Looking at possible solutions to the student debt crisis

Millions of Americans have a burden of large student debt after they finish their studies. According to Forbes.com, the average student who graduated in 2016 immediately had $37, 172 to pay off. Senator Bernie Sanders’ recent tweet highlighted the problem.

Bernie Sanders on Twitter

This teacher is one of many millions of Americans saddled with insurmountable student debt. It’s time to make college tuition free in America. https://t.co/ve9UMiwKpO

Sanders’ plan would only eliminate future student debt by making tuition free for public colleges. It will not help the 44.2 million (various sources, via theREALnews.com) Americans already saddled with student debt. This kind of debt is now the second largest after housing mortgages, surpassing credit card debt.

Tuition costs have exploded (US News) over the past decade. Partly due to the 2008 economic crisis, many Americans cannot pay back their student debt. For many, that debt is defaulted and accrues interest, putting a financial chain around them that will never be fully paid off and will only grow in weight. This problem could be detrimental to macroeconomic growth, said Federal Reserve chair Jerome Powell in March (CNBC.com).

  • What are some possible solutions?

There are many kinds of income-adjusted payment plans available, but many Americans in low-paying jobs are finding it difficult to pay off their loans with these plans.

There are also loan forgiveness programs. However very few people will have their loans forgiven under such programs. Of the roughly 16,000 people who have applied, less than 1,000 are expected to be eligible (CNBC).

i) Bankruptcy protection

Student loan debt, unlike consumer and business debt, cannot be discharged through bankruptcy (with very rare exceptions). This was largely due (US News) to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

The uniqueness of a lack of bankruptcy protections even puzzled Jerome Powell.

“Alone among all kinds of debt, we don’t allow student loan debt to be discharged in bankruptcy,” Jerome Powell told members of the Senate Banking Committee Thursday. “I’d be at a loss to explain why that should be the case.” (Market Watch)

A bipartisan bill (H.R. 2366) has been proposed that will bring this kind of protection back.

ii) Canceling student debt

Jill Stein, the Green Party’s 2016 presidential nominee, proposed during her campaign that student loans be canceled. Despite being mocked (Market Watch) by comedians like John Oliver, some economists have taken the proposal seriously and studied it.

A study by the Levy Institute provided a way of doing the cancellation, and how that would affect the overall economy.

It found that there would be few negative effects but many benefits to the economy. For example, researchers found that it would add little to the budget deficit and inflation but make large improvements in employment numbers and GDP growth. It would add about $86-$108 billion (€74-93bn) a year to the economy by adding jobs and other “positive feedback effects” such as increased consumer and investment spending.

One of the authors, Stephanie Kelton, is interviewed in theREALnews.com clip cited earlier:

Student Debt Cancellation a Viable Option, Economists Say

A new in-depth study on the consequences of cancelling all student debt in the US shows that it would help the economy far more than it would cost. We talk to Stephanie Kelton, one of the study’s co-authors Visit http://therealnews.com for more stories and help support our work by donating at http://therealnews.com/donate.

Combinations of the above solutions may also work. The major obstacle in the end could be political roadblocks.

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