President Biden: Cancel Federal Student Loans, and Return Bankruptcy Rights to the Rest.
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Trillions could be injected into the economy with no tax money needed, and nothing added to the national debt.
During the pandemic, we've given $1 Trillion in loans that don't need to be repaid to small businesse, and additional trillions doled out to businesses, governments, individuals, colleges, and others. This all required money to be drawn from the Treasury, and added to the national debt.
Cancelling $1.6 Trillion in federal student loans, on the other hand, will require nothing from the Treasury, and will add nothing to the national debt.
Before the pandemic, 45.4 million people were holding federal student loans, and 80% were either unable to pay, or were paying but their balances were going up. Today, over one-third of U.S. states have student debt loads that eclipse their entire state budgets. People over the age of 50 with student loans outnumber people under 25, and they owe 3 times more, despite having borrowed far less. The default rate for 2004 students is 40%, and they took out less than a third of what today's students have to borrow. The default rate for current borrowers will likely exceed 75%. This is more than four times the default rate of sub-prime home mortgages.
By all rational metrics, this is now a catastrophically failed, and nationally threatening lending system. We do not have to take this.
The President and Secretary of Education have all the authority needed to cancel all federally owned student loans- about 85% of all student debt. Nothing would be added to the national debt, and no congressional approval or appropriation is needed. The President can also order the Department of Education to stop opposing student loan borrowers in bankruptcy court. For the good of the nation, it is time to end this broken federal lending system.
We call on President Biden cancel all federally owned loans by executive order, and replace this failed lending system with a less expensive, more state-friendly funding model for higher education. We also call on both the President and Congress to return standard bankruptcy protections to ALL student loans, by executive order and through legislation.
- This will greatly stimulate the economy. Analysts have estimated that cancelling student loans will increase GDP by over $100 billion for the next ten years, but they neglect increased borrowing capacity that will enable people to buy homes, start businesses, etc. This would be an additional $1 Trillion (roughly) in direct spending in the near/medium term.
- This is not a partisan problem. More than half of all student loan borrowers identify as being politically independent, or republican. "Red" states are being hurt significantly worse than "Blue" states.
- Claims that cancelling loans will largely benefit people who don't need it are wrong. 80% of all borrowers were "underwater" on their loans before the pandemic. All borrowers were determined to be "financially needy" as a condition for the loans. More than 40% never graduated. The most successful student loan borrowers tend to refinance their loans out of the federal system, so they won't benefit.
- Rest assured, the taxpayers will be fine. The federal government has been profiting greatly on these loans for many years, and the Department of Education has even been making a profit on defaulted loans for decades. While it is not known how much of the $1.6 Trillion federal portfolio is unpaid principal, it is likely a small fraction of the total. On balance, the taxpayers will have very little- if any- net loss when these loans are cancelled.
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