Should Canada Follow in Biden's Footsteps and Forgive Student Loans? A Psychologist's Perspective

The Biden administration's recent executive order, effectively cancelling $39 billion of student debt, has sparked a renewed discussion about whether Canada should also consider forgiving student loans. As a psychologist, I explore this issue by examining its impact on long-term mental health and the concept of "responsibility."

THE CRUSHING WEIGHT OF FINANCIAL STRESS

When we talk about student loans, we can't ignore the skyrocketing costs of education and living, which make incurring debt almost unavoidable for the average Canadian. These costs have spiraled out of control, putting immense pressure on students and their families. The result? Overwhelming financial stress that hampers stability, contributes to mental health challenges, and limits life choices. Milestones such as starting a family or purchasing a home are delayed, and people often feel pressured to take on jobs solely for financial reasons. Overall, the result is a chronically stressed and dissatisfied generation that believes that debt is simply a part of living life.

So how did we get into this mess?

UNRAVELLING THE MESS: INSTITUTIONAL RESPONSIBILITY

Back when the cost of education was more reasonable, student loans gave those of limited means access to education that led to a higher standard of living. It made for sensible social policy. However, over the years, education has transformed into a profit-driven industry, where marketing the “college experience” can often overshadow the core purpose of learning. Moreover, the cultural pressure to only consider attending the most prestigious institutions has also led to inflated costs. Increasingly larger student loan programs have only incentivized institutions to increase costs rather than try to make education more affordable. Gone are the days where students could feasibly pay for their education through summer and part-time jobs.

To exacerbate the problem, many students sign loan agreements without fully grasping the long-term consequences, due to a lack of transparency combined with limited financial literacy. Institutions and lenders share responsibility in enticing students without adequately informing them about the true implications of debt.

The answer seems clear: If we did nothing wrong, we should be forgiven right?

THE TUG OF PERSONAL RESPONSIBILITY

While forgiving student loans may seem like a no-brainer, we must also consider the potential consequences of such an action on individual psychology. Broadly forgiving loans could inadvertently send a message that individuals are not fully accountable for their financial decisions. This can have unintended consequences, diminishing the value of personal accountability and undermining financial prudence. It can lead to the expectation that the government (or some other external factor) will eventually always bail us out of our problems. On the flip side, it can also unintentionally “penalize” those who diligently repaid their loans, paid their way through school, or chose to attend less expensive institutions. The result is greater political polarization between groups, leading to increased social tension and conflict, erosion of trust in institutions, and a divisive climate pitting individuals against each other.

So what is a sensible path forward?

STRIKING THE BALANCE AND SOLVING THE PROBLEM

In clinical practice, when addressing a problem with disparate points of view (such as in couples or family therapy), psychologists are taught to engage in active listening and empathy, uncover the root causes of an issue, establish common ground, determine a course of action, and be open to change if that course of action does not result in intended outcomes. This approach can teach us a great deal on carving a pragmatic path forward when it comes to student loan forgiveness.

To address the rising cost of education and its impact on mental health, we cannot ignore the root causes that have brought us here in the first place. Policy-level changes that address skyrocketing education costs and regulate the student loan industry are critical. Introducing financial education at the elementary and high school levels can also empower students to make informed decisions without being unduly influenced by external factors.

For those who have already started or completed their education, a fair forgiveness formula that also incentivizes personal responsibility is important. This might involve, for example, limiting the compound interest component of loans (as opposed to the entire principal) and provides further tax benefits to those who have diligently paid off the their loans.

While there is likely no perfect solution that satisfies all, seeking perfection is a sure-fire way to achieve stagnation. By finally addressing underlying issues and providing immediate equitable solutions, over the long term, we can create a more financially stable society that supports the mental health and overall well-being of its citizens.