Trillions could be added into the economy with no new taxes, and nothing added to the national debt. Retweet This Petition
The President is currently enacting economic stimulus measures in the face of impending recession. He has no great options. The Fed Funds Rate is essentially zero. Taxes on corporations and the wealthy have already been cut to the bone. Suspending interest on student loans won’t hurt the economy, but won’t really help either. Every conceivable measure, at this point, will add trillions to the national debt, or require an increase in taxes.
…Except cancelling student loans.
The President could issue an executive order cancelling all of the loans that the federal government holds. Nothing would be added to the national debt, and no tax appropriation would be needed.
Before this corona virus crisis, student loans were strangling the economy. 55 million borrowers and cosigners were struggling under $1.8 Trillion in debt (up from only $175 billion in 2000). Over $100 Billion in interest alone was being sucked out of the economy every year, with government profits running at well over $50 Billion annually.
Because these loans have been uniquely stripped of bankruptcy protections and statutes of limitations, many years of White House budget data show that the government has- astonishingly- managed to make a significant profit on defaulted loans. Thus, the Department of Education has lost all incentive to rein in the lending system.
The result: young people aren’t starting families or buying homes. Older people are being forced to cash in their retirements. Most borrowers aren’t able to pay down their principal, or aren’t able to pay at all. People are fleeing the country. Some are even committing suicide.
This is not right. This was never right.
The Chief Operating Officer of the federal loan program recently resigned his position, and made a radical call for student loan cancellation. He noted that the lending system was “fundamentally broken”. He said he came to this conclusion after having a “firsthand look” at defaults, which we already know are running at about 40% for 2004 borrowers (who were only borrowing one-third of what students are borrowing today). He noted that about 80% of all borrowers are unable to pay their loans down, or much worse.
To be blunt: The student loan program has FAILED us. The President needs to push the reset button.
Bureaucrats, lobbyists, and other defenders of the lending system in and around the Department of Education will surely protest loudly at such a move. But 40 million citizens who are being crushed under the weight of this predatory, big-government lending behemoth will cheer, and the economy will flourish. Some analysts have predicted that GDP would increase by about $100 billion for the next ten years, but they neglect the increased borrowing capacity that such a move would free up, which could easily be another $1 Trillion injected into the economy in the near and medium term. Some experts even believe that debt cancellation is the only way to avoid a depression!
Rest assured, the taxpayers will be fine. The federal government has been profiting wildly on this lending system for ten years running. While no one can say with accuracy how much of the $1.5 Trillion in outstanding federal loans is interest vs. principal, it is likely that the former is significantly larger than the latter. So on balance, the taxpayer should more-than break even on such a move.