Local economists analyze new student loan forgiveness plan

Chattanooga-based financial experts see both positives, negatives in Biden Administration's actions

CHATTANOOGA (WDEF) — Many Americans are still celebrating Wednesday’s student debt cancellation announcement by President Biden.

But not everyone is optimistic.

Regarding the economy, one financial expert believes the consequences of debt forgiveness won’t be inflammatory, another does, but both believe that somehow — something needs to be done.

UTC’s Dr. Bento Lobo says nearly 1-in-6 American adults carry some amount of student debt and believes the President’s actions will provide relief for those struggling to pay it off.

“Part of the policy is to reduce the maximum amount that has to be paid to 5% off somebody’s discretionary income, as opposed to 10%,” Lobo said. “That should offer some relief to a lot of borrowers.”

Chris Hopkins of Apogee Wealth Partners, like Lobo, applauded the President for addressing rising student debt.

But he believes the debt forgiveness could lead to further inflation and much higher, far more drastic tuition rates.

“Future generations of borrowers are going to say, ‘Well yeah, I know I owe it but they forgave my brothers so I’m going to go ahead and take it out,'” Hopkins said. “That conditional demand may drive tuition costs higher. Let’s not forget that at least some of the tuition inflation over the last 20 years has been a result of a huge expansion in the student loan program.”

Both men understand the joy felt by many in finally being debt free or being closer to it.

But both do see downsides in the President’s plan.

“Let’s say maybe 10% of the adult population — it’s going to positively impact,” Hopkins said. “But that means ninety percent either didn’t got to college, didn’t borrow for college or repay their loan. So there’s a fundamental question of fairness there.”

“Right now, this is a win for people with debt currently,” Lobo said. “But five years, ten years down the road, you’re going to have another cohort of people with student debt. I’m not sure that this policy quite deals with that issue.”

While many are thrilled about student debt forgiveness, not everyone will receive it.

For those whose individual income is less than $125,000 or $250,000 when combined with your spouse’s income, that aid applies to you.

On the other hand, many Americans who did pay off their loans are now frustratedly asking where their refund for $10,000 is … and when they’ll get it.