Some progressives, including Rep. Alexandria Ocasio-Cortez (D -N.Y.) and Sen. Customer advocates (D -Mass.), are trying to pressure President-elect Joe Biden to waive large amounts of student loan debt. They argue that doing so will be a huge economic stimulus and necessary relief for Americans who borrowed heavily to go to college.
But education loan forgiveness would have less of a positive economic impact than a lot of its proponents say-a point that even some progressives openly acknowledge.
There is more than $1.68 trillion of student debt. There is more student debt than there's auto loan debt, or credit debt. In a sense, it's a self-perpetuating cycle. The federal government guarantees and issues student education loans, colleges raise their prices, meaning students require more loans, which leads to a rise in government-guaranteed lending, which inspires cost increases.
Warren avoids this whole cycle and just argues that forgiving outstanding student debt will be the \”single most effective economic stimulus that is available through executive action,\” without saying what can prevent the cycle from starting anew and eventually necessitating forgiveness for future students.
But there is not that much of an immediate economic impact from forgiving student debt. Canceling $50,000 of student debt does not mean that everybody having a student loan gets a look for $50,000, it simply implies that those in debt do not have to make their monthly payment-a smaller number, though one that will vary for each borrower.
As Matt Bruenig, founding father of the progressive People's Policy Project, points out, individuals who take student education loans already tend to be on the higher side from the income scale. They are not living hand to mouth, and a little bit more income per month will go into their savings -it won't spur more spending. \”Student debt forgiveness,\” Bruenig writes, \”is possibly the least effective stimulus imaginable on a dollar-for-dollar basis.\”
And there's a big catch. Jason Furman, a professor at Harvard and also the chairman from the Council of monetary Advisors under The president, argues your debt forgiveness would be taxable. In a nutshell, if someone is getting $50,000 forgiven, that's $50,000 in income that an individual would need to claim and pay taxes.
Ultimately, forgiving student debt won't get America from the COVID-19 recession. It won't spur economic growth. It's not going to even put that much money in borrowers' accounts.
