Elizabeth Warren, Andrew Yang and other proponents of forgiving student debt argue it will jolt the economy. But it may not benefit who you think.
Americans owe $1.57 trillion in student debt, a figure that has set off alarm bells about potential economic damage from widespread default or lower consumer spending. To help struggling borrowers, some 2020 White House hopefuls have embraced an idea once on the political fringes: forgiving large parts of that debt load.
But loan forgiveness carries some risks. Costs for wiping out debt would shift to taxpayers. The benefits could skew toward the highly educated borrowers at the top of the income bracket who hold much of the student loan burden — a concern Warren aims to address in her proposal. The average amount of debt per student has climbed not only because college costs have increased but also because state financing for schools has fallen, said Cliff Robb, an associate professor of consumer science at the University of Wisconsin-Madison. The issue is particularly pronounced at for-profit institutions: 23% of borrowers who attended one were behind on student loan payments in 2017, according to the Federal Reserve.
If it chooses, the government can take a more direct role in easing the student debt burden than in helping with other types of obligations such as credit card or mortgage debt. That's because the U.S. held about $1.44 trillion in student debt in the fourth quarter of last year, about 92% of total student loans.
Plans to relieve student debt hold obvious political appeal for voters eager to shed hundreds of dollars in loan payments every month. It remains to be seen, though, how much voters care about student debt relative to other issues. Supporters of debt forgiveness mainly argue relief will help students hurt by a flawed higher education system — and boost the economy in the process. Aside from Warren, Yang has also argued that forgiveness"for a huge chunk of student loans" would stimulate the economy.
But Akers said"we can think of better, more efficient ways" to stimulate the economy than to give relief to student debt holders, a large portion of whom have high earnings potential. Generally, people with higher incomes are expected to save more money than those with lower incomes. The senator would use her proposed 2% annual tax on families with more than $50 million in wealth to offset the debt forgiveness. Her campaign expects the tax to raise $2.75 trillion over a decade. Her plan also includes several provisions to make college more affordable in the future, such as federal investment to eliminate tuition at two-year and four-year public college programs and putting an additional $100 billion into Pell Grants.
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