Taylor C Knox
There is no debate among experts, only politicians and ideologues: Forgiving students of their debt will benefit the economy.
Abolishing student debt is not a radical proposal by idealistic socialists, but is in fact sound economic policy backed by US Treasury Secretary Janet Yellen. To be clear, Yellen — a Yale-educated economist who has held top economic positions in the world’s richest country — supports the broad application of student debt relief, unlike President Joe Biden, who has reneged on his promises of $50,000 debt relief.
And it’s not an abstraction: there is evidence.
Student loan payments, interest, and collection have been suspended (and still are) for the duration of the pandemic in the US, and this has had no adverse effect on the US economy. Economists, even those who oppose canceling student debt, acknowledge that a suspension of payment would not be a significant driver of inflation, even if the moratorium lasted until the end of this year.
Canada’s student loan debt is nowhere near crisis levels in the United States, but that doesn’t mean it shouldn’t be completely forgiven.
For 30 years, a college education (or equivalent technical education) has been the actual minimum entry requirement for the middle class. With societal pressure to get a college degree growing, so has the cost, so it now takes more than a decade for Canadians to pay off their summer job debt.
The effect of the “downward movement” is that entire generations of Canadians have taken the first decent jobs they can find (instead of working in the field they were trained in) and delay their participation in the main drivers that fuel the economy: home ownership, small business, building families. Canadians of millennials and post-millennials have delayed their participation in the national economy not because of laziness or lack of interest, but because the cost of admission has far exceeded the earning potential.
Critics of student debt forgiveness cite what highly qualified people can expect to earn as a reason not to forgive debt, conveniently ignoring the fact that the knowledge economy that was supposed to support many university graduates never materialized.
Critics also argue that debt forgiveness will unfairly benefit the wealthy, but this misses the point since most student debt is owned by people who have no wealth to speak of. Although some wealthy people may benefit from a comprehensive debt cancellation program (a program that would apply to both graduates and those who cannot afford it, as well as those who have debts related to technical studies programs), the greatest benefit to the nation’s economic health is that Millions of Canadians are suddenly freeing themselves from the slow chokehold of debt they had no choice but to accumulate.
This almost instantly translates into down payments on homes, new business start-up funds, and the time and freedom to find better jobs, which will lead to increased productivity and profitability. The average student debt of a Canadian with a bachelor’s degree is $28,000, and in Ontario, 1 in 6 personal bankruptcies is due to student debt. Debt cancellation will be an adrenaline rush to the heart of the Canadian economy.
Canceling student debt will also steadily push Canadians to demand free comprehensive post-secondary education, and this should be encouraged as well. Providing free access to higher education is a public good not unlike universal health care.
Finally, consider what it might cost. The 2018 estimate of Canadian student loans outstanding for all levels of government was $28 billion (or $31 billion in current dollars). À titre de comparaison, l’administration Trudeau a déjà dépensé environ 21 milliards de dollars pour le pipeline TMX et est prête à offrir une autre subvention de 10 milliards de dollars, un montant égal à ce qu’il en coûterminit la étte in Canada.
Contrary to the pipeline’s exaggerated benefits, canceling student debt in Canada would directly and immediately benefit half a million Canadians across the country, with the resulting economic stability far exceeding what the pipeline could achieve under a more perfect setting.
What prevents the adoption of yet another hugely popular and science-based policy that would undoubtedly help the majority of people is not the economy, but the myopic interests and self-interests of hypocritical politicians, who preach the gospel of personal financial responsibility as they deliver. Over hundreds of billions of taxpayer dollars to the military-industrial complex, Big Oil, and the investment banks that caused all the economic disasters of the neoliberal age.
Macdonald Laurier Institute
Governments should not cancel all student debt, because it is not burdensome for the majority of students in Canada, it would be an exorbitant benefit to taxpayers that mainly benefit wealthy families, and it would reduce the incentive to study what benefits society most.
Statistics Canada data shows that student debt is manageable or non-existent for most students. Half of students in Canada graduate without debt, while 16% pay off student debt within three years of graduation.
Students most likely to take on debt are those who pursue lucrative professional degrees in legal and medical majors, where higher incomes justify borrowing to enter these lucrative professions.
There is also no evidence that student debt in Canada is getting tougher. The proportion of graduate students with no debt remained stable at half between 2000 and 2015, even as tuition fees increased. Among debt-burdened graduates, the amount of inflation-adjusted debt has remained “relatively stable,” according to Statistics Canada.
The idea that student debt is too high is another example of importing a debate from the United States without considering the very different realities in Canada. Student debt is a much bigger problem in the United States, having doubled to $1.7 trillion in the past decade as college costs soar. This is distinctly different from Canada, where tuition fees and student debt have increased significantly less for Canadian residents.
By far, the bulk of student debt (74%) is distributed among governments, including the federal government. The terms of these loans are not onerous, which means that the student debt is already backed. Students do not pay interest on government debt until they graduate and do not have to pay off federal government debt until they have earned at least $25,000.
Some students have difficulty paying their debts, mainly due to mismanagement of their personal finances. Government programs can better target assistance to these people without eliminating all student debt. However, rather than discussing how to develop or improve targeted debt relief programs, the easy-to-understand idea of canceling all student debt dominates the debate.
Canceling all student debt can lead to major problems in resolving financial difficulties for a relatively small number of people. Public debt cancellation would be costly and would cost taxpayers at least $28 billion (the amount of outstanding government student loans). Public funds are scarce, as Canadians are increasingly aware of yet very generous government support programs during the pandemic (including a $5,000 scholarship per post-secondary student in 2020).
Most of the student debt forgiveness benefits will go to people who do not need financial assistance from the government, especially those who work in high-paying fields such as business, law or medicine. Most student debt is owned by people from relatively well-off families.
Canceling student debt reduces the incentive to pursue studies in areas that benefit society the most, such as science, business, and professional degrees. Individuals who wish to pursue their studies in lower-wage fields, where the supply of labor already exceeds the demand, should not expect society to continually support their personal choice.
One unintended consequence of debt cancellation is to encourage more unqualified or unmotivated people to go to college; Their inevitable failure leaves most of them in a worse position than if they had never entered college. Broad access encourages lower standards of education, reducing the benefits of a university education for all students as well as for the community.
Canada is a generous country, perhaps even more generous when it comes to education. It is selfish that most of the call for student debt cancellation comes from the people in the education sector, who should reap the benefits.
The rest of the society rarely asks for more spending on education. We already support post-secondary education so that Canada has the highest level of education of any country. The problem is not the amount of education, but why this high level of learning has not raised our economic performance or the level of public debate in Canada.
There is no justification for allocating more resources to education at a time when there is such a large public deficit. What we need is a better return on those expenses. Overburdening taxpayers with more benefits for people who often don’t need them isn’t going to help in the long run.
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