You might be wondering what the number represents. Go ahead and read it again. Take a guess. No, it’s not the annual defense budget. It’s not the Pentagon budget either. Walmart annual revenue? Amazon annual revenue? Nope, try again.
This number represents the amount of federal student loan debt currently held by over 42 million people in the United States. It is a number so incredibly difficult to fathom—only 16 countries in the entire world have a higher GDP value.
Over the past year we have seen different types of stimulus packages from both Republicans and Democrats. Despite their differences in the amount of aid and who they are targeting with this aid, each was inadequate for the needs of millions of Americans during this pandemic and economic crisis. And yet, even with the trillions of dollars that have been spent on stimulating the economy and trying to keep people and businesses afloat, none of them included the most impactful stimulus an economy could have during a time of need.
This stimulus is the cancellation of all federal student loans.
In 2018, a study conducted by the Levy Economics Institute of Bard College found that the cancellation of student loan debt would stimulate the economy, lead to higher GDP, and lower unemployment. This is a pretty simple conclusion to reach: the fewer bills and payments that the average person has to pay during a month means that there’s more money to spend in the economy, creating a GDP and revenue growth for companies. This increase in revenue allows for businesses to pay better wages for their employees, and even add jobs because of this increase in consumer spending.
On a personal level, the relief of student loan debt lifts an extremely cumbersome burden off the shoulders of millions of middle- and working-class Americans. Often, throughout the campaign season, Senator Bernie Sanders would tweet, “What would cancelling all student debt mean for you and your family?” This question strikes a chord deep within me because I, like millions of other Americans, have a considerable amount of student loans. Hope, gratitude, and motivation set in when I think about this becoming reality because I would be able to live my life without this extremely financially-limiting liability. There are countless stories of people who have to choose between paying the bills, paying off student loans, or buying food for the week because of the poverty wages they are being paid after earning a college degree.
Further, cancelling student loan debt would prevent the cycle of impossible decisions that households make on a daily basis. Instead of having to choose between paying off student loans or buying food for the week, they would be freed from that burden to worry only about basic necessities and family. The predatory student loan program and repayment process make it easy for other financial burdens to eventually pile up, so cancelling this debt is a social justice issue as much as it is monetary relief.
This brings me to my next point. It is reported that 11-14% of all borrowers default on their loans over the course of their lifetime, showing that it costs the government more money to hold on to these loans than it would be to completely eliminate the total balance altogether. When people default on their loans, the federal government loses both the money that they loaned out and the interest earned on that money.
Additionally, the US government charges a lower interest rate as compared to the industry average and the rates of private student loans (typically ~4-5% for federal, and upwards of 10-14% for private). Combining the amount of money lost from low interest rates and the large number of people that default on their loans, the US government loses more than it profits. Their profit from the interest and student loans that do get paid is not enough to compensate, which shows how the cost of keeping all federal loans is much higher than the cost of cancelling all student loan debt.
(The private student loan sector only makes up less than 8% of all student loans and is a totally different can of worms that I won’t get into. Just know that the private sector is fraught with corruption, outrageously high interest rates, and loan repayment plans.)
A common and recurring argument against cancelling student loan debt is that some people say “most of student loan debt is for doctorates, master’s degrees, and lawyers from Ivy League schools, why should we help rich people?” This deeply classist argument assumes that it is only wealthy people who pursue these types of degrees. Only 37% of federal student loan debt is for master’s degrees, which shows that the majority of this debt is owed by undergraduate students from all over the country and from all different backgrounds. Even if it were true that more of the loan debt was for master’s degrees or held by those who could easily pay it off, is that really a good enough reason to perpetuate this debt for the other millions of borrowers that would benefit from its cancellation? I don’t see there being any argument for that.
The evidence is clear: cancelling federal student loan debt would provide the much needed relief to millions of Americans. It would stimulate the economy, create jobs, and allow the US government to stop losing large amounts of money every year on defaulting borrowers.
Recently, President Biden has received many requests by Senate and Congressional Democrats to cancel student debt, as he has the power to do so. He floated the idea of cancelling up to $50,000 of student loan debt before he took office—now, that number is down to $10,000. While any cancellation is better than none, if you’re going to go through the struggle and backlash from Republicans of cancelling $10,000, you might as well go for much more than that.
Joe Biden, who has made both positive and negative decisions in his first few weeks in office, has the chance to provide relief for millions of Americans and to be the progressive compromise in the White House that is so desperately needed right now. Cancelling federal student loan debt, which he can do with the stroke of a pen, would be the perfect way to do that.