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By Max Greenhalgh

Junior, GWU

The average American college graduate who chose to take out student loans owed just over $30,000 according to U.S. News data from 2019. Given the trend, that number has likely risen since. This is a distressing issue for debt-holders, due to the fact that during the first several years after graduation, many will need to set aside money to pay off debts that could have otherwise gone into a remarkable selection of expenditures and necessities. While some relief is needed, there are significant downsides to a federal intervention that is too generous. This is because the more debt that is forgiven, the more the highest earners in America benefit—if the $50,000 forgiveness for households earning up to $250,000 plan proposed by Elizabeth Warren or the universal forgiveness proposed by Bernie Sanders were put in place, professional degree earners such as doctors and lawyers with outstanding debt would see the most benefit. Then, they could begin using their high paying positions to establish even more generational wealth, directly creating future classes of non-earners that would exacerbate wealth inequalities. However, a simple, universal $10,000 loan forgiveness program would be immensely beneficial to the U.S. economy while simultaneously giving millions of Americans a desperately needed boost towards financial stability.

What’s the danger of shooting too high? Why not forgive all or a more significant amount of debt than $10,000? The most vital outcome to consider is the impact of student debt forgiveness on wealth inequality. America is arguably in the midst of a second Gilded Age, with the highest-earning 20% of households earning more than half of US income in 2018, and the top five percent earning nearly a quarter of that same figure. With inequality as drastic as this, the federal government must intervene in markets in ways that benefit the middle and lower classes as much as possible. Despite popular opinion, forgiving massive portions of existing student loan debt would not be an economically progressive and redistributive move. According to Adam Looney, a senior fellow at the Brookings Institute, nearly two-thirds of the direct economic assistance of a debt relief plan giving $50k in relief to all borrowers except for households making $250K or more would go towards the top 40% of earners. These were the conditions put forward by Senator Elizabeth Warren in 2019 during her most recent presidential bid. Outside of a trickle-down economics argument, I fail to see how this policy would change the lives of the mean low-income household aside from potentially further exacerbating inequality. After all, when middle to high-income people obtain a sudden influx of new money, they tend to save it instead of utilizing it to stimulate the economy at higher rates than the poor, as was recently proved with how Americans reported utilizing their COVID-19 stimulus checks.

Despite all of these problems, some form of student loan debt forgiveness would provide a significant boost to the American economy. From a top-down perspective, Bard College’s Levy Economics Institute predicted in 2018 that the forgiveness of all outstanding student loans would increase the United States GDP by $108 billion over the next ten years, providing a small but impactful economic boost. GDP at a per capita level is often used by international organizations and analysts to determine the quality of life within a nation, so even marginal boosts like this one are worth pursuing whenever possible. However, perhaps where the policy could make the biggest difference is with millennials, as those born between 1981 and 2001 hold the lion’s share of currently outstanding student loan debt. Many disturbing trends, including a decrease in entrepreneurship, homeownership, and retirement savings among young people, have been linked to worries about debt. If freeing themselves from the clutches of debt was easier, young adults could focus on these issues, creating more positive communities and home environments for generations to come.

$10,000 in relief may sound like an arbitrary figure, but it has a purpose. The 2019 median student loan debt for defaulters sat at $9,625—by not exceeding this by too much, the forgiveness is significantly less regressive than wider-reaching programs. This debt relief would drastically help the middle and lower classes recover from the financial costs that come along with going to college in search of upward mobility. While I believe that enacting a more future-focused plan for increasing college affordability and stopping student loan debt from remaining a serious economic issue is necessary, the forgiveness of $10,000 is a strong measure whose impact will be immediately felt. Taking the middle road when it comes to the scope of student loan forgiveness would help Americans most in danger of defaulting on loans while providing indirect economic stimulus and avoiding contributing to economic inequality.

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