Report Calls Out Student Loan Debt Cancellation as ‘Ineffective’ Form of Stimulus

There is a growing drumbeat for President-elect Joe Biden to cancel some or all of the outstanding student loan debt in America, and proponents of that plan say it would be a boost for the economy should he do it. But a report released last week argues that canceling student loan debt would be an “ineffective form of stimulus” and that there are other ideas that will provide more “bang for the buck.”

The report was released by the Committee for a Responsible Federal Budget, a bipartisan organization with the objective of improving “the country’s fiscal and economic condition.”

Canceling student loan debt would generate $90 billion of additional cash flow, but cost $1.5 trillion, according to the report, and would likely not result in an increase in spending, since 75% of the debt being canceled would come from individuals who are in the top 40% of earners nationwide. Other options, like offering aid to small businesses, enhancing unemployment benefits, and helping state and local governments all provide better returns than canceling student loan debt, the report argues.

Forgiving the $1.5 trillion in outstanding student loans would not immediately add $1.5 trillion to the pockets of those individuals who have student loans, the report notes. Those individuals would be relieved of their monthly payments, which average between $200 and $300 for the typical borrower.

“In other words, because borrowers often pay back their loans over 10, 15, or even 30 years, debt cancellation will increase their available cash by only a fraction of the total loan forgiveness,” the report said.

Most of the individuals who have been affected economically by the COVID-19 pandemic do not have student loan debt, the report claims, saying that more than 70% of individuals who are currently unemployed do not have a bachelor’s degree, including 43% of those who did not attend college at all.

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