Dropping Student Loan Debt Would Stimulate Economy, Report Says

Feb 22, 2018

Student loan debt in the U.S. has reached $1.4 trillion. That's greater than all credit card debt and also eclipses all motor vehicle loans. 

Researchers at the Levy Economics Institute of Bard College say canceling that debt would be a major boost to the economy. 

Stephanie Kelton, the report's lead author, says 44 million Americans have outstanding loans, and many struggle to make payments or are in default. 

She says canceling the debt would stimulate the economy because 44 million people would have an extra $300 to $1,000 in their pockets every month.

"All of these people who can't get out of their parents' basements and start their lives, buy their first home, buy a car, begin a family, have a child," Kelton points out. "All of these things that we know student loan debt plays a part in holding back, people can now go out and do."

Kelton's team used two macroeconomic models, the Fair model and Moody's model, to forecast the effects of debt cancellation over 10 years. They found that clearing $1.4 trillion of debt could add as much as $2.5 trillion to the economy. 

Skeptics point out the move would add to the federal deficit because the government, in addition to releasing 90 percent of the debt it owns outright, also would have to service debt held by private lenders.

Kelton argues that the government doesn't actually need the dollars represented by student loans on its balance sheet, because it holds the monopoly on currency and can add more dollars whenever it wants. 

She says taking on debt held by private banks would be a lot cheaper than the GOP's recent $1.5 trillion tax overhaul.

"But it turns out that if you actually cancel the student loan debt, you do more for the economy in terms of creating jobs and growing the economy, at about half the price tag," she stresses.

The group's projections showed that in addition to increasing national GDP, the move also would create more than 1.5 million new jobs annually, which would be more than half of all the jobs created after the Great Recession between 2010 and 2015.