The Senate is at a standstill while public health and the economy are in a death spiral. What’s the hang- up? Student loan cancellation. Democrats in the Senate are attempting to tack a provision onto the pending stimulus package that would provide $10,000 of student debt cancellation to each borrower. This is nonsensical and irresponsible.
Quick action by the administration has put a pause on student loan payments and interest. That means that not a single borrower is on the hook to make a student loan payment for at least two months. And once the payment hiatus is over, borrowers facing hardship have the option to enroll in a variety of existing repayment plans that lower monthly payments to an affordable level based on income and that provide for forgiveness of persistently unaffordable debt. Borrowers with little or no income will pay nothing.
Government spending should be swift and generous, but it shouldn’t be targeted at student borrowers. College educated workers are among the highest earners in the economy and are the most likely to retain their employment and earnings during any downturn. That’s why loan forgiveness plans like those proposed during the Democratic primary would end up being hugely regressive in nature.
Instead we should be sending cash immediately, both through immediate cash transfers and an expansion of unemployment insurance. The estimated cost of the proposed student debt cancellation would be $370 billion. That’s enough to make an immediate cash transfer of $1,100 to every single American.
We needn’t quibble now over who should receive a check. We don’t yet know who will need help. Instead of basing eligibility on past earnings, checks should be mailed immediately to every American. If we make the payments taxable, our existing progressive tax code will make sure that the cash stays in the hands of those who need it and is clawed back from those who don’t.
In a time of crisis, all ideas should be considered, but this one is far off the mark. It would be foolish for Democrats to hold up the other urgently needed aspects of a stimulus package in order to accomplish this foolhardy handout.
Beth Akers is a senior fellow at the Manhattan Institute and a former Council of Economic Advisors economist. Follow her on Twitter here.
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