Covid-19 Economic Response: Cancel Student Loans by Executive Order!
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Trillions could be injected into the economy with no tax money needed, and nothing added to the national debt.
President Trump needs new ways to stimulate the economy. He has no great options left. The Fed Funds Rate is essentially zero. Tax cuts for corporations and the wealthy- including the $1.6 million stimulus recently given to 43,000 millionaires- won’t help those who need it. Additional direct payments to the citizens will be expensive. Suspending interest and deferring payments on student does very little. Every conceivable spending/stimulus plan will undoubtedly require either more tax money, or will increase the national debt.
...EXCEPT CANCELLING STUDENT LOANS BY EXECUTIVE ORDER.
The President could issue an executive order cancelling all of the student loans that the federal government holds- about 85% of all student debt. Nothing would be added to the national debt, and no tax appropriation would be needed. This is- by far- the least expensive, and most expedient way to inject trillions into the economy.
Even before the Covid-19 crisis, this was a FAILED lending system: 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 economy every year. The default rate for 2004 borrowers is 40%, and borrowing has tripled since that time. According to the recently resigned Chief Operating Officer of the lending program, 80% of all borrowers will never be able to repay their loans.
Unlike all other loans in this country, student loans have been stripped of fundamental consumer protections like bankruptcy rights, statutes of limitations, and others. Without these protections, student loans have been weaponized against the very citizens they were supposed to help.
The Result: Lives and livelihoods are being wrecked en masse. Young people aren’t getting married, starting families, businesses or buying homes. Older people are being forced to cash in their retirements. Families are being torn apart. People are fleeing the country. Some are even committing suicide. This is not right. This was never right.
Analysts have predicted that cancelling student loans will increase GDP by about $100 billion for the next ten years, but they do not take into account the borrowing capacity (and thus spending) that such a move would free up. This would be another $1 Trillion injected into the economy in the near and medium term. Some experts even believe that debt cancellation is the only way to avoid a depression!
The President should seize this opportunity, and push the reset button on this FAILED, BIG-GOVERNMENT lending system!
Rest assured, the taxpayers will be fine. The federal government has been profiting wildly on this lending system for ten years running. Many years of White House Budget data confirm that the Department of Education is- astonishingly- even making a profit on defaulted loans! While no one 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.
Bureaucrats, lobbyists, and other defenders of the lending system in and around the Department of Education will surely protest such a move, but 40 million citizens who are being crushed under the weight of these predatory loans will cheer, and the economy will flourish.
When President Lyndon Johnson signed the Higher Education Act in 1965, he declared that student loans would be “free of interest”. President Trump decried the fact that the government was making so much profit on the loans. 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 national threat such as what the Department of Education has become.
This is an historic opportunity for the President to cure a recession, drain the swamp, create a better higher education financing system, 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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