of students who graduate and move onto higher education. What is not widely publicized is the amount of student debt these students are taking on.

My Solution

Student loans should only be able to be financed by the college that is delivering the education. This creates a scenario in which the college has a vested interest in a student’s long-term success.

If a university graduates a student and this student cannot pay off the degree within a specific time frame, that student’s loans should be forgiven. This will incentivize the school away from these programs.

However, suppose the school wants to continue offering this program. In that case, it should be required to have the students sign a contract that informs them that this degree will likely not result in a sustainable career under normal circumstances.

I am all about closing the wealth gap and having a country with increased socio-economic mobility. But when I see a policy that claims to solve a problem but will make it worse, I have to call it out.

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