Trillions could be injected into the economy with no tax money needed, and nothing added to the national debt.
Student loans have become a national threat. Just before the Covid-19 virus emerged in this country, over 75% of all federal student loan borrowers were either unable to pay on their loans, or were paying but their balances were going up. The default rate for 2004 students is 40%, and these people were taking out less than a third of what today's students are having to borrow. Given this, it is reasonable to expect that the default rate for current borrowers will easily exceed 60%, if not far higher. This is greater than triple the default rate of sub-prime home mortgages, and this was all true before the pandemic.
By every reasonable metric, this is now a catastrophically failed lending system.
This is not a partisan problem, it is a constitutional one. More than half of our citizens with college educations identify as being politically independent, or republican. More than half never graduated. All of these people with federal student loans are trapped by a uniquely predatory lending system from which nearly all consumer protections- including bankruptcy rights that the Founders called for ahead of the power to raise an army and declare war in the U.S. Constitution-have been stripped. The predatory, hyper-inflationary lending system that has resulted is precisely what the Founders wished to avoid.
The nation currently needs significant new fiscal stimulus. After having spent trillions- including $500 billion in business loans that don't need to be repaid- Wall Street has bounced back stronger than ever, but tens of millions of jobs have disappeared, and will not be coming back. There are very few stimulus options left, and all actions being discussed will require more tax money, or will increase the national debt...
...Except cancelling student loans by executive order.
The President and Secretary of Education have all the authority needed issue an executive order cancelling all federally owned student loans- about 85% of all student debt. Nothing would be added to the national debt, and no tax appropriation would be needed. This is, by far, the least expensive, and most expedient way to inject trillions into the economy.
Analysts have predicted that cancelling student loans will increase GDP by about $100 billion for the next ten years, but they do not take into account the borrowing capacity (and thus spending) that such a move would free up. This would be another $1 Trillion injected into the economy in the near and medium term. Some experts even believe that debt cancellation is the only way to avoid a depression.
Rest assured, the taxpayers will be fine. The federal government has been profiting wildly on these loans for many years, and decades of White House Budget data confirm that the Department of Education is even making a profit on defaulted loans! On balance, the taxpayer will have very little- perhaps no- net loss when these loans are cancelled.
This is an historic opportunity for the President- whether this one or the next- to cure a recession and create a better higher education financing system for the country.
Alan Collinge is founder of StudentLoanJustice.Org and author of The Student Loan Scam (Beacon Press). Join us on Facebook.
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