Americans owe $1.57 trillion
in student debt.
That might be a hard number to wrap your head around. What
it comes out to is $20,000 to $25,000 for the typical borrower, but of
course that's not evenly distributed.
I have $69,812, $47,000, $350,000.
More than 600,000 people carry higher burdens of $200,000 or more.
Even people over age 60 had $85 billion in student debt in 2017, in part
to help children or grandchildren get through school.
Altogether, it's more than all the outstanding credit card debt in the
country.
I think there's a critical mass of folks who who hope someone will do
something about it.
And this is a case where because the federal government holds about 90
percent of all outstanding student debt in the country it's easier to
make a case for them to do something about it.
Whereas if everyone didn't want to pay their car loan or their mortgage
it's harder for the government to do something about that.
But there are questions about who would benefit.
Student loans are largely held by relatively affluent
families.
So what would it take for the government to actually erase student debt?
Democratic presidential candidates are talking about it.
But is it a good idea?
Let's start at the beginning.
Student debt has been around for a while but it's really boomed since
the turn of the century.
And the government holding that much debt is an even newer phenomenon.
As part of Obamacare, the government stopped insuring private bank
loans and took a bigger role in lending directly.
The Obama administration hoped the move would save money for the
government and help offset the costs of Obamacare during the recession.
As the Federal Reserve kept interest rates at record low levels,
students could borrow at a pretty good rate.
By 2013, cries for lower interest rates grew louder.
Right now a big bank can get a loan through the Federal Reserve discount
window at a rate of about three quarters of one percent.
But this summer a student who's trying to get a loan to go to college
will pay almost 7 percent.
That isn't right.
Congress ended up passing rare bipartisan legislation to cut rates for
student borrowers, but they were still significantly higher than what
banks paid.
Today, interest rates on various federal loans rang between five
percent and about seven and a half percent, higher than the average
30-year mortgage rate.
We've seen a dramatic increase in the amount that students are borrowing
to go to college.
Obviously if individual students are borrowing more because education
is more expensive but we're also seeing that more people are borrowing
to go to college.
Another factor that kind of contributes to that is also the budget
reductions at the state level.
If you think of education as an investment, the return on that that
comes from the increases in employment opportunities and earnings
generally more than outweigh the upfront costs.
So where's the problem?
Where the system kind of breaks down is that we have a tremendous
problem with college completion in this country.
A third of people, a very large number of people in our economy, are
paying for college, in many cases taking on debt to do that, but
then not getting the earning bumps that comes along with having a
degree, which means they're having a hard time paying back their debt.
And so we're seeing that in the increases in student loan default rates
Even though it's unclear how much it has hit the economy,
experts believe the high level of student debt will increasingly be a
drag on growth.
If all the sudden I'm not having to make a regular student loan payment
that was part of my budget, that's maybe a couple hundred more dollars
in my pocket on a monthly basis that now becomes fluid and flexible.
Evidence suggests that a decent portion of that would be spent.
Even the Fed chair has weighed in.
As this goes on and as student loan continues to grow and becomes
larger and larger, then it absolutely could hold back growth.
And for the most part it's almost impossible to have student debt
forgiven even in bankruptcy.
I'd be at a loss to to explain why that should be the case.
Since the government is charging interest on these loans,
it stands to make a potential profit off of student borrowers.
That profit number is disputed based on different accounting methods.
But many believe the government should cut interest rates to subsidize
loans instead of raising revenue.
We should not be profiteering off working families who are trying to
send their kids to college.
So this all brings us to the question: Could the government just simply
forgive America's student loans?
The simple answer is yes.
The hard part, it would take a new law in a potentially divided
Congress. 2020 Democratic candidate Elizabeth Warren is the first one
to put out a detailed plan.
The senator's proposal would eliminate up to $50,000 in debt for people
with household incomes under $100,000, while giving smaller amounts of
relief to people with higher incomes.
The cancellation of student loan debt of up to $50,000 for 42 million
Americans. Entrepreneur Andrew Yang and Senator Cory Booker have also
said they would push for loan forgiveness plans.
Obviously you've got a lot of voters out there with a lot with the debt
and they're saying well if I vote for this candidate all of a sudden my
student loans are going to go away.
That's a pretty attractive political, you know, piece to dangle out
there. I think it leaves out a lot of unanswered questions.
Even if I'm a borrower, am I personally paying for as a taxpayer,
right? Because borrowers are taxpayers too.
So it's not like this money is coming from nowhere.
It is on the mind of voters like Liz Smith, a 24-year-old who works in
the advertising industry in Des Moines, Iowa.
Smith, who took on more than, $30,000 in debt to get through college
plans to participate in the Iowa Democratic caucuses.
I recently purchased a car and I am nervous about having a car payment
and a student loan payment at the same time, but it's unavoidable.
You have to get to work and you also have to pay back your loans.
Erasing student loans would likely be an economic stimulus.
Forgiveness of the outstanding student loan balances with would without
question be an economic stimulus.
One study estimates government forgiveness of all the loans and holders
could boost real GDP by around $100 billion.
The question is what is the most efficient way of providing stimulus to
the economy.
And my sense is that forgiveness of student loan debt is is not the
most efficient option.
But I think you are also going to see some concerns from the left that
if you were wiping out all the debt that that would be a pretty
regressive thing to do.
And once you look at the numbers, this is, you know, looks like the
Trump tax cuts in terms of who it benefits.
So it's a little hard to be out there saying well I'm against tax cuts
for the wealthy but at the same time want to give this this big handout
to the wealthy.
That's where things get complicated.
The ones with the most debt are the ones who tend to have the highest
earnings potential.
So if we want to do is stimulate the economy we can think of better
more efficient ways to do that than a sweeping program that forgives
existing student loan debt.
Under Warren's proposal, debt relief would end at $250,000 in income.
Her plan would cost one and a quarter trillion dollars over 10 years.
I think there is a risk of spending over a trillion dollars in a way
that's not particularly targeted beyond giving it to folks who happen
to borrow to go to college, or in a lot of cases to go to graduate
school, and then for whatever reason haven't yet paid it off.
It could raise concerns about who gets those benefits, it would raise
concerns about fairness.
Of course fairness is a central question in the loan forgiveness debate.
The student loan forgiveness.
What about people who took loans and paid them back?
What are we going do, give them reparations?
This is a giveaway to millennials who have had their parents and family
and society pay for their bad decisions for their entire life.
There already are ways for people to get loan relief in the U.S.
Many borrowers have income based repayment plans which can cap monthly
loan payments at about 10 percent of income.
But... What we're seeing is that students who really need the benefit of
these income adjusted repayment plans aren't aware that they exist or
if they are aware they exist are having a hard time enrolling in them.
In other countries, college is cheaper to begin with.
But on top of that, they found creative ways to help the people that
really need relief.
Like in Australia.
It's done through the tax system.
So when your taxes get withheld from your paycheck every week they also
take out your student loan payment.
And what that means is when you lose your job the government doesn't
come after you to pay your taxes.
You don't pay your taxes
'cause you're not making money anymore because you lost your job.
So this works the same way with your student loans in countries like
Australia. In the UK, students don't have to start making payments on
their debt until they make a certain amount of money.
In Sweden, borrowers have a longer period to pay back loans than they
do in the U.S.
On the other side, the Trump administration has been more focused on
reducing the costs of college and holding schools more responsible for
educational outcomes.
Student loan debt.
I'm going to work to fix it.
There is some evidence that the cost of higher education has started to
plateau. But that won't help the people already saddled with thousands
of dollars in debt.
That's who politicians are talking to.
I do think it should be
focused on the people that need it the most.
So whether that be their potential future income or what their families
weren't able to contribute that, you know,
having huge amounts of student debt would really impact
them and their future success