Would forgiving student loans help economic recovery? This morning, sipping my coffee and doing my usual wandering around on various social media sites, I came across a petition asking the above question more than a couple of times. The petition addresses H. Res 365, which seeks “student loan forgiveness as a means of economic stimulus.”
The basic argument runs along these lines: 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. Even if people decide to take the money they are saving and pay off another loan, the reasoning remains, sooner or later, the money will get back into the economy. It is an interesting idea and one that takes the problem to the people and not to the corporations or the extremely wealthy.
Many argue that student loans create a divisiveness in our economy. The rising costs of education affect middle and lower classes more since they are more likely to take out loans because of the lack of jobs for high school graduates. The middle class has all but been eliminated in our country due to debt. Student loans are often categorized as good debt, meaning debt that has a low interest rate and long-term payoff.
The saying goes, “the best investment you can make is in yourself.” Unfortunately, it’s getting harder and harder to see the immediate pay-off. Almost half the graduating class of 2010 was unable to find work after a year, and those who did saw a drop in salary. And the grace period to begin repaying a loan is six months.
Many college graduates struggle under the weight of student loan payments, and the default rate on federal loans is over 7% now – down from 2007 at 9%, the all-time high. This is still higher than most years, however, and pundits say it has gone as far down as it will go. For people like teachers, it is ironic that they have to borrow almost more than they make in order to do something noble and give back. Add this to the deep cuts that are happening in education, and many of them can’t get jobs to pay back the loans.
Democratic Michigan Rep. Hansen Clarke introduced this legislation to end all student loan debt. “We need to cut, cap, and forgive student loan debt,” said Clarke. “That is the true debt that is burdening American families. We cut student loan debt we’ll have a freer more prosperous country.”
It will be interesting to see what happens. If it passes, I will be perfectly happy to help stimulate the economy with my loan payment.
Photo credit: caitinator