PROMISES of a debt-free college degree are all the rage among politicians these days, but what about the 45 million Americans who have already borrowed $1.5 trillion to finance their education? What would happen if we canceled that debt?
According to a study by the Levy Economics Institute of Bard College, canceling student debt would boost real GDP by upwards of $108 billion per year, as millions of indebted families would be able to spend the $393 a month that the average student debt costs (assuming the benefit is not taxed).
The study assumes that the federal government would fully compensate private lenders. But the largest holder of the student loan debt is the government itself, which owns more than 70% of outstanding obligations. That means that debt cancellation would be surprisingly cheap in budgetary terms—around $145 billion a year to the deficit from forgone interest payments and the cost of compensating private lenders. This isn’t chump change, but it’s one of the more cost-effective ways Congress could give a $1.5 trillion gift to the increasingly indebted American people.
A version of this article appears in the September 1, 2018 issue of Coins2Day with the headline “Free Degrees.”