The support for canceling student loan debt has slowly crept up in recent months. Student loan debt is crippling for many Americans; it often takes years, or even decades, to pay off fully thanks to super-high interest rates. It is within the power of the federal government to cancel all student loan debt in one fell swoop. And while there are some detractors, the notion is quite popular.
But beyond being popular and beneficial for lots of individuals, canceling student loan debt would benefit the economy as a whole. How? Bharat Ramamurti, member of the Congressional Oversight Commission and former top economic advisor to Elizabeth Warren, explains in a comprehensive viral thread.
Broad student loan debt cancellation via executive order is good economics and politics. A thread (with lots of data). 1/— Bharat Ramamurti (@BharatRamamurti) November 16, 2020
According to Bharat, an executive order from the president could cancel student loan debt, and it would be a good move both politically and economically. He goes on to explain his assertion with, as he says, "lots of data."
First, it’s important to remember that *a lot* of people have student loan debt -- 45 million or so. For context, 25 million people benefit from the EITC and 38 million people get SNAP. Fundamentally, one of the benefits of debt cancellation is that it helps a lot of people. 2/— Bharat Ramamurti (@BharatRamamurti) November 16, 2020
Something like 45 million people have student loan debt. The first and perhaps most obvious benefit to canceling this debt is that it would help a lot of people become more financially secure. When you're not beholden to hundreds in interest payments each month, drowning in a debt total that doesn't ever seem to shrink, you can't reach a certain quality of life, and you also don't contribute to the economy in other ways.
Canceling student loan debt has positive income effects. The median borrower making payments has a monthly payment of more than $200. Canceling debt could reduce or eliminate those payments -- which is like sending those people a check every month. 3/https://t.co/WOmrw3hxOT.— Bharat Ramamurti (@BharatRamamurti) November 16, 2020
If you cancel debt, you're instantly putting money back in people's pockets. This will no doubt feel good for them and provide a little more financial security, but there are also other benefits.
Student loan debt cancellation also has positive wealth effects. Student debt loads are part of the reasons we’re seeing declining home ownership and small business formation rates. Canceling the debt will have mean more jobs and growth. 4/https://t.co/PqyCXePPuO— Bharat Ramamurti (@BharatRamamurti) November 16, 2020
Perhaps more people could afford to buy a house or start a business if they didn't feel crushed under the weight of their debt. As Bharat says, "Canceling the debt will mean more jobs and growth."
He writes that one study found that "canceling all debt would have a big stimulative effect." The less debt canceled, the smaller the impact. But the point is, "debt cancellation [is] one of the relatively few ways to really stimulate the economy without Congress."
Canceling debt would also narrow the racial wealth gap. The study he cites says, "Between 2000 and 2018, the Black-white wealth gap for young graduates with bachelor’s degrees grew by 57 percent, driven by student debt. During the same 18 years, the median student debt for white borrowers nearly doubled from $12,000 to $23,000, while for Black borrowers, it quadrupled, increasing from around $7,000 to $30,000.
"Further, persistent wage and employment discrimination means Black students do not experience the same rate of return on higher education as their white peers. Twenty years after graduating, the median white borrower had paid off 94 percent of their student debt, while the median Black borrower still owed 95 percent of their student debt."
For those concerned about “targeting” student debt cancellation, you can vary the amount of debt cancelled by income level, should you want to. If you’re concerned it won’t help people who never attended college, you could pair it with executive actions that do that. 8/— Bharat Ramamurti (@BharatRamamurti) November 16, 2020
Bharat then gets into some complicated tax stuff, but there are ways to get around people being taxed for their canceled debt. One of the ways to do this is to classify debt forgiveness as COVID disaster relief. After the government only gave people $1,200 to get through the entire year, this would be a welcome addition.
For example, is it better to do $1 trillion in debt cancellation via executive order or do $500B in child allowances (good!) with another $500B in regressive tax cuts (bad!) to get Republican support? That’s the relevant comparison. 10/— Bharat Ramamurti (@BharatRamamurti) November 16, 2020
One complaint about student loan cancellation is that it is too broad. Once that money is back in the accounts of Americans, you don't know where they're going to spend it. But don't you think 45 million more financially stable and comfortable Americans is specific enough? They would then be able to contribute to the economy in lots of different ways. It would provide an overall boost.
Bharat goes on to explain that student loan debt cancellation would be a good political move as well. A majority of Americans support student debt cancellation, including, Bharat points out, those who've never had student loan debt.
And here’s polling data by demographic. Debt cancellation has the highest approval among people making under $50k/year and among people who don’t have a college degree (many of whom have debt because they didn’t complete college or because they're co-signing for their kids). 13/ pic.twitter.com/qHyhvT1LJl— Bharat Ramamurti (@BharatRamamurti) November 16, 2020
Bharat concludes, "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. We can't let the perfect be the enemy of the good."
Is canceling student loan debt a solution to all of our problems? No. Is it an extremely popular concept with a lot of potential to cause real, positive change and boost the economy? Absolutely. It should be a no-brainer at this point.