Kentucky economists, higher education officials respond to student loan forgiveness

Student loan
Posted at 11:00 PM, Aug 24, 2022
and last updated 2022-08-24 23:10:51-04

LEXINGTON, Ky. (LEX 18) — After President Joe Biden's announcement that certain amounts of federal student loan debt would be canceled, reaction came quickly.

"This would help hundreds of thousands of Kentuckians," said Ashley Spalding.

Spalding is a research director with the Kentucky Center for Economic Policy. She said this debt cancellation will free people up to move forward in their lives.

"People have delayed making really important financial investments, like buying a home and saving for retirement, and being able to provide certain supports for people in their families," Spalding said.

Other people have seen alarm bells going off, saying this could further exacerbate the inflation the country has seen this year. LEX 18 News asked Dr. Ken Troske about that. Troske is the endowed chair of economics at the University of Kentucky. Ultimately, he said, this affects a small group relative to the overall economy.

"For a lot of people, they've had their debt relieved, but immediately are they going to go out and spend a lot more money? Probably not. If they do, it's going to be spread over a long period of time, so it's hard to imagine it's going to have a huge impact on inflation anytime soon," Troske said.

Troske said the federal student loan repayment pause that was enacted at the beginning of the pandemic means a lot of those payments haven't been happening anyway.

"For most people, they weren't paying their loans off now, so I doubt that they had…chances are a good very few of them had stocked away the $10,000 that they needed to pay off their loan, so again, no immediate impact. It's hard to imagine how it's going to impact inflation in the short term," he said.

Erin Klarer works for the Kentucky Higher Education Assistance Authority. She said she always counsels students to choose financing options they're confident they'll be able to repay. If people qualify for loan cancellation, Klarer said they should take a cautious approach, because today's announcement might not be the final word.

"I am a betting woman and I would bet that this is going to be challenged in court, which is probably going to delay things. I think that people need to stay the course right now, as best they can, and don't skip payments because you think they're going to be forgiven. You need to continue to make payments and if you're having trouble making payments, you need to reach out to your servicer and get on a repayment plan that is appropriate for your situation," Klarer said.