College Guide

Blog

September 19, 2011 6:31 PM The Gigantic Student Loan Problem

By Daniel Luzer

The Forgive Student Debt to Stimulate the Economy plan, an initiative to forgive all students loans, now has actual legislation. Rep. Hansen Clarke (D-MI) has apparently introduced legislation seeking to forgive student loan forgiveness.

Clarke’s bill recommends that:

Congress should cut the United States’ true debt burden by reducing home mortgage balances, forgiving student loans, and bringing down overall personal debt.

This will likely go nowhere. As by Ken Layne over at Wonkette writes:

Wonkette operative “Andrew L.” sends along this petition and the resulting doomed bill, introduced by the socialist freeloader Rep. Hansen Clarke — not because it will ever get close to becoming a law, but because of the sad statements of the petitioners and the old-timey Middle Ages talk of “indentured servitude” in the resolution itself.

It’s also pretty vague. This idea does, frankly, have some real merit; if young Americans had less debt in the form of student loans they would have more money to save, invest, and buy other things. It’s hard to argue that such a change in spending priorities would be bad for the United States economy.

That being said, there are two basic problems with the “Forgive Student Loans to Stimulate the Economy” plan:

1) What does “forgive” mean here? Does that mean just zeroing out all student loans, in which case banks and the federal government would lose billions, and would be in actual financial trouble. This is money owed to them. Without these funds the entire system breaks down. How would they stay afloat? Or does this mean actually paying banks and government the money they’re now owed in student loans? How would we pay for this? Current student loan burdens now total over $900 billion. Would we simply raise that in taxes? How?

2) What do we do about the larger problem? Funding higher education with massive student loans is now, for better or worse, the way we do it. Even if the United States were to take the massive step of forgiving all student loans, what about the children entering college today? Will they still face huge student loans once they graduate?

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer

Comments

  • A.G. on September 20, 2011 8:44 AM:

    I think you're forgetting the most significant part. Many graduates with student loan debt don't have jobs, so this isn't going to suddenly allow them to spend money they still don't have.

  • Fever on September 20, 2011 9:34 AM:

    Let me make sure Im hearing this correctly, your solution to the student loan problem is to forgive the debt students owe. Do you have any idea what that would do to our nations financial health? Or dont you care? Spending has ramifications, if you dont believe me, just read any article on the situation in Greece.

  • Zag on September 20, 2011 11:12 PM:

    Fever and A.G.,

    The reason this plan has merits is because we need a stimulus for consumers. The Economist, along with independent researchers, reported that the main reason companies aren't hiring is because of a lack of demand. Consumers simply don't have money to spend. A plan that reduces mortgages and/or student loan debt would put hundreds if not thousands of dollars in the pockets of post-students of all ages. This would drive spending, in turn kickstarting businesses back into production and therefore growth.

    We can't expect government tax cuts and stimuli that benefit businesses to trickle down to us. There simply is not enough demand to get production where it needs to be to lower unemployment.

  • camille on September 21, 2011 8:31 AM:

    you are so concerned about banks loosing money? what about all the money that was given to Wall Street and all the big wigs still getting their bonuses and all the other perks. If you don't want to forgive these student loans at least settle for the principal amount and forgive the interest.

  • Fever on September 21, 2011 8:50 AM:

    Nice dodge of my Greece question. If we owed $20 trillion do you think we would still be able to sell our bonds at such low interest rates/at all? How about $30 trillion? You see, at a certain point, all countries that can�t control spending become Greece.

    You need to read different economists. All the country is doing by spending money you don�t have is trading spending today for spending cuts or tax increases in the future. I don�t think its right to leave future generations with the tab for our inability to live within our means.

    You also need to read different articles on tax policy; the rich pay a larger percentage of the overall tax burden than ever before and they pay (OK not Warren Buffet) a higher percentage than the middle class.

  • Kirk on September 21, 2011 10:33 AM:

    Outstanding student loans total $900 billion. We've spent over $3 trillion on the useless wars in Iraq and Afghanistan. Let's pay off the loans.

  • Jim Dodds on September 21, 2011 4:34 PM:

    I'm with Kirk. Of course, I'm an anti-capitalist. For now, how about we divide all the corporations in half and give those shares to all the taxpayers?