“the Ethics Of Student Lending: A Critical Examination” – Several groups have opposed President Joe Biden’s plan to forgive $10,000 to $20,000 of student debt. Photo by Paul Morigi/Getty Images for We the 45m

President Joe Biden’s plan to waive US$10,000 to $20,000 in student loans for 40 million eligible people was recently put on hold after a federal appeals court suspended the program.

“the Ethics Of Student Lending: A Critical Examination”

Six states have asked the courts to block the implementation of loan forgiveness until their lawsuits against the program are settled. The states allege that they will be hurt financially if borrowers get forgiven.

The Ethics Of Student Debt Cancellation: Thinking Through Its Fairness

As a psychologist who studies the ethics of debt, my work examines the question at the heart of student loan forgiveness and forgiveness: Is canceling student loans wrong?

Education fees are often considered an investment in one’s future. Millennials with a bachelor’s degree, for example, earn $25,000 more per year than those with only a high school diploma. A college education is associated with many positive life outcomes, including physical and mental health, family stability and job satisfaction.

Given the benefits of a college education, student loan waivers are seen by some as a gift for early adopters.

Debt cancellation also seems to violate the moral principle of keeping one’s promises. Borrowers have a moral duty to fulfill their loan agreements, the philosopher Immanuel Kant argued, because breaking promises is disrespectful to oneself and others. He said that once people make a promise to do something, others rely on that promise and expect them to do it.

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In the case of federal student loans, the borrower signs a promissory note agreeing to repay the government and, ultimately, the taxpayers. Therefore, student borrowers seem to have a moral obligation to pay their debts if mitigating circumstances such as injury or illness arise.

However, justice and respect also require that society address the magnitude of student debt today, and particularly the burden it places on low-income, first-generation and black borrowers.

Students demonstrated in New York to protest against student loan repayment. Photo by Cem Ozdel/Anadolu Agency/Getty Images

Today’s young people are starting their adult lives carrying more student debt than previous generations. Nearly 70% of college students now borrow to attend college, and the average size of their debt has risen since the mid-1990s from less than $13,000 to about $30,000 today.

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As a result, total outstanding student debt has risen to more than $1.5 trillion, making it the second largest form of debt in the US, after mortgages.

This explosion in student debt raises two important ethical concerns, as my student Justin Lewiston and I argue in a 2020 article published by The Journal of Value Inquiry.

The first concern is that the distribution of costs and benefits is not limited. Goodness requires equal opportunity, as philosopher John Rawls argued. Yet, while student loans are supposed to create opportunities for students from disadvantaged backgrounds, those opportunities are often obscured by educational challenges and the wage gap in job market.

Data shows that low-income students, first-generation students and black students face the greatest struggles in repaying their loans. About 70% of the disadvantaged are first-generation students, and 40% come from low-income backgrounds. Twenty years after college, when borrowers have repaid 94% of their loans, the average black student has been able to repay only 5%.

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These reductions in default rates reflect lower graduation rates for students in those groups, who tend to work longer hours while in school and engage less in academics. and without a college education.

But they also show less money for graduate school for such students, due in no small part to continuing social and racial wage gaps in the labor market. Black men with a bachelor’s degree make, on average, more than 20% less than white men with the same education and experience, although the wage gap is smaller for women. First-generation graduates typically make 10% less than students whose parents graduated from college.

A second moral concern is that student debt is increasingly causing problems that significantly hinder the lives of borrowers. Consider that even before the pandemic, 20% of student borrowers were behind on their payments, with first-generation borrowers and borrowers struggling even more.

The financial crisis shown by the high number of these violations damages both the physical and mental health of young people. It prevents young people from starting a family, buying a car, renting or buying their own home and even starting a new business.

Ethics In The News

Unsurprisingly, these negative impacts are first-generation, low-income and black student borrowers, whose life choices are particularly limited by the need to pay off debt.

Some analysts have said that canceling student loans will cause problems. Moral hazard arises when people ignore the importance of making good choices because they expect others to cover the risk for them.

For example, a bank that expects the government to bail it out in the event of a financial crisis thus has an incentive to engage in risky behavior.

Behavioral risk can be avoided by combining student debt cancellation with programs that reduce the need for future borrowing, especially for first-generation students, low-income students and students of color.

Navient Reaches A Deal To Cancel $1.7 Billion In Student Loan Balances

One success story is the Tennessee Promise, a program launched in 2015 to make tuition and fees at community and technical colleges affordable for state residents. This program has increased enrollment and retention and completion rates, while reducing borrowing by more than 25%.

New Mexico has recently moved forward, offering free tuition at all public colleges and universities, including some business programs. Scholarship is awarded to in-state residents who have a 2.5 GPA and enroll in at least 6 credit hours per semester.

Ultimately, ethics requires a forward-looking and backward approach to debt cancellation. The way forward, I would argue, is to create a better society by canceling some student loans and changing the way we support high school and student loans. At the same time, the COVID-19 pandemic has caused historic levels of unemployment and economic hardship. . Even before the pandemic, many student loan borrowers faced the burden of paying more than 10 percent of their household income or a debt trap, in which they could not keep up with the monthly interest rate (Farrell, Greig and Sullivan 2020). Government action to freeze payments and interest on federal student loans beginning in March 2020 to ease the economic burden brought on by the pandemic. In addition to this temporary relief, policymakers have proposed permanent forgiveness of federal student loans, which represent approximately 92 percent of student loan debt (Amir, Teslow, and Borders 2020 ).

In this understanding, we use data from banks and credit bureaus to estimate how the benefit of different debt cancellation conditions will be distributed by household income, the remaining time of borrowers to pay their debt, and the lenders’ race and race.

Who Benefits From Student Debt Cancellation?

We examine four scenarios: (1) a global cancellation of up to $10,000 of each debtor’s balance; (2) canceling the tax up to $50,000 for those earning less than $125,000; (3) repeal up to $25,000 for those earning less than $75,000 and cap it at $100,000; and (4) canceling up to $50,000 with the same income stream as in condition 3.

From our combined bank and credit bureau data, we take the borrower’s student loan balance, annual income, and repayment schedule in 2016 to calculate various aspects of the situation This is an imaginary ban. First, how much will be canceled? Second, how is the tax repeal spread across the income distribution – how much money goes to low-income families? Third, how much of the debt cancellations are held by those who are on track to repay their loans on time and those who are unable to repay properly? Finally, how to cancel debt across all races and ethnicities?

We find that income reductions significantly reduce the total amount of debt forgiven and make cancellations less likely, while all of the foreclosure scenarios we examine distribute forgiveness across borrowers by ‘race in the same way. A $10,000 universal write-off would forgive about a quarter of all student loan debt, while a $50,000 write-off with limited funds would forgive half of all debt. A cancellation of $25,000 in the withdrawal period cancels the same fee as a cancellation of $10,000 worldwide. Repeals also disproportionately benefit middle- and upper-income families, although the pursuit of income makes the repeal less likely. This causes a backlash due to the fact that families with high incomes carry large debts, often from professional or graduate degrees. On the other hand, aggressive foreclosures do not mean that they will result in large foreclosures going to borrowers who are in a debt trap or face long-term repayments. Increasing the number of cancellations available, however, increases the share of forgiveness that borrowers receive with longer payment periods. The proportion of cancellations received across races and ethnicities is not significantly affected by income protection and reflects the extent of collective bargaining.

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