Why canceling student debt makes great economic sense for America
- Paul Constant is a writer at Civic Ventures, co-founder of the Seattle Review of Books, and frequent co-host of “Fork economy“podcast with Nick hanauer and David Goldstein.
- In this week’s episode of Fork economy, Hanauer and Goldstein spoke with Fenaba Addo, an associate professor at the University of Wisconsin at Madison whose research focuses on racial disparities and student debt.
- Addo says his research has found, like many economic disparities in the United States, that black student loan borrowers are disproportionately faced with higher average loan balances as well as more default and default issues. failure.
- She says forgiving the $ 1.5 trillion in student debt would serve as a direct reinvestment in the economy, as more graduates could then afford cars and homes and start their own businesses.
- Visit the Business Insider homepage for more stories.
The word “equity” comes up often when we talk about the plans of the new Biden administration to adopt some form of student loan cancellation. Proponents argue that it is not fair that the current generation has to pay tens of thousands of dollars more for a decent college education than previous generations, when wages have remained largely flat and others expenses have skyrocketed. Some opponents argue that it is not fair to give up student loans when they have already worked hard to pay off their own loans.
It’s easy to get caught up in the quagmire of fairness arguments.
As sharing animals, humans are programmed to be obsessed with the concept of fairness. But at the end of the day, the student loan cancellation debate is an economic issue – and it makes great economic sense to write off student debt.
We’ll get to that in a moment, but let’s first consider the magnitude of the problem. In this week’s episode of “Pitchfork Economics“Nick Hanauer and David Goldstein spoke to Fenaba Addo, associate professor at the University of Wisconsin at Madison, whose research focuses on racial disparities and student debt.
Addo points out that “about 45 million borrowers” have to over $ 1.5 trillion in university loans. And while a few dishonest experts would argue that this figure is largely made up of people spending beyond their means to attend expensive elite institutions, the truth is that only six percent of student loan borrowers owe more than $ 100,000.
“A lot of people with student loan debt are actually concentrated towards the lower end of the student debt split – therefore, below $ 20,000,” Addo said.
Like so many economic disparities in America, Addo’s research reveals that student loan debt will not flow evenly along racial lines.
“Black borrowers in particular have higher average loan balances,” Addo said. “They tend to rack up more debt and then they have more default and default issues. So we are seeing a disproportionate number of black borrowers with student loan debt.”
So what student debt cancellation plans are on the table right now? Addo says there are several ideas fighting for primacy.
“The Biden [administration] proposes $ 10,000 debt forgiveness for people with student loans that would phase out at annual income of $ 125,000, ”Addo explained, adding that Biden’s team was considering targeting only debt cancellation contracted for those who attended public universities.
She notes that more progressive politicians like Senators Bernie Sanders and Elizabeth Warren are proposing the cancellation of “$ 50,000 at all levels” per person – regardless of your income or where you went to school. All of the other plans, Addo said, “sort of fall between these.”
So how much of the roughly US $ 1.5 trillion student debt does Addo think he should forgive?
“You know what they say: go big or go home,” Addo said. “I think we have to cancel everything. We admit that the current system is not working and has failed a lot of people. As a society, we have to fix something. And one of those solutions should be to eliminate this debt. . “
It should be noted that Addo’s proposal is not that far to the left of the politics the average American wants. A recent Data for Progress survey found that more than half of all Americans – 51% – support a debt cancellation proposal of $ 50,000 for any American earning less than $ 125,000 a year. More … than two-thirds of all respondents approve a program that cancels $ 10,000 in debt for each year the borrower works in community or national service. College debt cancellation is widely popular.
This explains why forgiving student debt makes political sense. And at the end of this week’s episode of “Pitchfork Economics”, you can hear a compelling argument as to why this makes good economic sense.
Podcast listeners called from across the country to explain what they would do if their student debt was canceled. Bobby from North Carolina would use the extra money to help his young adult daughters, who are struggling to find work during the pandemic, pay their rent. A 40-year-old woman named Amy from Dallas can’t afford to go back to school to learn how to do the job she loves because it would jeopardize any hope she has of preparing for retirement.
An educator in a wealthy, well-paid public school district who pays back a master’s degree in teaching called to say that if his debt was canceled, he “could teach in a school district that needs really effective teachers, but sadly not. the wage structures in place to pay a living wage. ”
A listener named James from Los Angeles admitted that now that he’s in his 50s and has paid off most of his student loans, his debt forgiveness wouldn’t affect him as much. But James also identified what would have happened if he hadn’t had this debt on his back for so many years: It “would have improved my creditworthiness and my purchasing ability quite significantly, because I’m under. -employed for a very long time. “
Canceling student debt makes great economic sense, as it would work as a direct stimulus investment in the economy.
Unlike Trump’s tax cuts, which handed over $ 1.9 trillion to richest Americans and corporations, that $ 1.5 trillion in canceled debt would immediately start flowing through the economy, helping the country recover from the coronavirus
Freed from decades of debt, people would buy cars and houses. They would spend money in their communities, creating jobs. Rather than issuing checks to simply pay the exorbitant interest on a loan taken out when they were 18, they were starting businesses and taking risks that would create economic opportunities for others.
When Addo says she’s in favor of getting big, she isn’t just talking about the cost of forgiving debt – she’s thinking about the benefits we would all get from it.
Read more on Fork economy.