As both the 2020 presidential election inches closer and the U.S. national student loan debt grows by the day, the conversation around forgiving or not forgiving the $1.6 trillion racked up by Americans across is becoming more intense and much more urgent. Many presidential candidates have suggested plans for eliminating or helping with student loan debt, but will it work? What impacts would forgiving or not forgiving this large debt have?
One presidential candidate, Elizabeth Warren, a Democrat from Massachusetts, suggests forgiving up to $50,000 in student loan debt for those who have a household income of less than $100,000. For those whose household income is about $250,000, she wouldn’t forgive any debt, and for those in the middle it would be based on income. She plans on paying for this by taxing the wealthiest Americans. Another candidate, Bernie Sanders, a Vermont senator, plans on eliminating all student debt across the board. He says this can be paid for by creating a “Wall Street speculation tax”. This tax would tax stock, bond, and derivative trades.
If either of these plans were to go through, how would it effect the economy? According to a 2018 study, removing student loan debt en mass would stimulate the economy, and boost GDP. Currently, student loan debt has been known to hold back small business formation, buying new homes, and even marriage as well as having kids. With less debt, consumers would spend more, and they will be less likely to fire for bankruptcy, default on medical bills, or have their home foreclosed on. With student loan forgiveness, we may also see a higher level of degree attainment, and improved access to credit. However, forgiving debt is not cheap, and there are some drawbacks.
Many critics of student loan forgiveness fear that mass debt cancellations could benefit well-off Americans more than those who need it. With Bernie Sanders plan, to eliminate all student loan debt, there may be an increase in the wealth gap between white and black households. To avoid a racial wealth gap, critics suggest a plan similar to Elizabeth Warrens, but even her plan has its faults. Americans who tend to take out the largest loans are those who are doing so to pay for an expensive graduate degree. These degrees are expensive, but usually those who get them earn a higher salary, and have less problems paying back the loans. Those who tend to default on their loans have an average of less than $10,000, and they tend to be low income and/or black and were unable to complete their degree due to the high cost. With Elizabeth Warren’s plan, these Americans wouldn’t receive loan forgiveness because of the “low” amount of debt they have, even though they need it the most.
Student loan forgiveness is not something that will come easily, and there are many challenges it faces. The United States has large national debt already, so adding to that to pay for student loans is a big deal. From economic pros and cons, to moral problems, how do you feel about forgiving student loans?