Will Student Loan Forgiveness Help Stimulate The Economy?
Would forgiving student loans help economic recovery? Last week, I was hanging out virtually on my Facebook wall, when I noticed a number of requests to sign a petition to support House Resolution 365, a bill that seeks to provide student loan debt forgiveness as a means of economic stimulus.
U.S. Congressman, Hansen Clarke (D-MI) is spearheading the movement and has said that he has sponsored the bill based off the simple belief that if the loans are forgiven, then the money that would normally go to pay off those loans will be dropped back into the economy, stimulating the need for more jobs. So far over a quarter of a million people have signed the online petition, which is circulating on SignOn.org and other progressive sites.
Like many college graduates, I am overburdened by student loan debt. Since graduating in 2000, I’ve been grabbling with how to pay back the over $30k, on a community organizer’s salary no less, while also maintaining a standard of living, which will allow me to have food, shelter and other necessities. And yet I realize that my struggles with my loans, which had been reconsolidated, deferred and placed in forbearance more times than I can count, pales in comparison to the debt that many other college alumni, who have graduated into a stale market, have been saddled with.
Part of me imagines that many of the kids protesting outside of Wall Street do so out of the frustration of being over educated and under-employed/unemployed. And who could blame them? This past year, total student loan debt finally surpassed total credit card debt in America, and is on track to exceed one trillion dollars within the next year. The U.S. Department of Education’s own statistics suggest that the default rate has risen to 8.8 percent, up from 7.0 percent in 2008. Today’s graduates watched as companies like Goldman Sachs and Well Fargo received bailouts, and then turned around to make record profits, while they flounder in the abyss of unemployment, underemployment and debt.
Although the federal government already has loan forgiveness programs, the requirements to even qualify for this program are restricted to certain fields; it would probably be easier to win the lottery than to actually have one’s loans forgiven. With American’s mounting debt and economist warnings of a student loan bubble coming anytime soon, maybe we should start thinking very seriously about bailing out the country’s educated class.
The New York Times recently highlighted a report from Complete College America, a Melinda Bill Gates Foundation funded non-profit group, which has produced a comprehensive report of today’s college student, their challenges and the reasons why they are not completing their degrees and certificates. According to the report, about 4 of every 10 public college students attend part time — and no more than a quarter of part-time students ever graduate. One of the reasons, as attributed by the reports, is the large number of students mired in noncredit remedial classes, which includes half of all students studying for an associate degree, and one in five of those seeking a bachelor’s degrees, many of them never move on to credit-bearing courses. But the most important factor is that the rate of inflation for college tuition has not matched salaries of those, who are now entering the workforce. According to the National Center for Education Statistics (NCES), the cost of a public four-year degree has nearly doubled between 1964 and 2009 when adjusted for inflation.
Justin Wolfers, of Freakonomics, offered several reasons for why he believed that forgiving student loan debt will do little to stimulate the economy. For example, he argues that college grads typically have higher incomes than non-degreed workers and if the government eliminates their debts, the educated class would be more inclined to save their money as opposed to spending it within the market. However, the flaw of Wolfers’ argument is that even with a wage step back for college graduates, a college graduate is still expected to make double that of a high school graduate, who is slowly being pushed out the employment market.
Likewise, even if the very short-term plan for a person is to save their extra money, generally the point of saving money is to someday have enough of it to spend it on such big ticket items like houses and cars. This spending would obviously add a boost to the economy while creating a higher demand for jobs in both the auto industry and housing construction sectors.
It is a cruel reality for those who felt that they did everything “right” and are still not able to maintain a decent standard of living. Truthfully, even as I struggle monthly to keep up with my loan repayment, I don’t know for sure if student loan forgiveness is just a temporary fix to a long-term problem. Not saying that if it was offered, I wouldn’t take it. Right now, my 1995 Toyota Camry, with its 132 thousand miles, is probably on its way to the great junkyard in the sky. And without a little financial boost, the only other option I see for a replacement for my sole source of transportation is if Oprah suddenly shows up to my house one day and says, “You are getting a brand new car.” Fingers crossed. But besides my purely selfish desires, even if our debt is forgiven what happens to the next generation of college grads, who find themselves in similar situations? Do we forgive those loans too? Not that I’m opposed that idea but if so, why not focus on the longer-lasting solutions to making education accessible and less financially burdensome for all?
Charing Ball is the author of the blog People, Places & Things.