Without a parallel effort to curb the growth in tuition fees, one-time debt relief could actually lead to higher higher education debt in the future, with students taking out larger loans, hoping that the government would erase them at some point, a “moral hazard” that often accompanies ad hoc interventions. And it would be expensive: Canceling even $ 10,000 per person in debt would wipe out more than $ 400 billion in government assets, although calculating the real cost to the Treasury is tricky due to the long lead time. student loan repayment and high default rate.
Mr Looney said the $ 50,000 cancellation, at a projected cost of $ 1 trillion, would be “one of the largest transfer programs in American history,” on par with decades of targeted spending on programs that exclusively benefit low-income families, such as the $ 992. billion spent on federal Pell grants since 1972 and the $ 1.4 trillion spent on social assistance since 1975.
If overall debt relief went disproportionately to the wealthiest Americans, even modest debt relief would help many financially vulnerable people, especially people of color. Student debt has tripled since 2006 and has eclipsed credit cards and auto loans as the main source of household debt outside of mortgages, and much of it falls on black graduates, who owe an average of $ 7,400. more than their white peers when they left. school. Black borrowers are also defaulting at higher rates.
Dropouts, especially those who attended for-profit schools, often find themselves trapped in debts they cannot afford to pay off.
“At this time of national judgment on racial injustice, the president-elect must cancel all federal student debt on the first day of his administration,” said Rep. Ayanna Pressley, Democrat of Massachusetts, in a statement. “The president-elect must meet the moment. If he fails, we will hold him accountable. “
An economic working paper released by the Roosevelt Institute presents debt cancellation explicitly in terms of racial justice. The total percentage of black households that would benefit would be higher than white households, and the relative gains in equity for those households are much larger, the researchers found. The largest marginal gains come from the forgiveness of smaller debts; wiping out $ 20,000 would end the student debt of half of all households with loans.
New York Senators Chuck Schumer, the Democratic leader, and Elizabeth Warren, Democrat of Massachusetts, said in a joint editorial last week that $ 50,000 debt cancellations would give black and brown families across the country a good best chance of strengthening financial security ”And would constitute“ the most effective executive action available to massively stimulate our economy. “