How would your life change if, all of a sudden, you no longer had to re-pay your student loan debt? What would you do with that extra $250-$1,000 of your paycheck every single month? If Congressman Hansen Clarke (D-MI) has his way, this question might not be rhetorical anymore. Student loan debt forgiveness could be the stimulus measure that breaks us free of this long recession.
Millennials are being strangled by record high student loan payments, more than any previous generation due to the skyrocketing costs of higher education, high unemployment, and stagnant wages. A whole generation is seeing their plans and ambitions shackled by the extra weight of their student loan payments. These young people are unable to buy a home, start a family, or do the socially important but underpaid jobs in the social services sector where many recent grads cut their teeth.
Congressman’s Clarke resolution, H.R. 365, aims to redirect the attention of government officials from reducing the federal deficit to addressing the real crisis facing millions of Americans and perpetuating this recession: the unrelenting financial drain on the economy caused by record levels of household debt. H.R. 365 also deals with home mortgage and personal debt, but as a Millennial the part I am most interested in is his proposal to forgive student loans.
Acting on this resolution would provide a trillion dollar stimulus to the demographic most sought after by advertisers and by realtors: college educated young people. These are the people that have the potential to revitalize the housing market and local economies. Best of all, this wouldn’t just be a short-term money injection; this resolution would result in millions of people being able to keep more than 13% of their paycheck every month for 30+ years (assuming Stafford loan interest rates and using average millennial debt and wage).
Now, any measure that specifically targets student loans, mortgage rates, and other forms of personal debt carries some inherent social justice issues. This measure would do little to directly help the poor.
On the other hand, eliminating student loan debt and helping people lower their home mortgages are investments that revitalize the middle class. This country used to take immense pride in its strong middle class, but it hasn’t promoted its growth for the past thirty years. When the American Dream was still achievable, a poor household could aim to achieve middle class status, but recent trends are showing just the opposite. Regardless of work ethic, more and more middle class families are slipping into poverty, in part because of the heavy debt burden of house ownership and of pursuing a higher education degree. For the first time since the Great Depression, today’s Americans are not likely to have a better standard of living than their parents.
Another criticism rests on the assumption that if current debt is forgiven, it would discourage future borrowers from paying theirs back. This argument points at the real crisis in higher education. The problem isn’t simply that people have too much debt, but that by choosing to enroll in an institution of higher learning to hone their skills and become a more productive member of society, they are essentially forced to. This is a financial burden that used to be largely taken on by the government (and still is in most other modern democracies) because it was recognized that the road to social and economic growth was rooted in an educated citizenry. Thus, while this criticism has some validity, it simply stands to underscore the need to reform our systems of financing public higher education altogether so people no longer have to take on such high debt burdens.
By injecting a trillion dollars directly in the bank accounts of college graduates, forgiving student loan debt will enable them to finally put their education to a good use and get their adult lives off the ground. Will this measure alone be enough to revitalize our ailing economy? Perhaps not, but I still haven’t found a valid argument as to why it should not be a major component of a recovery package.
3p is proud to parter with the Presidio Graduate School’s Macroeconomics course on a blogging series about “the economics of sustainability.” This post is part of that series. To follow along, please click here.