May 13, 2013--Student Debt

I know this idea is going nowhere; but, if we want to spend a trillion dollars wisely, we should forgive all undergraduate student debt.

It totals one trillion and the average debt burden for college gradates is $24,000. Typically, those fortunate enough to have well-paid jobs and thus able to pay back what they owe, take at least 15 years to do so. Of the 37 million former college students who have amassed debt, fully 11 million of them are between 30 and 39.

To make matters worse, unless Congress acts (and how likely is that?), interest rates on these loans will double July 1st to 6.8 percent. At a time when a mortgage rates are only 3.0 percent and banks can borrow money from the Fed for less than one percent (actually, about 0.75 percent). Senator Elizabeth Warren has proposed legislation that would set the student loan rate at the same level as the bank-borrowing rate. But we know where that is going--down the filibuster chute.

In the meantime, young people, overwhelmed by debt, are not marrying, not having children, not buying houses, and generally not spending money. They don't have any. And as a result, the economy, which continues to falter, is missing the boost that young people's spending would provide.

To forgive student debt, yes, would be by definition unfair. Why let these all of these young people off the hook while not doing very much to help, say, those with under-water mortgages? Unless we want to set up a big bureaucracy to means-test whose loans should be forgiven and who should pay (which in itself would cost a fortune) some who can pay would get away with a taxpayer subsidy they don't need or deserve.

But for once, about something this important, why don't we just do the right thing, and, forgetting all the caveats, get this mammoth problem out of the way and in the process release recent graduates from this usurious burden and help them get on with their lives and, in so doing, become taxpayers rather than dependents holed up, living in their childhood bedrooms or their parents' garages.

A final thought--who would be the "losers"? Who would have to "eat" the nearly $1.0 trillion in forgiven debt?

Basically, the banks who did the loaning. The same banks which for decades made hundreds of billions in interest that was guaranteed by U.S. taxpayers. The same taxpayers who will have to assume the cost of any unpaid interest if students default on paying back what they borrowed. Which, again because of the stalled economy, is more and more common. The banks that taxpayers bailed out a few years ago after they caused the Great Recession. All they would need to do would be to write off this debt the same way they write off foreclosed mortgages.