Cancel Student Loans to Save the Economy!

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Trillions could be added  into the economy with no new taxes, and nothing added to the national debt.

The President is currently enacting economic stimulus measures in the face of impending recession.  He has no great options. The Fed Funds Rate is already close to zero. Taxes on corporations and the wealthy have already been cut to the bone.  Suspending interest on student loans won’t hurt the economy, but won’t really help either.   Every stimulus measure announced to date- and every conceivable future stimulus action- will add trillions to the national debt, or require an increase in taxes. 

Except cancelling student loans.

The president should immediately issue an executive order cancelling all of the loans that the federal government holds directly- about 85% of all student debt. Not one dime of tax money would have to be raised, nor would one penny be added to the national debt!


Long before the corona virus crisis, student loans have been strangling the economy.  55 million borrowers and cosigners are struggling under $1.8 Trillion in debt (up from only $175 billion in 2000).  Over $100 Billion in interest alone is being sucked out of the citizens every year, with government profits running at well over $50 Billion per year.  Something like 65% or more borrowers aren’t able to pay down their principal, or aren’t able to pay at all

Because these loans have been uniquely stripped of both bankruptcy protections and statutes of limitations, many years of White House Budget data show that the government has- incredibly- managed to eek a small profit out of defaulted loans.  So the government has lost all incentive to rein in the lending system.  The result: young people aren’t starting families or buying homes.  Older people are being forced to cash in their retirements. People are fleeing the country.  Some are even committing suicide

This is not right.  This was never right.  

Republican Trump appointee, Wayne Johnson, recently resigned his position as head of the federal student loan program,  and made a radical call for student loan cancellation. Johnson noted that the lending system was “fundamentally broken”. Johnson’s comments indicate that this problem is far worse than the Department of Education has said publicly. He said he came to this conclusion after having a “firsthand look” at defaults, which we already know are running at about 40% for 2004 borrowers who were only borrowing one-third of what students are borrowing today.  According to Johnson, about 80% of all borrowers are unable to pay their loans down, or much worse!

The federal student loan program has FAILED.  It needs to be reset.

Bureaucrats in and around the Department of Education will surely protest loudly at such a move.  But 40 million citizens who are being crushed under the weight of this predatory, big-government lending behemoth will cheer, and the economy will flourish.  Some analysts have predicted that GDP would increase by about $100 billion for the next ten years, but these analysts neglect the increased borrowing capacity that such a move would free up.  This could be another $1 Trillion that would be injected into the economy in the near and medium term.

Rest assured, the taxpayers will be fine.  The federal government has been profiting wildly on this lending system for ten years running. While no one- not even the Department of Education- can say with accuracy how much of the $1.5 Trillion in outstanding federal loans is  interest vs. principal, it is likely that the former is significantly larger than the latter.  So on balance, the taxpayer should more-than break even on such a move. 

THE PRESIDENT MUST ACT.

When President Lyndon Johnson signed the Higher Education Act in 1965, he declared that student loans would be “free of interest”.  President Trump, himself, decried the fact that the government was making so much profit on these loans.   This is Trump’s opportunity to follow that instinct. If there is to be a federal student loan system going forward, best to make them fair again.  The President should create a far more efficient higher education financing system that doesn’t wreck the citizens, hyper-inflate the price of college, and enable a predatory big-government monstrosity such as what the Department of Education has become. 


This is an historic opportunity for the President to cure a recession, drain the swamp, and strongly endear himself to tens of millions of voters who would otherwise have by-and-large opposed him this coming November. 

 

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-The White House  -Trump on Twitter

 

Strength in Numbers!

 

Alan Collinge

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