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