In the US, student loan debt grows six times faster than a nation’s economy. It’s alarming to see the numbers grow as months pass by, especially seeing the interest rate. Currently, the overall student loan totals a whopping $1.71 trillion. According to Education Data, at least 43.2 million student borrowers are in debt by an average of $39,351 each. So, as President Biden took office, let’s discuss one of his campaign promises— student loan forgiveness.
Student Loan Forgiveness: Gains
President Biden, along with other top Democrats, made student loan forgiveness their number one priority. The president advocated at least $10,000 worth of debt per borrower. Meanwhile, Senate Majority Leader Schumer (D-N.Y.) and Senator Warren (D-Mass) opted for an aggressive push for $50,000 per debt borrower.
As student loan forgiveness is in ongoing discussions, the state of entrepreneurship hangs on a thin thread of balance. We should also consider that the economy is still in its post-Covid recovery. The final decision will have a significant effect not only on entrepreneurship but also on the overall economy.
We are all aware that small businesses play a huge role in job creations following recessions. Meanwhile, the overall $1.7 trillion worth of student loan debt is spread across at least 45 million people. The ongoing payments limit the legion of young to middle-aged dreamers from taking an entrepreneurial leap.
Skyler Pearson, the CEO, and co-founder of Nexgarden, is a graduate of the University of Oregon in 2013. She has a student loan debt worth $50,000. After Pearson started Nexgarden in 2017, she didn’t foresee how the debt would tighten her overall operational budget. Recently, she obtained $100,000 worth of bank loans to help Nexgarden. According to Pearson, just talking about student loan forgiveness is enough to give her chills.
Imagine all the other entrepreneurs or professionals who are shackled with a growing student loan debt. Any loan limits a person’s professional growth and financial decisions. In the end, whichever amount the government decides to push forward, it’s an excellent benefit for millions of people. Student loan forgiveness would lighten off some load on their shoulders if not all.
Student Loan Forgiveness: Consequences
Karthik Krishnan’s research managed to highlight the most straightforward answer— “the more debt you forgive, the better it is for entrepreneurship.” However, the economist strongly warns against that idea. In 2015, Krishnan co-authored the first academic paper to create about:
- The rising student loan debt
- Decline in entrepreneurship
According to his research, the inverse of the idea should be accurate—fewer debt results in the rise of entrepreneurship. However, reality does not have a definitive cause and effect. Whichever the outcome of the government’s ongoing discussion, there’s always a consequence.
If too much debt is canceled at one swoop, it could send the economy’s interest rates skyrocketing. It could also balloon the federal deficit, mainly when it goes hand-in-hand with Biden’s proposed Covid-19 recovery package worth $1.9 trillion. Its effects will drag on a lot of factors such as:
- The economy
- The country’s recovery
- Small businesses at large
According to John Dearie, Center for American Entrepreneurship founder, these are enough to raise red flags for a Republican deficit. So, the more student loan debt the Democrats propose to forgive, the harder it is to get the GOP on board. In the end, Dearie suggests that both need to reach a compromise. He also explains why the administration’s proposal is limited as they take a more reasonable approach to provide relief.
A Band-aid Fix
Although President Biden’s plan of $10,000 is more feasible, critics say it won’t make an impact. As mentioned above, an average student has more than $30,000 worth of debt. After cutting the loan with the proposed $10,000, it could still leave a vast balance.
Meanwhile, Krishnan suggests the ideal number would be somewhere between $10,000 to $50,000. As for John Dearie, he pointed out that this is a “band-aid fix.” It’s only a temporary solution without addressing any more significant issues. The policies should be in longer-term targeting factors like loan repayment plans or rising college tuition fees. Besides, America’s next generation of entrepreneurs might find themselves back at square one.
However, for Skyler Pearson, co-founder of Nexgarden, those problems are for another day. If we think from the borrower’s perspective, chopping off $10,000 is already considered a huge help. It can be regarded as one step closer to finally paying the overall student loan debt. Let’s bear in mind that any amount helps. We can only hope that the final decision will greatly help millions who are still in student loan debt.
