Student Loans

Forgiving Student Debt Wouldn't Be a Major Economic Stimulus

Despite Elizabeth Warren's contention that it is the "single most effective economic stimulus that is available through executive action," forgiving student debt is a bad idea.

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Some progressives, including Rep. Alexandria Ocasio-Cortez (D–N.Y.) and Sen. Elizabeth Warren (D–Mass.), are trying to pressure President-elect Joe Biden to waive large amounts of student loan debt. They argue that doing so would be a huge economic stimulus and necessary relief for Americans who borrowed heavily to attend college.

But student loan forgiveness would have less of a positive economic impact than many 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 is auto loan debt, or credit card debt. In a sense, it's a self-perpetuating cycle. The federal government guarantees and issues student loans, colleges raise their prices, which means students need more loans, which leads to an increase in government-guaranteed lending, which inspires cost increases.

Warren avoids this entire cycle and simply argues that forgiving outstanding student debt would be the "single most effective economic stimulus that is available through executive action," without saying what would prevent the cycle from starting anew and eventually necessitating forgiveness for future students.  

But there isn't that much of an immediate economic impact from forgiving student debt. Canceling $50,000 of student debt does not mean that everyone with a student loan gets a check for $50,000, it just means that those in debt don't have to make their monthly payment—a much smaller number, though one that will vary for each borrower.

As Matt Bruenig, founder of the progressive People's Policy Project, points out, people who take student loans already tend to be on the higher side of the income scale. They're not living hand to mouth, and a little bit more money per month will just 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 the chairman of the Council of Economic Advisors under President Barack Obama, argues that debt forgiveness would be taxable. In short, if someone is getting $50,000 forgiven, that's $50,000 in income that an individual would have to claim and pay taxes. 

Ultimately, forgiving student debt won't get America out of the COVID-19 recession. It won't spur economic growth. It won't even put that much money in borrowers' bank accounts.

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57 responses to “Forgiving Student Debt Wouldn't Be a Major Economic Stimulus

  1. Hey, I paid all my student loans off early. Using the degree I earned. Just because I spent most of my student loans on extracurricular activities (bike racing) and not college doesn’t make me a bad person, does it?

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  2. I have approximately $10k in student loan debt remaining, which costs me about $150 / month to pay down, currently.

    If that debt is ‘forgiven’, and that 10k in forgiveness is considered income, that could potentially raise my taxes in that year by upwards of $2k, and the $150/month that I saved for (part of?) that year is not going to be enough to cover it.

    1. Just go back to school and get a loan. I am thinking about re-enrolling.

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    2. Shit, dude, even with interest and penalties paying that tax debt is a whole lot cheaper than your loan.

      1. Is it? Since the Covid hit my interest rate went from 1.8% to 0.0%. I was paying them off at an accelerated rate before, and bumped it up again recently since it’s all going to principal.

        1. If your loan is at 0%, paying it off early isn’t very smart. At 0%, whoever gave you that loan is even eating the inflation for you. You’re literally being paid to have that loan.

          Make minimum payments and invest the extra cash into things that appreciate in value. You already have your education, paying off the 0% loan early doesn’t get you anything unless that loan is really fucking up your credit or ability to get a mortgage or something.

      2. How do you figure? Most people with student loans are in a tax bracket of 20-25%. But even if you’re only paying 10% in taxes, that’s $1000 on a $10k outstanding balance. That’s $1000 you have to come up with right now in free cash. That’s in addition to the $150 a month that Minadin has to keep paying until the “forgiveness” goes into effect.

        It might be cheaper in the long run but unless you’re sophisticated enough and have a credit score enough to refinance, it could be crushing in the short term.

        Remember, by the way, that the example above is for only $10k in debt. That’s trivial compared to average debt.

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  3. The one thing these socialists want to do that might benefit us kulaks and Reason is trashing it. You can’t even give us this last reprieve before the purge starts?

  4. You’re forgetting about the multiplier effect!

    1. You can multiply with values less than 1.

  5. >> it’s a self-perpetuating cycle.

    it’s slavery to the Elite Class …

  6. Set this precedent and you will see every unemployed bum signing up for school. And me too. Take out maximum loans. I would go back to school at night, taking night classes that I could pass with no effort and use my student loans as free money. I’d send the whole family back to school. I could take all the tests for them. This will be the best thing for the upper middle class in years.

    1. Get the loans and invest the money in gold!

    2. Go to graduate school forever.

  7. >In short, if someone is getting $50,000 forgiven, that’s $50,000 in income that an individual would have to claim and pay taxes.

    So.. if I am paying $200/month, then instead of paying $2400 this year in loans, I will pay $12,000 in taxes?

    That sounds like the opposite of a short term stimulus. Can I get a loan to pay the tax on my loan forgiveness?

    1. You also miss out on your ~ $1200 student loan interest deduction / credit.

    2. I’d almost vote for a democrat that was going to institute taxing school debt forgiveness. The comic relief would be priceless when goofballs all over the country saw how much they owed in taxes. Lizzie Warren ought to run on that in 2024.

  8. As they say, it’s Chumponomics. Didn’t go to college? Tough shit. Pay for my student debt, chump.

  9. Somebody who wasted $50,000 on a degree that doesn’t earn them sufficient income to carry a $200/month loan payment is unlikely to be able to run out and buy a house.

  10. Democrats giving out free stuff and using your money to do it.

    Stop voting for democrats.

    1. “using your money” = using your labor = SLAVERY…
      Every Democrat, “It’s compassionate to force people to be someone else’s slave!”

  11. Maybe you might have wanted to run this a month or two ago when it might have been relevant. Sorry, you signed on for the progressive agenda and now you are going to get it good and hard. There is no stopping el president Maduro North now.

  12. Sam Rutzick wrote, “Canceling $50,000 of student debt does not mean that everyone with a student loan gets a check for $50,000, it just means that those in debt don’t have to make their monthly payment—a much smaller number, though one that will vary for each borrower.”

    But removing the $50,000 debt and its monthly payment means that person can now borrow some amount of money to buy a car or a house or a vacation in Hawaii. Et voila, Economic Stimulus!

  13. It’s going to win votes. See how that works? Liberals granting unsustainable loans to thousands of people, then give them a bailout when the balance becomes too high.

    A self-fulfilling prophecy of more votes.

  14. The problem with student loans is that there is basically no risk to the lender. They might not get right away, but they’ll get paid eventually through garnishing wages. There’s no escaping them through bankruptcy.

    Loans shouldn’t be guaranteed like that. The lender has to have some risk so they decide who to give loans to.

    1. You’re forgetting that with the Student Aid and Fiscal Responsibility Act (SAFRA) signed into law by President Obama on March 30, 2010, the federal government began lending directly to students, and the big selling point made by proponents (Democrats and progressives) for this government take over was that it was a money maker for the government as “money for the program will come from the U.S. Treasury, which will lend it to the Education Department at 2.8% interest. The money will then be lent to students at 6.8% interest.”

      It isn’t loans made by Bank America, Citibank, et al. that are being forgiven, but loans made by the US government.

      The lender (the taxpayer, who didn’t agree to the loan) does have risk (high taxes/high deficits).

      Perhaps the answer is to get the government out of student loan business, not re-institute private loans backed by the government backed loans, and let the banks underwrite the loans based on probability of the loan being repaid.

      You want to go to a university that will charge you $200K to major in 15th Century French Poetry, fine; however, a bank should be able to say ‘No’ to lending you that money.

  15. Forgiving the loans is fine, but it must be coupled with cutting off future loans forever. Government has no business being involved in that at all.

  16. “short, if someone is getting $50,000 forgiven, that’s $50,000 in income that an individual would have to claim and pay taxes” 

    Damn don’t tell that to bastards who scored those payroll protection loans.

  17. Anyway, it sounds like a gift to me and last I checked the gift giver pays the tax.

  18. And also the govt has forgiven disaster hurricane loans before and I seriously doubt mfers paid income tax on that money.

    1. Yes, but you are thinking of the old way to do taxes.
      Soon, as John Lennon foretold, they will tax the pennies on your eyes.

  19. Did these student apply for these school loans? It seems them problem with rising cost of colleges is the college. The cost goes up and enrollments are down. How many useless courses and worthless degrees kids are signing up far. You cannot fix stupid.

  20. interesting, how real these plans are.

  21. Oh stop playing the fiat-money game already Democrats – just get out your slave whips and whip those teachers into free-teaching submission.

    1. I mean after all; you already whipped them into teaching lefty-indoctrination. Why hesitate when it comes to slavery?

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  23. Forgiving student debt is just another way of saying that the college degree everyone (politicians, academics, parents, employers) told you that you have to get in order to have a secure financial future was a lie. With the possible exception of STEM degrees, they are really saying that the degree you went so deeply in debt for is essentially worthless, and because we spent your entire youth telling you that you had to get it, the system was at fault so the system should take the blame.

    The flood of incoming undergrads using loans to finance this bad advice directly resulted in the rapidly inflating cost of college. The positive feedback loop went into action. I’d say to split it three ways with the school, the loan holder and the student each taking a share, in the USA, the federal government holds most of the paper. But at least the three way split is better than Uncle Sam taking the whole hit.

    1. Forgiving student debt is just another way of saying that the college degree everyone (politicians, academics, parents, employers) told you that you have to get in order to have a secure financial future was a lie.

      That’s really what it boils down to. If your job won’t allow you to pay off your student loan in the time frame you signed up for when you put your signature on the promissory note, then your degree wasn’t worth the expense.

      This is nothing more than a bailout for the Gen-X/Millennial yuppie class that have been getting their asses wiped for them since birth.

  24. Nothing says “We care” like expecting high school grads to pay the debts of grad school grads.

  25. Yet this is the same fucking rag that will say tax cuts on the wealthy stimulate the economy. What a bunch of bullshit.

    “Giving” money to the poorest of course stimulates the economy. They are the ones most likely to spend it right back into the economy- not some fuckface just getting a few more bucks on a stock.

    1. “Giving” money to the poorest of course stimulates the economy.

      These loans aren’t held by the “poorest,” you dumb tard–they’re held largely by the upper middle class bourgeoisie.

    2. Oh looky; another dimwit that thinks economic health is all about consumption instead of creation. Isn’t that exactly like thinking compulsive bankruptcy and debt is financially stable?

  26. I wish i could say i was surprised that the discussion to forgive student loans isn’t coupled with the obviously necessary conversion about reforming/reducing federal student loan guarantees…but sadly…

  27. Back before I paid off my student loans, they were roughly $400 a month. For most of that time, an extra $400 a month would have made a big difference. And even if I had just saved it (doubtful), that would have probably moved my first home purchase up a few years, or at least meant I had a bigger down payment when I did buy.

    And I’m one of the ones that had a job the whole time and had no problem paying my loans.

    Take someone that’s struggling (with or without COVID related unemployment), and that extra $400/month is obviously going to go right back into the local economy.

    I’m also not sure why we’re suddenly questioning if relatively small amounts can make a big difference? I remember when Bush sent everyone a Christmas bonus, and that was only a little bigger then the average monthly student loan payment. Heck, remember the stimulus earlier this year? $1200? Cancel loans, and that’s what they get in three months.

    If you’re going to argue that the stimulus from cancelling student loans is miniscule and more about vote-buying then economy-saving, you’ve also got to argue that all these other stimulus efforts are also about vote-buying and not economy-saving.

    Which wouldn’t be out-of-place here, but it’s notable that there wasn’t even a throw-away line about it.

  28. What about the responsible who went to night school and worked during the day to avoid loans? What about parents who have responsibly saved for college education so their children would not have tens of thousands of debt? What about those who opted to go to a community or state college to avoid massive private school loans? What is Warren’s plan for the responsible?

    1. Duh! Her plan is to make you responsible for those school costs too. You need to pay their fair share you selfish capitalist!

  29. …couch it how you will, the people who benefit from the current joke of college loan financing are bankers and universities all raking in millions…billions, off the backs of students, 2/3 rds of whom never graduate because school is too expensive and the rest overpay for a degree, but both saddled with huge debt that makes their future tenuous.

  30. What a bunch of bullshit. Of COURSE forgiving debt will help the economy – and the hoi polloi too. No way are they going to tax it, either.

  31. What do you call someone with a college education who can’t pay their bills?

    1. A liberal arts major?

  32. Democrats are clearly not paying attention to the needs of the moment and just pushing pre-existent agendas.

  33. Well, it’s big wampum!

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