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I understand that President Biden has been discussing the possibility of loan forgiveness for student loans. This has also increasingly become a topic of debate in recent years as student loans have expanded to $1.6T.

What are the main points of supports that experts have for this measure in terms of the economic impacts?

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What is the dominant rationale for student loan forgiveness among academics and politicians?

In a word, equity, which is liberal-speak for fairness to address past and current societal ills.

Rep. Pressley (D-MA) introduced H.Res.100 - Calling on the President of the United States to take executive action to broadly cancel Federal student loan debt. The resolution has 56 cosponsors. Sen. Schumer (D-NY) introduced S.Res.46 with identical text and 15 cosponsors.

There are 22 Whereas clauses in the text of H.Res.100; nine of which describe various groups who are regularly singled out by liberals as disadvantaged.


What are the main points of support that experts have for this measure in terms of the economic impacts?

The economic effects can not be evaluated at this time because the extent of relief is not known. The resolutions are requesting up to $50,000 of forgiveness and how that may affect loan repayment terms, for those who owe more than the final amount of forgiveness, is not known.

The resolutions suggest the following benefits.

  • Whereas broad student loan debt cancellation is the most efficient and effective solution to our student debt crisis, would help millions of families, and would remove a significant drag holding back our economy;

  • Whereas broad student loan debt cancellation would provide immediate relief to millions of American families who are struggling during this pandemic and recession, and prevent them from having an unsustainable student debt burden waiting for them once this pandemic is over;

  • Whereas broad student loan debt cancellation would provide a boost to our struggling economy through a consumer-driven economic stimulus, greater home-buying rates and housing stability, expanded access to more affordable financial products including car loans and mortgages, higher college completion rates, and greater small business formation;

Clearly, if the amount of forgiveness is limited to, say, $10,000, the benefits listed in the last item will be muted.

[Not noted in the resolutions is the effect on debt collectors. "Roughly 8 million federal student loan borrowers are currently in default, and the typical defaulter takes out less than $10,000." 1 Wiping out millions of collection accounts would have a negative effect on employment in that business area.]


In addition, what is stopping students from taking out loans knowing that they will be forgiven?

It is not known how much, if any, of a loan will be forgiven; but, it would not include all current debt. Further, any student loan forgiveness will be time limited to include existing loans; but not future loans, it being the case that the current relief effort is related to the repayment problems associated with the COVID-19 pandemic. But, then again, the "immigration problem" recurs despite repeated efforts to resolve it.


Would it require legislation passed by Congress, or could it be legally implemented by executive action?

Whether the loan forgiveness can be done by executive action or legislation is a point of contention. Democrats claim that only executive action is required. A letter from the Legal Services Center of Harvard Law School to Sen. Warren supports that view. A memorandum to Secretary DeVos from the Department of Education Office of the General Counsel suggests there is no current statutory authority and, therefore, a law must be passed by Congress.


See also,

1 Debate Over Student Loan Forgiveness Hinges On 2 Numbers: $10,000 Vs. $50,000

Student Loan Debt 'Your Own Fault': Conservatives Blast Biden Forgiveness Proposals – Opposition from conservatives.

Forgiving Student Debt Alone Won’t Fix the Crisis – Commentary on the problems with the student loan system.

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    According to the Bureau of Labor Statistics, there are 238,900 people employed in the debt collection industry, and employment was forecast to decline 6% over the next decade. Student loans are about 11% of all outstanding debt, so we're talking about ~ 25,000 debt collection jobs that might be impacted... Feb 23 at 18:08
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    @jeffronicus I'm not sure if you're arguing this or just pointing out statistics, but creating a problem and then refusing to fix it because it would impact jobs in the industries that popped up to try to deal with that problem is a horrible way to govern. This is the proverbial ban on cars to protect the jobs of buggy-whip makers.
    – divibisan
    Feb 23 at 18:19
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    Also, I'm curious how much of the debt collection industry is involved in Federal student loans, as opposed to private loans
    – divibisan
    Feb 23 at 18:20
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    @divibisan - And how many with student debt are working in the debt collection industry in order to pay off their student loans.
    – Rick Smith
    Feb 23 at 18:33
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The economic benefit is twofold.

First is to encourage people who might be avoiding higher education to enroll in school and get a degree. This is important for several reasons. First it helps increase the amount of skilled workers which can also increase the amount they make and pay in taxes. It can also help increase the amount of workers in areas where there are currently shortages.

An example is teaching depending on the schooling can cost several hundred thousand dollars to get a degree yet they can start out making only 20-40k a year. That salary makes it hard to pay back student loans and can scare people away from the field.

https://www.careerigniter.com/questions/how-much-does-it-cost-to-go-to-school-to-become-a-high-school-teacher/

On the average, a bachelor’s degree in secondary education and teaching can cost about $32,000 annually for out-of-state students. This covers the cost of tuition, fees, books, supplies, housing and food. However, the range can vary widely from about $11,000 to close to $60,000 a year depending on which institution you are enrolled in.

Secondly and more importantly it gets money moving back into the local economies instead of the big banks and lending institutions. If someone is stuck with a student loan that is taking up a significant chunk of their income how much are they going to be spending on other things (or saving for retirement). Can you expect someone with large student debt to be looking at home ownership? Remodeling/Upgrading the house? Fancy trips? Fancy gadgets? The problem is that the student loans limit what else they can spend money on and that money doesn't go to local places which could help the overall economy grow.

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  • The debt forgiveness being discussed is, at least currently, a one-time thing, right? So it wouldn't encourage more higher education in the future, though it would help those who did take that risk to enter a field like education or family medicine
    – divibisan
    Feb 23 at 18:13
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    @divibisan I have heard both discussed and the second point would still stand even as a one time event. The problem in general is how expensive an education is after high school. Even doctors who do make a decent living still have problems with student debt because their schooling and training is so long and expensive.
    – Joe W
    Feb 23 at 18:42
  • @JoeW The vast majority of student loans that are in default are for around $10K, so not likely to be medical school debt. The primary target of this relief is lower income people who managed to get into college.
    – Barmar
    Feb 23 at 19:08
  • @Barmar That may be true but that doesn't mean the extreme expense of medical school doesn't keep people from that field. Either from not wanting to take on an expense that large or just from not being able to get the loans in the first place. I feel that the massive expense of schooling in general is keeping people from going and keeping numbers in some fields lower than they could be.
    – Joe W
    Feb 23 at 19:23
  • @JoeW Maybe. I was under the impression that it's not hindering people going to school -- they go anyway, and then they find themselves in trouble afterward. Kind of like how subprime mortgages allowed people to buy homes when they couldn't really afford it.
    – Barmar
    Feb 23 at 19:43

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