What Would it Take to Erase Student Debt?

With the 2020 political cycle in full swing, one of the hottest debates is about the fate of student loan debt in America. Several leading presidential candidates on the Democratic side are promising to erase—or at least partially forgive—student loan debt, which might sound like a major miracle for many millennial voters. But what would it take to actually make student loan debt disappear? Is it remotely realistic, or just a campaign promise designed to get attention ahead of the election and nothing more? 

Before we dig into all of that, let’s start by looking at the current student loan crisis and trying to understand the scope of the problem. According to the Federal Reserve, United States citizens are carrying about $1.6 trillion-with-a-T dollars in student loan debt. That’s an insanely large number, and one that has grown significantly over the past 20 years. It’s more than the total value of Microsoft, Apple, or Amazon. It’s almost as much as our country’s healthcare AND military budgets combined. And it’s affecting roughly one out of every six people in the US.

So it’s no wonder student loan relief is among the hottest issues on the progressive side of the 2020 presidential race. Erasing student loans would not only provide a lot of relief to a generation plagued by stagnant wages, a crowded job market, and painful inflation; it would put a lot of money back into the national economy. But is it even possible?

Solving Student Loan Debt

The first question to think about is where we’d get the money to cancel out such a huge amount of debt. The specific answers vary from candidate to candidate, but the general consensus is: taxes! Fortunately for most millennials, these taxes would target either the ultra rich or Wall Street, and not the average citizen. It’s a plan Robin Hood could be proud of.

But would it work? The answer is: who knows? Forgiving even a meaningful portion of our national student debt would still cost a mind-boggling amount of money, and it’s hard to predict what the final form of these proposed new tax laws might look like. 

There’s also a lot of debate about who exactly would benefit from the erasure of student debt. Some studies show that a forgiving all student loan debt would disproportionately help those who need the least help, further muddying the waters about the social benefits of clearing the debts. 

But at least the conversation is being had about what to do to solve the student loan problem…

That is, if you think it’s a problem. And that’s an issue that is up for debate. 

A sizeable portion of the voting population thinks that student loan debt is a fair burden to carry, or at least one that’s fair enough to keep the onus on the borrower without requiring the government to get involved. After all, it’s not mandatory to go to college, let alone to attend an especially expensive one. And there are also a lot of concerns that forgiving current debts is a disservice to previous debt-holders, that it’s an unfair advantage.

A Rising Tide Lifts All Ships

While the moral implications of forgiving student loan debt are beyond the scope of this humble finance blog, we can point out that there’s reason to believe canceling student loan debt could be good for society as a whole.

It’s hard, if not impossible, to predict exactly how a national debt relief program might impact the overall economy, but the research above is a pretty good indication that forgiving debt leads to a boost in the economy. Instead of paying back loans, people are able to spend that money on other goods and services and help stimulate the economy. They’re also less likely to file for bankruptcy or default on bills, which is also good for the economy.

But it doesn’t necessarily mean it’s going to happen. 

How to Manage Student Loan Payments in the Present

Even if the future promises student loan forgiveness on a national scale, and that’s a big if, it’s still very much in the future. As in, it might not happen soon enough to make a difference to you personally. Fortunately, there is an option currently available that could help with your student loan struggles.

It’s called income-driven repayment, where loan payments are based on your income and family size, and any remaining debt is forgiven after a period of 20 or 25 years. If you qualify, this could be exactly the sort of solution you’ve been looking for to provide some relief from your student loan debt.

And if that debt is wiped away in the future, even better (for you)! But that can only happen through the right blend of political nominations and legal maneuvering. If it’s something you truly want to see happen, consider getting involved in local campaign efforts to help make it a reality.

Otherwise, student debt is here to stay.