The country’s outstanding federal student loan balance exceeds $1.7 trillion, eclipsing credit card and auto debt. Average debt for a bachelor’s degree recipient has tripled over the last three decades, to $30,000 today from less than $10,000 in the early ’90s. A quarter or more of borrowers are estimated to be in delinquency or default. There’s no precedent for sweeping loan forgiveness carried out by the government. Experts say the closest example may be when there was cancellation of the taxes due on forgiven mortgages in the aftermath of the 2008 financial crisis.
1. Student loan cancellation will stimulate the economy Sen. Elizabeth Warren (D-MA) says that cancelling student loans will help stimulate the economy. As Americans are hurting from the Covid-19 pandemic, they are also struggling with $1.7 trillion of student loan debt. By cancelling student loans today, this would free up money for student loan borrowers to spend in the economy.
They could buy a home, spend money with small businesses, and invest in their communities. In aggregate, this would help stimulate the economy and support other economic relief like stimulus checks and unemployment benefits.
2. Student loan cancellation would help narrow the racial wealth gap One reason to support student loan forgiveness is to help student loan borrowers of color, who are disproportionately impacted by student loans. Warren and Senate Majority Leader Chuck Schumer (D-NY) say that student loan cancellation can help close the racial wealth gap. For example, research shows that African-American and Latinx borrowers would “substantially improve their financial security and would experience substantial relative wealth gains” if their student loans are cancelled. Research also shows that “the average African-American borrower still owes more than 100% of their loan balance even 12 years after college and experience higher rates of default.”
3. Student loan cancellation could completely forgive student loans for 15 million borrowers The latest student loan statistics show that 45 million borrowers collectively owe $1.7 trillion of student loan debt. This includes 7.9 million student loan borrowers who owe less than $5,000 of federal student loans and 15.3 million student loan borrowers who owe less than $10,000 of student loans. President Joe Biden wants to cancel $10,000 of student loans immediately. If Congress cancels $10,000 of student loan debt, then 15.3 million people could have all their federal student loan debt cancelled. Warren and Schumer want to cancel up to $50,000 of student loans for each borrower. Based on the latest student loan debt statistics, more than 35 million borrowers hold $50,000 or less of federal student loans. Therefore, cancelling $50,000 of student loans could wipe out a substantial amount of student loan debt for tens of millions of borrowers, and in some cases, all their debt.
4. Student loan cancellation will help you start you life without student loans Student loan debt is the now the second highest form of consumer debt. If borrowers could have some or all of their student loans forgiven, they could start life after college without the crushing impact of student loans. This could lead to increased saving for retirement, increased geographic and job mobility, increased small business formation, higher family formation, and higher marriage rates. Student loan forgiveness is also a mental health issue. For example, high student loan debt is associated with anxiety and depression, which could be reduced if there is wide-scale student loan cancellation.
5. Student loan cancellation would help regular people Supporters of student loan cancellation say that Congress has bailed out corporations and given breaks to billionaires. Now, they say it’s time to help regular Americans. Student loan cancellation would help student loan borrowers get a similar type of financial relief afforded to the country’s elite. College has become a stepping stone to higher income and financial freedom. Supporters say they shouldn’t have to go into substantial debt they can’t pay off simply to participate in the economy. While not the panacea to the cost of higher education, student loan cancellation could help remove this roadblock so that more people have a shot to live the American Dream.
Sherman will provide student loan cancellation by executive order and also could cancel student loans after the Justice Department reviews the current presidents unilateral authority for student loan forgiveness.