Why we need student loan debt forgiveness
We have the jobs plan. President Obama laid it out in front of joint session of congress and is now taking it on the road to appeal to the American people and trumpet up support. While we debate the particulars and generally praise Obama for his forcefulness and urgency in delivery, we ignore another potential crisis looming in the economic shadows.
We need jobs now, absolutely, but if something isn’t done about the student loan debt crisis, we very well could be looking at turning this Great Recession into a full on depression.
According to a July report from Moody’s Analytics, “the long-run outlook for student lending and borrowers remains worrisome.” There are some 35 million people in this country that have outstanding student loans totaling $805 billion. Lending has increased during this Great Recession as people are returning to school or staying longer because of bleak job prospects. As schools endowments have been depleted and slowly recovered, college tuition and fees have doubled since 2000.
In his State of the Union address last year, Obama proclaimed, “No one should go broke because they chose to go to college,” adding that education is the best anti-poverty program. He proposed “debt forgiveness for people who have been repaying their college loans for at least 20 years.” At the time it may have sounded ambitious, but as this Great Recession lingers, more bold action is necessary. Across the board student loan debt forgiveness could give the economy the short in the arm it so desperately needs.
A large part of economic problem is consumer confidence. Spending constitutes 70 percent of U.S. economic activity, but consumer confidence is at its lowest point since April 2009. At that time, the Conference Board Consumer Research Center’s Consumer Confidence index was at 40.8. In August of this year, the index fell to 44.5 from 59.2 in July. A reading of 90 or better would indicate the economy is on solid footing.
People simply aren’t spending, as they have been forced to take lower wage jobs in order to have a job and therefore have little disposable income. Americans aren’t saving either, with 64 percent of the population having less than $1000 in the bank. This is why Obama wants to extend payroll tax cuts, to put money directly in the pockets of consumers who will in turn spend it on goods and services.
But consider the potential impact on the economy if all of a sudden 35 million people were able to add to their monthly budget anywhere between $400 and $1000 that they no longer needed to satisfy exorbitant student loan repayments. And no longer faced with the threat of default(at a rate of 7 percent as of September 2010), credit scores would rise and more people with inclination toward starting small businesses (those things that every politician proclaims drive economic growth). Debt free degree holders would allow for more risk taking and innovation.
Thus far, a truly progressive debt forgiveness plan hasn’t been a part of the national conversation on economic recovery. The fundamentals of our economy aren’t strong, but they are the same as ever: we are a country built on low wages and debt. The American economy was built on the backs of slaves and indentured servants and hasn’t relinquished its reliance on exploitation of a disenfranchised underclass since. As more and more people have demanded to have an equal share in the American dream, we have had to create new groups to exploit and push into the permanent underclass needed to run American capitalism. College students/graduates are now joining those ranks. This can not stand in a global economy increasingly reliant on higher education.
Given the way negotiations have gone between the two parties during Obama’s presidency it’s unlikely we would be able to achieve full debt forgiveness, but introducing the idea would at least get us to point where we could “compromise” on a long-term deferment plan for recent loans and complete erasure for those who have been paying on loans for 10 years or more.
Republicans should line up behind this the same way they did those one time “stimulus checks” under President Bush, because it allows Americans to keep more money in their pockets, except over a longer period of time and therefore could actually prove to stimulate the economy. Democrats could sell this as finally standing up for education, touted by many as the civil rights issue of this generation. Simply put, it’s the right thing to do.
Haiti is still trying to recover from the earthquakes that literally and figuratively shook the island nation in January of last year. In the aftermath, the U.S., France, International Monetary Fund, and World Bank all canceled Haiti’s more than $1 billion debt. What they recognized (with some international pressure) was that the crisis in Haiti had reached a level that couldn’t possibly be overcome with that huge debt looming overhead. They did the right thing. They forgave their debt.
We are approaching that level of crisis with the economy and student loans here in the states. As historian William Jelani Cobb writes, “centrist politics work best during times of economic prosperity — like the Clinton era.” What we need now is radical programs to address an increasingly dire economy. A jobs plan is imperative (“pass this bill now!” the president said to thunderous applause), but any economic recovery that does not include some address of the volatile student loan bubble is incomplete.