Is Student Debt Relief the Best Policy Decision? - Willie Elliott, University of Michigan

05/04/2023

Is Student Debt Relief the Best Policy Decision? – Willie Elliott, University of Michigan

While the cost of attending college can be a significant financial burden for low-income families, there are several reasons why pursuing higher education can be a good investment for these students. Despite the usual benefits of higher-income levels, career advancements, personal development and social mobility. There are still very important and unique challenges students from low-income backgrounds

Who is Professor Willie Elliott?

Professor Willie Elliott is a leading researcher in the fields of college savings accounts, college debt, and wealth inequality. Shaped by his personal roots in poverty in a small steel mill city in Pennsylvania, Professor Elliott pursues challenging individual beliefs and cultural values that surround funding for college, student debt, inequality, systemic patterns of poverty, and educational justice. Being refined in poverty allows him to approach questions in his research differently.

Why do governments look to relieve student debt?

The government may want to relieve student debt for several reasons:

Economic Stimulus: Canceling student debt can provide an immediate economic stimulus by injecting money into the economy. When people have less debt, they have more money to spend, which can stimulate economic growth and create jobs.
Addressing Inequality: Student debt disproportionately affects people from low-income and minority backgrounds. Canceling student debt can help address some of the economic and racial inequality in the US.
Political Motivation: Student debt is a major issue for many young people, and canceling student debt can be a popular policy among younger voters, who are a key demographic for many politicians.
Education and Workforce Development: Relieving student debt can help make education and workforce development more accessible to more people, which can benefit the economy in the long run by improving the skills and productivity of the workforce

Why are Student Loans not a Good Idea for Students from Low-Income Backgrounds?

The cost of attending college continues to rise each year, and many students find themselves turning to student loans as a way to finance their education. While student loans may seem like a necessary investment in a student’s future, they can be particularly risky for low-income students. Here are a few reasons why student loans may not be a good idea for low-income students.

High Interest Rates and Fees Student loans can come with high interest rates and fees that can add significantly to the overall cost of borrowing. Low-income students may not have the financial resources to cover these costs, which can create a cycle of debt that can be difficult to break.
Lack of Financial Literacy Low-income students may have less experience managing their finances and may not fully understand the long-term implications of taking out student loans. They may not understand how interest rates work or how to budget effectively to ensure that they can make their loan payments.
Limited Job Opportunities Low-income students may not have access to the same job opportunities as their wealthier peers, which can make it more difficult to repay their loans after graduation. They may also be more likely to face unemployment or underemployment, which can make it even harder to make loan payments.
Impact on Credit Score Student loans can have a significant impact on a borrower’s credit score, particularly if they miss payments or default on their loans. Low-income students may be more vulnerable to these risks, as they may not have the financial resources to cover unexpected expenses or emergencies.
Reduced Quality of Life Low-income students who take out student loans may be forced to make sacrifices in other areas of their lives, such as delaying homeownership or putting off starting a family. This can lead to reduced quality of life and increased stress, which can have negative long-term consequences.
Barriers to Further Education Low-income students who take out student loans may be discouraged from pursuing further education, such as graduate school, due to the added financial burden of more loans. This can limit their opportunities for career advancement and personal growth.
Alternative Financing Options There are alternative financing options available to low-income students, such as scholarships, grants, and work-study programs, that can help cover the cost of college without the risk of student loans. Low-income students should explore all of their options before turning to student loans.

Overall, student loans can be a risky proposition for low-income students. While they may seem like a necessary investment in a student’s future, the long-term implications of borrowing can be significant. Low-income students should carefully consider all of their financing options and seek advice from a financial counselor before taking on student loans. With careful planning and smart financial management, low-income students can achieve their educational goals without putting their financial future at risk.