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Thursday, January 21, 2021

COMMENTARY: Student debt in a stimulus package is not a good solution

Making education more affordable and accessible is critical to our future, but simple, across-the-board debt forgiveness is not the best policy.

Ray Perryman, president and chief executive officer of The Perryman Group

Student debt has been a growing problem for years and needs to be thoughtfully addressed. Recently, there have been calls for some type of uniform debt relief as part of a stimulus package. That is not the best solution.

Many graduates (or worse, people who did not complete a higher education program) have been saddled with crippling burdens. It’s a bad situation, hampering the ability of those with large loans to get on with their financial lives.

Whether buying necessities or big-ticket items such as houses, excessive balances and high monthly payments can cause budgetary stress. On the other hand, it may also be viewed as an investment in personal human capital for future rewards, not unlike borrowing to open a business. 

There are legitimate points of disagreement.

Abuses occurred in the student loan system and some individuals did not have full and accurate information when making decisions. There are also students and families who worked very hard and made tough choices to save for college that would receive no benefit. Similarly, others who fully paid off loans would not be accommodated on an equitable basis. 
Making education more affordable and accessible is critical to our future, but simple, across-the-board debt forgiveness is not the best policy. Something of this magnitude deserves careful consideration to achieve optimal results. It should promote upward mobility and a more productive future workforce.  

Whatever your thoughts on the student loan issue, the much-needed stimulus package is not the place for it.
The purpose of a stimulus package is to STIMULATE – NOW! For example, if $10,000 in loan forgiveness is implemented (one of the proposals), there will not be an immediate corresponding boost to the economy. Instead, the benefit would be limited to the amount of monthly payments.
Moreover, because those with student loans, on average, are better educated, have higher incomes, and are more able to work remotely than the norm, they would more frequently save any modest supplemental gains. 

In contrast, a grant to a family or business in desperate straits would be rapidly spent, circulate through the economy, and help to keep the basic structure together.
There are currently millions of households facing eviction, foreclosure, and food insecurity, while thousands of small businesses have exhausted their resources as they struggle to survive.

There are also major industries, such as airlines, which are barely hanging on (yet vital to our future recovery and quality of life), and state and local governments facing massive budget shortfalls as demand for services soars. 
Stimulus funds allocated in these directions would bring immediate and essential benefits – they would actually STIMULATE!

Student debt needs substantial attention, but we need pandemic relief NOW!

M. Ray Perryman, Ph.D., is president and chief executive officer of The Perryman Group (www.perrymangroup.com), which has served the needs of over 2,500 clients over the past four decades.

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