The reason debt forgiveness could have a big impact on the overall
economy is that a generation of Americans is making major life decisions
differently because of student loans.
"Children, it's not about if you want them," says Laura Greenwood in Montpelier, Vt. "It's about can you afford them?"
Greenwood works for the state education agency. She's 30 years old and makes $63,000 a year. "I make probably a better salary than a lot of my peers."
But after paying for college and grad school, Greenwood owes $96,000 in student loans. And she says that's got her and her partner feeling frozen. "Yeah. It's always, we're interested in having kids, but just cost of living and all our other bills and then the student loans, it's just like the final straw." She says it makes starting a family feel impossible.
So if people like Greenwood suddenly had this millstone of debt lifted from their necks, it stands to reason that would unleash pent-up desires and spending that would be good for the economy. A lot more people would have kids, or start businesses, or buy houses.
"In the short term, it would be very positive for the housing market," says Lawrence Yun, the National Association of Realtors chief economist. He says his group's surveys show that student debt has people delaying homeownership by five to seven years.
He's not endorsing any particular plan, but he estimates that broad loan forgiveness would push up the number of home sales quite a bit. "Home sales could be, say, 300,000 higher annually if people were not saddled with large student debt." Yun says that would be "a boost to the housing sector as well as the economy."
The effects would go beyond the housing market. William Foster is a vice president with Moody's, which just did a report on student debt forgiveness.
"There've been some estimates that U.S. real GDP could be boosted on average by $86 billion to $108 billion per year," which is "quite a bit," he says. "That's if you had total loan forgiveness." Foster says it wouldn't have to be total forgiveness to see significant results. And he says it could also help address rising income inequality.
"Student loans are now contributing to what's perceived as lower economic prospects for younger Americans," Foster says. After all — millions of people are delaying homeownership. And that's the most powerful way for most working and middle class people to build wealth.
"A typical homeowner has net worth about $230,000, while a typical renter has only $5,000," Yun says.
But while the idea of loan forgiveness is enticing, it would not be free. And this is a big reason plenty of politicians and policy experts are not on board. This would be expensive. Foster says Americans owe a lot of money on those student loans. "About 1.5 trillion. And that's more than auto loans and credit cards. They're the second-biggest debt item for households."
Foster says most of these loans are from the federal government, and it could forgive them. But that would mean giving up the $85 billion in annual revenue it's currently collecting on these loans. And, he says, "That would result in a wider fiscal deficit."
Foster says there could also be what's called a moral hazard factor here for future students. "Those students might expect future loan forgiveness and therefore they'll take out even more money than they might have otherwise."
That could create even greater levels of student debt. So there are plenty of potential pitfalls in all this. But policymakers who are pushing for loan forgiveness say they have plans to make it both fair and good for the economy and to do it in a way to make education more affordable for future students so they wouldn't have to take on so much debt.
Note EU-Digest: Bottom line, education and healthcare, are not. and must never be seen as marketable commodities. They are a democratic right for everyone, poor and rich, and must be free and widely available to all citizens. The present privatized health and educational programs, applied by the US Government and several other Governments in the EU and around the world, are not only undemocratic, they are also proving to be a barrier in providing proper education and health care to every level of the population, benefiting the overall economy, in all those countries, which presently have turned these basic human rights, as to education and health, into marketable commodities.
Read more at: Forgiving Student Debt Would Boost Economy, Economists Say | Vermont Public Radio
"Children, it's not about if you want them," says Laura Greenwood in Montpelier, Vt. "It's about can you afford them?"
Greenwood works for the state education agency. She's 30 years old and makes $63,000 a year. "I make probably a better salary than a lot of my peers."
But after paying for college and grad school, Greenwood owes $96,000 in student loans. And she says that's got her and her partner feeling frozen. "Yeah. It's always, we're interested in having kids, but just cost of living and all our other bills and then the student loans, it's just like the final straw." She says it makes starting a family feel impossible.
So if people like Greenwood suddenly had this millstone of debt lifted from their necks, it stands to reason that would unleash pent-up desires and spending that would be good for the economy. A lot more people would have kids, or start businesses, or buy houses.
"In the short term, it would be very positive for the housing market," says Lawrence Yun, the National Association of Realtors chief economist. He says his group's surveys show that student debt has people delaying homeownership by five to seven years.
He's not endorsing any particular plan, but he estimates that broad loan forgiveness would push up the number of home sales quite a bit. "Home sales could be, say, 300,000 higher annually if people were not saddled with large student debt." Yun says that would be "a boost to the housing sector as well as the economy."
The effects would go beyond the housing market. William Foster is a vice president with Moody's, which just did a report on student debt forgiveness.
"There've been some estimates that U.S. real GDP could be boosted on average by $86 billion to $108 billion per year," which is "quite a bit," he says. "That's if you had total loan forgiveness." Foster says it wouldn't have to be total forgiveness to see significant results. And he says it could also help address rising income inequality.
"Student loans are now contributing to what's perceived as lower economic prospects for younger Americans," Foster says. After all — millions of people are delaying homeownership. And that's the most powerful way for most working and middle class people to build wealth.
"A typical homeowner has net worth about $230,000, while a typical renter has only $5,000," Yun says.
But while the idea of loan forgiveness is enticing, it would not be free. And this is a big reason plenty of politicians and policy experts are not on board. This would be expensive. Foster says Americans owe a lot of money on those student loans. "About 1.5 trillion. And that's more than auto loans and credit cards. They're the second-biggest debt item for households."
Foster says most of these loans are from the federal government, and it could forgive them. But that would mean giving up the $85 billion in annual revenue it's currently collecting on these loans. And, he says, "That would result in a wider fiscal deficit."
Foster says there could also be what's called a moral hazard factor here for future students. "Those students might expect future loan forgiveness and therefore they'll take out even more money than they might have otherwise."
That could create even greater levels of student debt. So there are plenty of potential pitfalls in all this. But policymakers who are pushing for loan forgiveness say they have plans to make it both fair and good for the economy and to do it in a way to make education more affordable for future students so they wouldn't have to take on so much debt.
Note EU-Digest: Bottom line, education and healthcare, are not. and must never be seen as marketable commodities. They are a democratic right for everyone, poor and rich, and must be free and widely available to all citizens. The present privatized health and educational programs, applied by the US Government and several other Governments in the EU and around the world, are not only undemocratic, they are also proving to be a barrier in providing proper education and health care to every level of the population, benefiting the overall economy, in all those countries, which presently have turned these basic human rights, as to education and health, into marketable commodities.
Read more at: Forgiving Student Debt Would Boost Economy, Economists Say | Vermont Public Radio
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