It’s easy to relate to those who feel like they are drowning in debt from their college educations, and it makes sense that cancelling out this debt would give the economy a much needed boost. While the idea remains a fantasy, it’s one I’d like to indulge us all in.

A new research paper written by Scott Fullwiler, Stephanie Kelton, Catherine Ruetschlin, and Marshall Steinbaum titled “The Macroeconomic Effects of Student Debt Cancellation,”provides insight into the positive benefits of wiping out student debt.

“Our results show that the positive feedback effects of student debt cancellation could add on average between $86 billion and $108 billion per year to the economy. Associated with this new economic activity, job creation rises and the unemployment rate declines.”

There are 44 million Americans who have a total of $1.4 trillion in outstanding debt for their higher educations. Should that debt be cleared, it would boost the economy by $86 billion to $108 billion per year, on average across 10 years of debt cancellation. The employment rate would also benefit, with debt relief lowering the average unemployment rate by .22 to .36 percent over a decade, creating an estimated 1.2 million to 1.5 million jobs per year.

“That is a dollar for dollar bump up in their net worth,” said Stephanie Kelton, a professor of economics and public policy at Stony Brook University and one of the authors of the report. It’s worth noting that these individuals would become more financially stable, which means more money to spend on buying real estate, vehicles, travel, and other consumer products… further fueling economic growth.

Students wrote how much debt they each had on their graduation caps.

This research paper was released while policymakers are deliberating changes to the student loan program which would lower government subsidies to borrowers and their findings are growing the debate around how much of a burden student debt should be put on the taxpayers (at the expense of lending institutions).

This fantasy comes with a price. By cancelling student debt, 90% of which is owned by the government, taxpayers would no longer benefit from the interest and payments that borrowers would have otherwise collected. The assumption is also made that the government would take ownership for borrowers private student loans, which account for 10%. This debt cancellation would further increase the deficit-to-GDP ratio of 0.65 to 0.75 points per year, as noted in the study.

“Recent research from the Organisation for Economic Co-operation and Development (OECD 2015) shows that the social benefits of public spending on higher education far outweigh the public costs. In the United States, lower unemployment rates, higher tax revenues, and other social contributions associated with educated workers result in net social benefits worth between two and five times the dollar amount of public spending on higher education.” – Stephanie Kelton

Because of the give and take nature, it’s highly unlikely that politicians will consider the cancellation of student loan debt. The study goes on to say that this financial relief would have benefits that outweigh the consequences. There is an additional benefit to alleviating borrowers’ student debt, as Kelton shares in the report. There was a time when public college was affordable – if not entirely free, which leaves those stuck with student debt the victims of “an accident in history,” she argues.

“There’s been a terrible policy error made in terms of the failure to continue to treat education as a public good.”

We all know that the banks and big money run this country, and as long as they hold 10% of the student debt, it’s unlikely that they will ever let this happen.

H/T: Research Paper


Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.