Student loans suck big time. So wouldn’t it be cool if we just got rid of them? Is that even possible? Well, yeah, it is possible, it’s just a matter of mustering the political will (lol). It turns out it could even mean a huge boost to the economy.
First, let’s establish the scope of the problem. Forty million Americans owe a total of $1.3 trillion in student debt. That’s a lot of Americans, and a lot of American dollars. To give you an idea of scale, that’s roughly the population of Spain owing roughly the GDP of Mexico.
“To kind of comprehend that we’re adding over $3,000 per second,” according to Natalia Abrams, Executive Director of StudentDebtCrisis.org. “That’s how quickly you get to the trillions is by adding $3,000 per second.”
And most of it has come in the last decade. In 2004, the country’s student loan debt was “only” $260 billion. Ah the good ol’ days.
Everybody knows that college has been getting crazy expensive in recent years, but, according to Rohit Chopra, a Senior Fellow at the Center for American Progress, a lot of the rise in debt can be blamed on our old friend the Financial Crisis of 2008.
“Families lost trillions of dollars in wealth from their home equity, to their retirement accounts and that made it tougher to pay for their kids to go to college,” Chopra said. “At the same time, states across the country who were battered by the crisis made deep cuts to public higher education and both of these were a recipe for disaster.” Thanks a lot, banks.
So how would we go about erasing all student debt loans?
Well, if you spread the entirety of the $1.3 trillion debt over 10 years, you get it down to a much more manageable $130 billion a year.
To put that in context, the entirety of the annual federal budget’s discretionary spending is $1.1 trillion. Over half of that ($600 billion) goes to the military. So that looks like a good place to start.
The other possibility is to tax rich people.
“A short bit of math on that: total household wealth in this country is $60 trillion,” Josh Hoxie, the student debt expert for the Institute for Policy Studies, said. “Of that, the top 1% owns 42%, so that’s $25 trillion. A mere 1% tax on this $25.2 trillion would raise over $2.5 trillion in 10 years. So that’s nearly double what we need in order to eliminate student debt.”
The last time there was a major government bailout was when taxpayers paid $700 billion to save the banking industry from collapsing in 2008. That was more than half of what the collective student debt is right now. Jeb Bush, who pundits apparently think is “reasonable” and “wonky,” has a tax plan, for example, that would cost the government $3.4 trillion over 10 years. That’s about three times what it would cost to erase student debt.
So clearly, it’s possible. It’s just a matter of political will. But what kind of effect would debt forgiveness have on the economy?
“Eliminating student debt would give families a chance to create a safety net, enter savings, save for retirement,” Hoxie said. “We would definitely see increases in domestic spending.”
Those with forgiven debt will go on to do a bunch of things that help the economy: like starting businesses, buying more stuff, maybe buying a house, and investing.
“One thing that we also can’t forget is that a college education is a key to the modern American Dream,” Rohit said. “More and more jobs are requiring college educations and the more expensive it is, the more debt is following people for decades. That’s going to have a broader impact on not only the economy, but it can make people fundamentally question the American Dream.”
Because we come from radical puritans we tend to look at people who take on unmanageable amounts of debt as immoral sinners. But, as my mother once told me, it takes two to tango, and it is just as dumb and just as immoral to extend easy credit to those who will be unable to pay it back effectively. When that easy credit is going to cripple an entire generation of young people—and possibly cause the next economic collapse—radical solutions should be on the table.
Once all this debt is forgiven all we have to do is figure out how to make college more affordable so we don’t end up in the exact same place in a decade.
But we can worry about that part tomorrow.
Any future changes in how this country approaches and pays for college will have to take a good hard look at for-profit universities; those murky, mysterious, colleges that no one has ever heard of, like Argosy University and Florida Career College.
The default rate among graduates of these two venerable institutions of higher learning is one in five.
In fact, 75% of the increase in the nationwide rate of student loan default can be attributed to for-profit colleges.
The way they convince people to take out huge loans to attend this institutions (that aren’t even necessarily any good) is basically by lying about how many of their graduates go on to get good, high paying jobs.
Take the case of Corinthian Colleges, which closed down earlier this year amid a myriad of allegations of fraud.
What they were basically doing was paying temp agencies to hire recent graduates for two days and then counting those grads as “having found jobs.” These inflated statistics appeared in the marketing materials to lure students to enroll.
Anyway, luckily for a lot of their graduates, Corinthian’s crimes were so egregious that a lot of their loans will be forgiven.
But what about the millions of other students around the country who weren’t lucky enough to be defrauded in such a brazen manner? Shouldn’t they be forgiven too?