Would cancelling student debt improve the U.S. economy in 2020?

Considering how much damage Covid 19 did to the U.S. economy, could cancelling student debt help improve the economy? A lot of students struggle to make payments already and with layoffs and unexpected costs of a pandemic, it has taken a huge toll on some. If people could spend less money on paying off student loans, couldn't they spend more on items like food and reinvgorate the economy? I have no background in education, business, or economics, so I'd love a perspective that could explain the nuances of the situation to me.

  Topic Politics Subtopic Policies
3 Years 2 Answers 3.0k views

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  1. Jess H. Brewer 1718 Community Answer

    I can't guess whether it would "improve The Economy", and frankly I don't care.  What it might do, if done right, is give a lot of young graduates hope for the future that they presently lack.  It might also solve a number of problems nominally unrelated to "The Economy".  


    For instance, my first wife incurred a large student loan debt back in the late 1960s getting a Bachelor of Nursing degree from Stanford; but in those days the government had a program of nursing student debt forgiveness that canceled 10% of the debt for every year they worked as a nurse thereafter.  This helped produce a lot of good nurses!  The same could be done for doctors who work as GPs in small communities -- a dwindling workforce everywhere today.  


    A counterexample was the Scoutmaster of my son's Boy Scout group in the 1990s, who incurred a lot of student loan debt getting an Engineering degree; he was on welfare because after the garnisheeing of his wages to pay off his student loans, his takehome pay in his good engineering job was less than his welfare cheque.  IIRC, he eventually just declared bankruptcy; that is no longer allowed, if I'm informed correctly.  


    My point is, most people who incur large student loan debt have as a result some training for jobs that we all need filled, but they either despair of ever paying off their debt and "fail to start" or get seduced into jobs we do NOT particularly need filled, but which promise lavish enough remuneration that they might actually be able to pay off their debt.  


    The principles involved here are essentially the same as the arguments for a Universal Basic Income; but the UBI does not offer as many opportunities to create "carrots" that draw people into roles that society needs.  The UBI is just the elimination of the "stick" of grinding poverty.  

    UTC 2021-04-16 07:05 PM 0 Comments
  2. Sarah C 656

    According to Forbes' Zack Friedman, no.

    https://www.forbes.com/sites/zackfriedman/2020/11/24/student-loan-forgiveness-wont-provide-economic-stimulus/?sh=36c1abac73a8

    • The authors estimate that if the federal government spends approximately $1.6 trillion to cancel student loans, the net effect would be only $90 billion of available cash to spend in 2021 and less than $450 billion over the next five years. Even if a borrower receives $10,000 of student loan forgiveness now, they don’t receive $10,000 of cash. Rather, that borrower would not have to make principal or interest payments, which could free up several hundred of dollars of cash each month. This is especially true for borrowers who pay off student loans over 10-30 years and have relatively lower monthly payments. The authors also note that this cash impact may be overstated due to income tax. For example, if a student loan borrower receives student loan forgiveness under an income-driven repayment plan, for example, the amount of student loans forgiven is taxable. If Congress or the president cancels student loans and does not somehow waive the tax liability, then the authors note the stimulus effect could be closer to zero.

    But Business Insider's Hillary Hoffower and Madison Hoff say yes.

    https://www.businessinsider.com/economic-benefits-of-student-debt-forgiveness-2020-12 

    • "The bottom line is that broad debt cancellation via executive order is popular, economically potent, and — most importantly — life-changing for millions of Americans struggling through this crisis," Ramamurti wrote on Twitter.

      One of the studies Ramamurti shared is a 2018 paper from the Levy Economic Institute of Bard College using 2016 data that looks at the effects of student loan debt forgiveness. The authors write that a one-time cancellation of the $1.4 trillion outstanding student debt held would translate to an increase of $86 billion to $108 billion a year, on average, to GDP. 

      Cancelling student debt could also mean current monthly payments could go toward savings or other spending. Per the Federal Reserve report, those who make payments usually pay about $200 to $299 per month. Ramamurti tweeted that this "is like sending those people a check every month." 

    Looks to me that the main difference is whether or not you consider $90 billion a lot of money or a little.


    Either way, the Recovery Rebate Credit that students can claim on this year's taxes will get them the first and second stimulus checks that they were denied. Depending on who you ask, that may or may not be better than nothing.

    UTC 2021-04-12 09:30 PM 0 Comments

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