Should the U.S. cancel $10,000 or more of student loan debt per borrower? What would be the economic and financial impact? Why the student loan system is broken and how to fix it.
Topics covered include:
- How large and what is the growth rate of U.S. student loan balances
- What are the projections for student loan losses
- What are the pros and cons of forgiving student loans
- What would be the impact on federal finances of canceling student loans
- Why the U.S. government is already technically insolvent
- How student loan programs should be restructured
Show Notes
Student Loans Owned and Securitized, Outstanding—Federal Reserve Bank of St. Louise
Senate majority gives Biden path to student loan forgiveness by Sylvan Lane—The Hill
Biden will call on Congress to forgive $10,000 in student debt for all borrowers by Annie Nova—CNBC
Financial Report of the United States Government FY 2019
Warren makes case to Fed chair for canceling student loan debt by Naomi Jagoda—The Hill
Average Student Loan Debt at Graduation by Mark Kantrowitz—Savingforcollege.com
Forgiving Student Debt Isn’t a Great Stimulus Plan by Noah Smith—Bloomberg
Episode Sponsors
Become a Better Investor With Our Investing Checklist
Become a Better Investor With Our Investing Checklist
Master successful investing with our Checklist and get expert weekly insights to help you build your wealth with confidence.
Related Episodes
168: Is Life More Difficult For Millennials?
307: Income Share Agreements—Good for Students or Investors?
402: Why Student Loan Debt Is So High and Forgiving It Doesn’t Fix the Problem
Transcript
Welcome to Money For the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I’m your host, David Stein. Today’s episode, 327. It’s titled “Is student loan forgiveness a good idea?”
Last week, CNBC reported that president-elect Joe Biden will ask Congress to cancel $10,000 in student debt for each borrower and to extend the payment pause that’s been in place since April. Borrowers of student loans haven’t had to make any payments, and interest has not been accruing. That provision put in place by the Trump Administration expires at the end of January 2021. Biden is going to extend that, and apparently going to ask Congress to cancel $10,000 of debt per student borrower. And there are some reports that he will cancel all of the debt of those who attended a public university or a historically black college or university and are earning less than $125,000 per year.
Student Loan Balances and Proposals for Forgiveness
There’s a lot of student debt outstanding in the U.S. 1.7 trillion dollars. It’s been growing at a 9.1% annual rate since 2006. 44 million Americans owe the U.S. government about 1.5 trillion dollars in student loan debt. The remainder is private student loans. One reason student loan debt is increasing at a 9% annual rate is there are more students going to school and borrowing money.
If Biden went through with this debt forgiveness plan, it would reduce the student loan balance by about one-third, so 560 billion dollars. Just the $10,000/borrower piece would reduce that 1.7 trillion dollar amount by 440 billion dollars. This is according to higher-education expert Mark Kantrowitz.
Right now, student loan borrowers are struggling. According to a Pew survey, six in ten borrowers said it would be difficult for them to start paying their student the next month. And 90% of federal student loan borrowers have taken advantage of the government option to pause their payments during the pandemic.
There are some senators, Chuck Schumer, who have called on Biden to forgive $50,000 of debt per borrower on the first day of his presidency. Schumer said “All you need is the flick of a pen. You don’t need Congress.”
There’s a debate on whether a U.S. president has the ability to do that with the flick of a pen, or whether they have to work through Congress, but with the Democrats controlling both houses of Congress, it seems likely that there will be some debt forgiveness program. Senator Elizabeth Warren said student debt forgiveness is the single most effective economic stimulus that is available through executive action.
Last month in a congressional hearing with Fed chair J. Powell, Warren said “If people who instead of spending that money in the economy are spending that money by sending money back to the federal government on their student loan payments, that is a problem for the economy, is it not?”
Fed chair J. Powell said that if people were weighed down by debt or if they were unemployed, it can “weigh on economic activity.”
He also referred to research that showed over long periods of time student debt can hurt people’s credit history and ability to own a home. He said, “In effect, those people are unable to participate perhaps in the economy to the full extent that they might be able to, which would weigh on the economy.”
As a Money For the Rest of Us Plus member, you are able to listen to the podcast in an ad-free format and have access to the written transcript for each week’s episode. For listeners with hearing or other impairments that would like access to transcripts please send an email to jd@moneyfortherestofus.com Learn More About Plus Membership »
