A recent study published by the Committee for a Responsible Budget indicated that paying off the student debt as the left-wing liberals and their representative Joe Biden intend to do, would cost the United States $1.7 trillion, but only $90 billion per year would be injected into the economy. This is a very high cost for the state, in exchange for a small benefit.
Outstanding student loan debt has doubled over the last decade, approaching the massive figure of $1.7 trillion. About one in six American adults owe money after for borrowing for school. This number makes up the largest amount of non-mortgage debt in the United States, the study reported.
The sectors of the left, generally represented by the Liberal Democrats, are pressing for the federal government to pay off the enormous debt contracted, using the excuse of generating relief for the economy in the middle of the crisis that some sectors are experiencing, especially those who lost their jobs due to the closure impositions promoted by the Democratic states.
However, the report is very clear and states: “There are a number of benefits and costs associated with canceling student debt. But as a stimulus measure, its ‘bang for buck’ is far lower than many alternatives under consideration or the COVID relief already enacted.”
Another critical point that the report makes is that student debt cancellation is misdirected. Given that three-quarters of student loan repayments come from the top 40% of the population, who would likely be inclined to save the extra money rather than spend it, unlike lower-income earners. This is not efficient for the purposes of reviving the economy.
The report also says that more than 70% of the fired workers, who most need help from the government at this time, do not have a university education and therefore are not the ones who are in debt.
A recent survey by the Pew Research Center shows that most of the economic suffering from the crisis is concentrated among the least educated. This shows where the aid should be concentrated.
Democratic candidate Joe Biden has endorsed the cancellation of student loan debt and announced that if he gets to the White House he would “immediately” cancel the debt.
The Wallet Nerd website presented more details on which student loan debt Joe Biden is considering forgiving. These include those attending public colleges or universities or private institutions where black students predominate.
Biden also mentioned a phasing out of the benefit, but offered no further details.
The report’s analysis, contrary to Biden’s, found that President Donald Trump’s current policy on student loan debt is far more beneficial than cancellation.
“Simply extending the current executive action to defer loan repayments and canceling interest during that period would achieve much of the economic benefit of loan cancellation at only a very small fraction of the cost,” the analysis said.
In contrast, debt cancellation would be an ineffective form of stimulus, providing only a small boost to the economy in the short term relative to the high fiscal cost.