Reference no: EM131850936

Forgive Student Loan Debt?

Every few weeks now a petition pops up in Facebook newsfeeds urging the government to forgive all student debt. The comment from the person posting the petition usually goes something like this, "Guessing this will never happen, but can't hurt to sign on!" Scrolling through the stories posted on the petition can be a heart-wrenching experience. Former students tell stories of unemployment, worthless majors, low-paying jobs and resulting six-figure debt, insurmountable interest, forbearance and default. From a human standpoint, it's easy to see why forgiving student debt holds some appeal. But many have questioned not only the enormous and economically unfeasible cost, but the purported benefits and fairness of a one-time student loan bailout.

One proposal is simple: Provide a one-time bailout of student loan debt-currently valued at $1 trillion-as a way to stimulate the still-limping economy. After all, college graduates are the type of people society needs to do things like start businesses, buy homes and cars, invent things and people burdened with debt are less likely to make those kinds of decisions. Unburden them and the housing market might improve, along with the overall economy. If "fat cat" bankers and auto makers got a bailout, why not college graduates?

One reason why not is such a scheme wouldn't be a particularly efficient fiscal stimulus. Someone who has $50,000 in debt forgiven isn't likely to pump all those dollars back into the economy in a short amount of time. A much more effective stimulus, it has been reported, would be to give 50 poor people $1,000 each because that money would almost immediately be spent. Another problem with such a plan is that most borrowers actually can afford to pay off their student loan debt. The average debt total at graduation is a much more reasonable-yet still significant-$27,500.

Some Americans have obtained education and skills, but have careers have been hobbled by an inordinate amount of debt. There are already programs in place that offer forgiveness including the government's underutilized Income Based Repayment program.

Is forgiving student loan debt a good idea?

Should current debt holders be forgiven when for years people have paid their debts?

Why should taxpayers-especially those who never attended college in the first place-foot the bill for the borrowers' education?