Sens. Bernie Sanders and Elizabeth Warren have been criticized for their proposals to rip up millions of dollars worth of student debt in order to free people from that weighty financial burden. But some economists tell NPR the proposals could have the dual benefits of both lifting up the economy and easing income inequality.
Warren is proposing forgiving up to $50,000 in loans for most people, while Sanders says he would wipe out student loan debt altogether. The plans, however, ultimately cost more than $1 trillion, making them a tough sell legislatively. But the upsides to the economy could be significant because many young adults are now making major life choices based on their student debt burden. That includes whether to have children, buy a house, or maybe open a business.
The National Association of Realtors (NAR) conducted a survey revealing that people are postponing buying a home by as much as five to seven years based on their student debt. Short term, NAR economist Lawrence Yun says a broad student loan forgiveness program would be "very positive for the housing market."
William Foster, vice president at the financial services firm Moody's, agrees, adding that it's not just the housing market that stands to benefit. Total forgiveness could result in U.S. real GDP getting a bump of $86 billion to $108 billion per year, on average. That's "quite a bit," he adds. But Foster says even a plan that cut student loan debt significantly without entirely eradicating it would significantly benefit the economy and serve as a buffer to growing income inequality.
"Student loans are now contributing to what's perceived as lower economic prospects for younger Americans," Foster says. According to Yun, for instance, "A typical homeowner has net worth about $230,000, while a typical renter has only $5,000." So delaying home ownership is costing young adults the ability to build equity over time, which will perpetually set them behind over their lifetimes.
The major hurdle to alleviating student loan debt is that it carries a price tag of some $1.5 trillion, second only to the amount of home loan debt carried by Americans. The loans are mostly from the federal government and forgiving them would cost the government about $85 billion in annual revenue. So the benefits of forgiving the debt does come with a cost, which is why Warren, for instance, has proposed increasing taxes on people who have accumulated more than $50 million of wealth.
Bottom line: There's a huge upside to forgiving significant amounts of student loans. And it stands to reason that people who had loans forgiven would end up putting more of that money back into the economy than the wealthy millionaires and billionaires who would get taxed to offset the costs.