The ‘what if’ of student loan cancellation

Eye on KELOLAND

SIOUX FALLS, S.D. (KELO) – The Biden Administration has decided to extend the pause on student loan payments until May 1st. This is another extension of the moratorium that began in March of 2020 because of the pandemic.

Undergraduates in the United States have an average debt of $30,000 in student loans. That’s an average payment of $400 a month.

“It’s the children of the working class and lower classes that are having to take out loans to be able to pursue the American Dream. Right, to be all that they can be. To try and have some upward social mobility,” Reynold Nesiba, (D) Sioux Falls and Augustana University Economics Professor, said.

“Borrowing is a major portion of what college, of what students and families do when they go to college, especially at like the graduate school level unless you’re getting a repayment from your employer or a payment from your employer,” Scott Pohlson, vice president of enrollment at USD, said.

For the last year and nine months, the government has placed a hold on federal student loan repayments and stopped interest from accruing on them.

“That’s money that ends up being re-spent in our economy,” Nesiba said. “People are using it to pay their rent, they’re using it to buy groceries, to pay their medical bills, to meet other debt commitments. And so, when that debt is forgiven, it really is a powerful thing.”

Biden said as a presidential candidate that he would forgive student loans while in office. But what would happen to the economy if those debts were cancelled?

“The economists at the Levy Institute did a simulation of this, I think in 2018, and at the time when they estimated a complete student loan forgiveness, it would generate 108 billion dollars,” Nesiba said. “Up to 108 billion dollars for ten years in terms of overall GDP and they thought it would also lower unemployment rate based on the simulation that they did.”

South Dakota State Senator Reynold Nesiba is an economics professor at Augustana University in Sioux Falls. He says cancelling that debt would be like a tax cut.

“In this case, most of the debts for the last twenty years or so have really moved over to the Department of Education,” Nesiba said. “Either the Department of Education granting those or the Department of Education serving as a consolidator of debt. So much of that debt is owed to the federal government so it looks like a tax, actually. It looks like a tax with a pretty high-interest rate on it that the federal government, for the last couple of years, has been deferring the payments. So being able to be free of those liabilities, it’s like decreasing somebody’s tax.”

For now, though, the loans are just on hold until May 1st. Scott Pohlson, the vice-president of enrollment at USD, offers advice on what you could be doing with your loans in the meantime.

“I think the best advice I would give you as someone who, again, has debt myself, on this is that you kind of have to assess whether or not you want to continue to pay that down, right,” Pohlson said. “So if you want to take the principle amount is what it’s called in the loan and pay that down, it’s a great time to do it because you’re not incurring interest. You’re kind of almost doubling down if you think about compounded interest.”

He says to make sure you understand which type of loan you have.

“So like, if you’re in a loan forgiveness plan, like an income-based plan, they might forgive these months in the future based on your income growth or what that ends up being,” Pohlson said. “So you kind of have to, you need to call your debt provider. Really understand what are the pros and cons to it.”

The 40 million Americans with student loan debt have felt the impact of the moratorium.

“And right now, those debts are really a drag on the economy for young people,” Nesiba said. “Right, that if you have high levels of debt, it delays marriage, it delays buying a house, it delays buying a car or appliances or furniture. It just is restraining in terms of spending.”

“About a third of all students that have debt are in default,” Pohlson said. “And so you can have like wage garnishment, tax refunds pulled back. So I think it’s more about assessing is a third a heavy burden? Yeah, for a lot, but there’s so many variables inside that that I think, in my opinion, any sort of alleviation of debt would be something that’s going to have to take a lot more conversations.”

The student loan moratorium only applies to federal loans. Private student loans still need to be paid at this time.

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