UNO professor debunks myth that student loan forgiveness would boost economy
OMAHA, Neb. (WOWT) - When President Biden gives the commencement address at his alma mater, University of Delaware, this weekend, many will be listening for one thing:
What about all that talk about student loan forgiveness?
The big question seems to be “to forgive or not to forgive?”
Biden said weeks ago he is considering some debt reduction, but made it clear, that the number won’t be $50,000.
College students are ready, though, anticipating a number for some closure on the issue, especially realizing their loans could be in the six figures when they cross the stage.
On UNO’s campus, Logan Guy, a freshman finance major, believes fewer loans could lead to more financial freedom.
“I feel like people are more willing to spend money on things that they actually want rather than things that they actually need to pay for,” Guy said.
Some predictions would have you believe the economy is going to resemble one big Black Friday sale, with millions of Americans storming retailers.
But Dr. Zhigang Feng, a UNO professor of economics, doesn’t quite see things that way.
For example, Feng explains that when broken down on a more granular level, a few thousand dollars forgiven, would equate to roughly a few hundred dollars every month.
“That may be a significant amount for some, but for many, it won’t make much of a dent, nor will it move the economy forward much.“
Feng used stimulus payments to help illustrate the difference.
A stimulus check is a direct payment, given to people to tangibly spend, whereas any student debt forgiveness, would only be a fraction of a large owed sum.
“This is going to add on our national debt,” Zeng said.
He says he’s not against forgiveness, but on paper, it won’t be the economic answer many may believe, especially because technically, student debt is still the government’s debt.
Right now, the U.S. has about $1.6 trillion dollars of student loan debt, which accounts for 8% of the national income.
Zeng said increasing that number would lower America’s GDP.
“Loans are financed by borrowing from the Treasury... more precisely, the government is going to lose some dividends in the future,” he said.
Zeng jokingly called education “risky business” and said the best option moving forward is addressing the high cost of college and leveling the playing field so everyone can access higher learning without sinking them further into financial ruin.
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