The Latest on Student Loan Debt Forgiveness: Exploring Opportunity Cost and Higher Ed Financing Reform

Posted by erik devaney

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Forgiving student loan debt as a strategy for stimulating the economy has been an issue of considerable debate. While most college grads, not surprisingly, support such a proposal; most mainstream economists decry the proposal, citing its numerous flaws and misguided assumptions.

In a recent commentary for American Public Media’s Marketplace, UPenn Wharton School of Business professor, Justin Wolfers, stressed the importance of opportunity cost when thinking about the issue.

Wolfers, whose views have been the topic of New England Post stories in the past, argues that you should always compare a choice with the next best alternative. So while forgiving student loan debt may be better for stimulating the economy than extending more tax cuts to the rich, it would likely not be better than providing stimulus to the millions of Americans who are currently living in poverty.

Some supporters of student loan debt forgiveness do recognize the opportunity cost problem that Wolfers’ addresses, but continue to find ways around it. One such supporter is Tommaso Nicholas Boggia, an MPA candidate at Presidio Graduate School.

Boggia recently wrote an article for The Economics of Sustainability, which is a blogging series that was created by TriplePundit in partnership with the Presidio Graduate School’s Macroeconomics course. In his article, Boggia concedes that eliminating student loan debt would not directly help poor Americans.

To get around this problem, Boggia argues that forgiving student loan debt would strengthen the middle class, and as a result, fewer middle class Americans would end up slipping below the poverty line. According to Boggia, many of today’s families are unable to achieve the “American Dream” not because of a lack of work ethic, but because of the heavy burden of debt.

Perhaps the most intriguing aspect of Boggia’s recent article is his argument for reforming current public higher education financing systems. As Boggia points out, underlying the student loan debt forgiveness debate is the notion that people who want to develop their skills and become more productive members of society are forced to take on large amounts of debt. The problem isn’t just that people currently have too much debt, it’s that in the future people will continue to accumulate lots of debt if they decide to pursue higher education.

According to Boggia, in most other modern democracies, the government bears the brunt of the financial burden for education; the idea being that an educated citizenry will lead to an economically and socially prosperous society.

To give an example of what Boggia is talking about, look at the difference between what French and Massachusetts residents paid for public higher education in 2010. At the University of Massachusetts Amherst, Boston, Dartmouth and Lowell campuses, in-state undergraduates paid an average of $10,966 per year. In comparison, French citizens who studied at public universities in France paid approximately $540 per year. The government subsidized the remaining student costs, which in some cases were upwards of $16,000.

Of course, there are several arguments against the European-style higher education financing systems, including quality of education and costs to the taxpayer. However, Boggia’s overall assessment still rings true: unless changes are made to our current higher education financing systems, skyrocketing student loan debt will continue to be an issue.

What do you think of Wolfers’ and Boggia’s ideas? Leave a comment below.

Related posts:

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  2. Should the Government Forgive Student Loan Debt? College Grads Say Yes; Economists Say No
  3. Mission Accomplished: New England Post Finds an Economist* who Supports Forgiving Student Loan Debt
  4. OP-ED: Why Student Loans Should Be Forgiven
  5. Inside FutureM: Digital Marketing & Higher Education

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Posted by erik devaney on Oct 17 2011. Filed under Featured - For home page featured article, General, Top Stories. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

1 Comment for “The Latest on Student Loan Debt Forgiveness: Exploring Opportunity Cost and Higher Ed Financing Reform”

  1. ray

    I found very interesting the idea that forgiving the student loan debit will mean to put money in pockets of people that NEED to spend them immediately: new houses and other related goods, are trigger for a re-launch of the economy.
    Not the same we can say, if this money remains in the end of people that invest in financial products/services, as a form of saving.
    I like the idea of a positive feed back loop.

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