Update | The Economic Case For Cancelling All Student Debt
October 9, 2018
Experts highlight data showing that cancelling all student debt would provide a massive boost to the economy, lasting decades
As the national student debt rises year after year, millions of Americans are overwhelmed with seemingly never-ending debt. What if there was an easy solution? What would happen if all student debt was cancelled?
That’s what a group of economists and researchers set out to examine. And their data shows that not only can you cancel all student debt, doing so would bring significant, long-lasting economic benefits. At a forum last week at Harvard Law School, hosted by the Project on Predatory Student Lending and Freedom to Prosper, the experts shared their research.
Steven Swig, co-founder of Freedom to Prosper, Stephanie Kelton an economist and one of the authors of the recent Levy Institute study The Macroeconomic Effects of Student Debt Cancellation, Julie Margetta Morgan, Executive Director of Great Democracy Initiative, and Toby Merrill, Director of the Project on Predatory Student Lending, gathered to discuss the concept.
Right now, over 44 million Americans have a combined $1.4 trillion in student debt. It is a massive cloud that hangs over the lives and financial futures of countless Americans.
“Student debt has now become the largest unsecure debt in the country,” said Steven Swig. “I call it reverse estate planning – we are sucking back wealth from future generations.”
There are lots of reasons for this. New, emerging industries have not trained workers for their jobs, and employers are increasingly demanding workers with advanced degrees. That has led to an increase in the number of students enrolling in colleges and other higher education institutions. This has coincided with an acceleration in the price of obtaining those degrees. In just 25 years, the cost of tuition and fees as a share of median household income has nearly doubled, from 18% in 1990 to 35% in 2014.
“If you actually look at trends in earnings, those with college degree have stayed stagnant or fallen, and those with just a high school diploma have fallen. Add rising student debt and you get a sense of why people are so frustrated,” explained Julie Margetta Morgan.
In short, more people are seeking higher degrees to advance their chances in the job market and going further into debt to do it.
At the Project on Predatory Student Lending, we have seen the exploitation of this situation by one particularly insidious industry – for-profit colleges. The predatory for-profit college industry is the worst of the worst, preying on people who are low-income, veterans, single mothers, or people of color – with lies about quality training and job placements after graduation.
“The worst student debt targets the people who are least able to handle it,” said Toby Merrill, Director of the Project on Predatory Student Lending.
State attorneys general already have brought numerous cases showing that many of these colleges have committed massive and pervasive fraud against students. And the Department of Education has the legal authority to cancel fraudulent student loans. Yet, every administration has resisted doing so.
This resistance to reason is even less explicable in light of the broader economic argument that can be made for all cancelling student debt.
The Levy Economics Institute of Bard College conducted extensive research into what would happen to our entire economy if the government cancelled all student loans. The findings were presented in a report and at the forum on Wednesday, and the results are remarkable.
Each simulation run by the Institute saw a dramatic rise in almost every national economic indicator:
- The Gross National Product rose from between $861 billion to one trillion dollars over 10 years.
- GDP increased, on average, between $86 – 108 billion per year.
- Unemployment went down and job creation went up – adding about 1.5 million jobs per year.
- State budgets increased by about $10 billion every year for ten years.
Those are just the macroeconomic effects.
The study also showed that cancelling student debt freed up young entrepreneurs to act on their business ideas, resulting in more small business creation. It resulted in higher credit scores, offering people better opportunities to purchase homes or make other life purchases. It even helped more people attain college degrees by reducing college drop out rates.
“The economic consequences of student debt cancellation are an unequivocal net positive for the economy as a whole,” said Stephanie Kelton. “Credit scores increase, small business loans increase, and there’s a reduced vulnerability to economic shock.”
In short, the simple act of cancelling student loans resulted in a cycle of individual growth and national success, each steadily building on each other.
The Department of Education has resisted debt cancellation, claiming that the administration has an obligation to all taxpayers, not just the students. This is clearly a misinformed response. As this report outlines so clearly cancelling student debts benefits both students and taxpayers.