NACOGDOCHES, Texas — No matter how you feel politically about President Joe Biden’s plan to forgive up to $10,000 of student debt, you need to consider the economic realities of it, said Dr. Mikhail Kouliavtsev, chair of the Department of Economics and Finance in Stephen F. Austin State University’s Rusche College of Business.

“Most economists appear to agree that this is, overall, bad economic policy, if nothing else,” said Kouliavtsev, who also directs SFA’s Center for Business and Economic Research. “It creates perverse incentives, sets a bad precedent, ignores and fails to address the underlying problem (and may even make it worse in the future), and is poorly timed.”

In CBER’s quarterly newsletter, Kouliavtsev reviews how the Biden plan not only cancels $10,000 loan balances ($20,000 loan balances for those who received Pell Grants) but also expands borrower eligibility for the income-based repayment program.

“This is a comprehensive debt relief program, not simply debt forgiveness,” he said.

The Congressional Budget Office estimate of the program, which was released after the policy decision was made, is $400 billion over 30 years.

In the CBER newsletter, Kouliavtsev addresses the reasons behind developing the debt relief policy, its inconsistent impacts geographically (sometimes in good ways), and its goal to increase disposable income for families, which will increase the demand for goods and services.

“But this tends to put upward pressure on prices,” Kouliavtsev said. “We don’t need that during a period when we’re battling historic inflation. This boost to the economy was needed in 2020 or early 2021, when we were in a deep pandemic-induced recession.”

Debt forgiveness also may give higher education institutions incentive to raise tuition. And current and future borrowers may expect similar debt forgiveness policies to be implemented in the future.

“Because the underlying problem of financing higher education remains unsolved, we are all but assured that the debt crisis will repeat itself,” Kouliavtsev said. 

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About CBER
CBER is one of several entities launched recently by SFA’s College of Business to help bolster local businesses. Others include Business and Community Services; the Greg Arnold Center for Entrepreneurship, or ACE; and the Small Business Resource Hub, which is housed in ACE.