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Why Uncle Sam should pay off everyone’s student debt

Republicans want to cut taxes by $1.5 trillion. If past practice is any guide, most of these tax cuts will go to the rich, who won’t invest it to create new jobs. (And if they did, it’s hard to see how they’ll fill them, because the U.S. economy already is at full employment and has a worker shortage.) More likely, they’ll use it to further bid up asset prices, including stocks and real estate.

U.S. student debt is about $1.4 trillion, and it’s holding back the economy. Economists tell us millennials aren’t starting families or buying homes because of it. Millennials aren’t lazy, they’re working, but in some cases their student debt exceeds their annual income. It’s hard to be a consumer under those circumstances, and our economy depends on consumers for its vitality.

Millennials aren’t the only ones burdened by student debt. Some middle-aged folks who lost their jobs to the Great Recession went back to school in hopes of finding new careers. (Some did, some didn’t.) And student loan debt also reaches into the senior citizen generation, impairing their ability to meet their needs, because some of that generation cosigned student loans for their children or grandchildren that they’re now responsible for repaying.

There’s an obvious matchup here. If you want to stimulate the economy, and intend to spend about $1.5 trillion to do it, it’s way smarter to pay off the nation’s $1.4 trillion debt than give $1.5 trillion to the rich. It’s smarter because it’ll do more for the economy, and make everyone richer in the long run, including the rich. And you’d have $100 billion left over, that you could use for other purposes, such as higher defense spending if that’s what strikes your fancy.

Conservatives may object on grounds of moral hazard. But the economy has been rife with moral hazard for 10 years now. The policies implemented to rescue the economy pampered borrowers and screwed savers; enriched Wall Street and impoverished Main Street; and drastically increased inequality of net worth and income. But if you want to use moral hazard arguments, the biggest reason for Uncle Sam paying off student debt is because it’s the fair thing to do.

Much of that debt resulted from shifting the cost of education from taxpayers to students. Struggling with falling revenues, most states cut back on support for public colleges and universities during the Great Recession. Those colleges and universities responded, not by cutting costs, but by raising tuition charges to students, who had to go deeper into debt to pay those higher tuition bills.

You can argue that going to college is optional, and incurring those debts was voluntary. Not if you want a decent job, it isn’t, because nowadays employers demand a college degree for nearly every job; and the evolving economy does require more technical expertise than in the past. The choice facing millennials was going into debt to get the degree which is now mandatory for most family-wage jobs, or join the ranks of unemployable high school graduates without advanced education or training.

Talk about holding a gun to someone’s head. Our legal system doesn’t hold people responsible for their actions when they’re coerced. Why does our financial system do that?

What’s more, our legal/financial system recognizes that even responsible borrowers can get overextended, and some percentage of bad debt is inevitable in order for a credit-based economy to function. These debtors, even the reckless ones, are left off the hook and given a fresh start through bankruptcy. (Although it must be noted that the majority of personal bankruptcies in the U.S. are caused by medical bills, and indirectly by our dysfunctional health care system, which Republicans are trying to make worse.)

But not student debtors. You can’t discharge student loans in bankruptcy court. There’s no statute of limitations on them, either. Unless you can pay them off, you’re stuck with these debts for life.  They impair your credit just like any other debt does.

And that means you won’t be buying big-ticket items like houses and new cars. That hurts the economy, and what hurts the economy, ultimately hurts all of us.

So, instead of giving away another $1.5 trillion to the rich, on top of the trillions we’ve already given them in past Republican tax cuts, and the trillions more they’ve made from the deliberate inflating of stock, bond, and real estate prices, while the working and middle classes languished, let’s use that money to retire the nation’s $1.4 trillion of student debt, thereby enabling millennials to participate in the consumer economy, and then reap the dividends of higher economic growth.

 


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