Student Loan Forgiveness an “Economic Stimulus”
Last updated: February 13, 2013 by Susan
The new norm is to get into tens of thousands of dollars in debt upon graduation. That’s a reality most Americans have to face, even those considered in the upper-middle class of society.
But what would happen if those student loans were to be forgiven – to disappear just like that?
For starters, people would be much more confident in spending their money in their local small businesses instead of the faceless banks and debt collectors that know how to evade taxes so very well.
The money freed up would then be equated to a tax cut, stimulating the economy on a consumer-level basis instead of boosting the lenders like what happened in 2009.
That money will go into the pockets of every ordinary Jane and Joe – especially the recent graduates – and will effectively be circulated back into the economy once the average consumer spends that money on groceries, movies, concert tickets, plush dolls, accessories auto loans and other consumer-friendly stuff.
Best of all, job seekers can get a break from the pressures of paying up loans and focus on getting better-paying jobs.
Realistically speaking, though, we can’t just completely erase student loans just like that. There are other pillars of the economy (the aforementioned faceless banks and name collectors) that will go broke if we do just that.
This is where the Student Loan Forgiveness Act steps in.
The act seeks to cap monthly payments at 10% of the debtor’s discretionary income. Take away all the necessary monthly payments (food, taxes, bills etc.), multiply the remainder by 10% and that’s what you’ll have to pay each month if the bill is passed into law.
This is actually a pretty good idea. Colleges and lenders will have a vested interest in teaching borrowers how to handle their debt, and graduates won’t be walking a tightrope if they graduate into an economy with little or no jobs.
And if lenders are worried that big loans will be wiped out by the act, then they can breathe easy knowing that it caps the forgiveness at $45,520 along with the interest. We’ll still have to pay it off, but at least the act will give us more breathing room over the long-term instead of destroying a person’s life and credit rating with just one or two missed payments.