Is Student Loan Forgiveness for All Students a Good Idea?

Student loan forgiveness has become a topic of conversation lately. Elected officials in Washington, D.C. (and in all 50 states, for that matter) have been racking their brains trying to figure out ways of getting the economy back on track and cultivating job growth.  The unemployment rate remains high, and consumer confidence has plunged recently.  Meanwhile, Americans are still in debt as much as ever.

In other words, the situation still looks pretty bleak for many people.

Student loan forgivenessBut one Congressman has come up with what he says is a perfect solution to our current malaise:  forgive the the nearly $850 billion in outstanding student loan debt held by American college students past and present.

The Congressman is Rep. Hansen Clarke (D-MI), and the bill is H. Res. 365.  It’s getting some serious backing from various groups that are circulating an online petition urging Congress to pass H. Res 365 — with about 230,000 signatures collected so far.  The petition states that:

Forgiving the student loan debt of all Americans will have an immediate stimulative effect on our economy.  With the stroke of the President’s pen, millions of Americans would suddenly have hundreds, or in some cases, thousands of extra dollars in their pockets each and every month with which to spend on ailing sectors of the economy.

Of course, such a plan would add another $850 billion to the nation’s total debt, which is already an unwieldy $14 trillion.  Would the boost to our economy and the benefit of freeing so many recent college graduates from the shackles of debt be worth the cost?  That’s hard to say.

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It’s certainly true that putting more spending money in people’s hands can stimulate the economy — and usually the impact tends to be greater than just the initial monetary amount.  But over the long term, large amounts of debt can hurt the economy, as we saw when the government’s credit rating was recently downgraded.

What do you think?  Should the government forgive student loan debt?  Tell us what you think in the comments below or on Twitter or Facebook.

This article is part of our Student Loan Debt Resource Center.  If you’re looking for additional information about student loans, be sure to pay a visit!

Image 1 credit: rrunaway

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  • Rvsk8er21

    Sounds like a great idea. It will never pass. It’s too much benefit for a limited number of people and is rather unfair. Some benefit, most don’t. Therefore, I would revise it to address the current issue which is that we need people to stimulate the economy by spending money. So, the way to do it I believe would be to defer all student debt for 2-3 years so those benefiting can have direct access to that money. They are also the ones most likely to spend it now.

    • http://twitter.com/BWFeldman Ben

      That’s an interesting idea, Rvsk8er21, thanks for your comment.  You might be right about it being unlikely to pass given that it is a large benefit for a limited number of people, but certainly among young people student loan debt is quite common (reports show that the majority of 20-29 year olds are paying off student loans)

  • amom

    Sounds like this approach merely transfers personal debt to the national deficit.  Students unable to make loan payments are eligible to get annually renewable loan deferments, though the interest continues to rack up.  Why not put a hiatus on the interest accumulation on student loans, many of which are at 6.8% or more, or allow refinancing to the current (spectacularly low) rates?  Student loans will disappear if the lenders don’t get paid back.

    This bill also mentions forgiving mortgages.  But whose?  And how?  This issue should be dealt with separately.

  • Erik Van Crimmin

    We took out the loans, we should pay them back. But it’s the interest that’s killing us, like amom suggests. Somebody with $100k in loans at 7% over 25 years pays almost $500 a month just in interest.

    First off the interest rate on student loans should be pegged at or below inflation. People should not be getting rich off of students borrowing for their education. Secondly, all payments toward students loans (principle plus interest) should be a complete tax write-off regardless of income level. This incents paying back the loans and acknowledges that while student loans may be a necessary evil in our economy, they won’t kill you.

    • azra

      Erik, these are some great suggestions. I think another popular idea has been to have income based loan repayment plans. One thing’s for sure, student loan debt is a serious problem (it just surpassed credit card loan debt) and something needs to be done here!

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      Yes, the interest is a big problem for many student loan borrowers, and can result in people paying the original loan amount many times over, in the most extreme cases. Interesting idea on capping interest rates and making payments eligible for a tax write-off.

  • Pingback: Graduates Drowning in Average Loan Debt of $25,000

  • J0schm03

    I understand the thought process behind this and it makes sense. A lot of recent grads, including myself, can’t even think about spending money because we are unable to. We have to put off buying a house because we are already making a mortgage payment on our loans. I myself have cut cable, car, cellphone and more from my expenditures. I also haven’t bought myself any new clothes over the last 2 years so I can put the money towards my loans.

    I do agree with another post that says we took them out we should have to repay them and it’s true that the interest is killing us.

    What I keep failing to see in any discussions is setting up programs to PREVENT future students from making the same mistakes we were lead to make. It’s like a lot of health insurance companies are starting to realize we need to treat the cause not the symptoms and the same goes for student loan debt. Unfortunately a lot of us were given the wrong information when applying for these loans. At 18 most young adults don’t have any real concept of money. There needs to be a way for students to look at how much they realistically will be making out of college, the cost of living and how much each month will be going towards their loans and for how long.

    While we need a solution for those of us who are buried in debt we also need to look at prevention! Anyone agree/disagree? I’d like to hear your thoughts!

  • rockville

    Good idea!

  • Ryan Lockwood

    Terrible idea. I have a student loan and I plan on paying back every penny. Tired of people not taking responsibility when they sign on the dotted line.

  • An ant among grasshoppers

    Another policy that punishes the fiscally responsible to reward those who were not. This does nothing to address the root of the problem which is the unsustainable rising costs of advanced education for what amounts to for most grads, a useless degree. A policy this this only fuels rising tuition costs.

  • Kyan

    how do you know if you qualify for this?