Trending

Joe Biden, the Student Loan Crisis, and the Problem with Economic Stimulus

Critics will always argue whether it's "worth it" to help people in need.

After its precipitous fall in February of 2020, the government took major steps to stabilize it.

By Monday, November 16th, the Dow had surpassed all previous records, closing at 29,950. Meanwhile, the national death rate as a result of COVID-19 was rising toward its horrifying January peak. Meanwhile, working Americans continued to struggle and suffer, wasting their gas money waiting in endless lines for limited supplies of free food.

If you, like nearly half of U.S. adults, don't own any stock at all, the numbers above are essentially meaningless. Even for most of the people who are invested in the stock market, their investment isn't substantial enough to make up for issues like widespread underemployment.

And yet, the Federal Reserve has poured $4 trillion into maintaining the stability of investment markets and ensuring that the Dow, the S&P 500 and various other numbers on charts that seem increasingly disconnected from reality move in the right direction. Why is that?

The answer to that question is complicated, but it is closely linked to the reason why President Joe Biden has been on the receiving end of a lot of scrutiny and pushback on the topic of student loan forgiveness — and why he hasn't already taken steps to cancel some or all of student debt already.

Recently the amount of student loan debt in the United States surpassed $1.7 trillion. That amount has more than tripled in the last 15 years, with around 45 million Americans currently holding some amount of student loan debt, and an average burden in excess of $30,000.

Most of that debt is nearly impossible to discharge through the standard bankruptcy process. And the fact that most of that burden falls on young people — whose careers are less established and who face generational declines in wages and wealth — exacerbates the impact of that debt. It's a major factor in the worrying declines in rates of home ownership, marriage, and birth rate among millennials.

It is widely acknowledged that the cost of higher education has ballooned out of control while it has increasingly been pushed as a necessary step on the path to prosperity. Underlying this problem is the fact that — unlike many developed nations — our federal government doesn't offer affordable public universities or fund education in fields like medicine and engineering where we always need more skilled professionals.

Why Is College So Expensive in America? | Making Cents | NowThis www.youtube.com

Instead we offer government-backed loans and guarantees that incentivize institutions to invest in administrative bloat and in expensive development projects to enhance their prestige and entice prospective students with unnecessary luxuries. Teenagers instilled with little sense of the financial commitments — but an unwavering belief in the necessity of college — have become cash cows.

The system as it stands is clearly broken, and whatever other reforms are called for, the resulting debt crisis is interfering with the spending power and attainment of an entire generation. In the context of a pandemic that has affected the livelihoods of so many, it would seem like an uncontroversial act for the government to alleviate some of that burden of student debt.

And for the most part, it is. Opinion polling shows that the notion of providing some amount of student loan forgiveness is broadly popular across partisan lines.

The exception is among the pundit class — and the wealthy donors they represent. Because, while various political figures — including Democratic Senators Chuck Schumer and Elizabeth Warren — have urged Joe Biden to make student loan forgiveness an early focus of his presidency, others in politics and the news media have done their best to push back.

At the moment, a forbearance measure laid out in the CARES act has been extended through the remainder of 2020 — allowing those with federal student loans to defer payments for the time being. But further action being proposed would include forgiveness for debt owed to private companies.

Among the wide range of suggestions are legislation to provide $10,000 of debt forgiveness for individuals meeting certain restrictive criteria and $50,000 of automatic forgiveness for all student debt holders — which Joe Biden could theoretically have delivered through an executive order as soon as he took office.

In either case, some would still be left with large burdens of debt, and some would likely be hit with unmanageable tax bills — as debt forgiveness is considered a form of income. But the debate has not largely involved addressing those shortcomings. Rather, many have questioned whether we should be considering these proposals at all.

The objections tend to fall into three categories: It wouldn't help the right people, it wouldn't stimulate the economy as much as other measures, and "I paid off my student loans, so why shouldn't they?"

The last is patently asinine, and should be ignored or mocked as it applies equally to any form of progress — "My face healed after smashing against the dashboard, so why should we add airbags now?" If the people espousing this perspective want to be acknowledged for their fiscal responsibility, here's the entirety of the praise they deserve: Good for you.

The fact remains that many people are not able to pay off their student loan debts, which can have a ruinous effect on their credit rating, affecting everything from interest rates on other loans to — in a cruel twist — their employment prospects. There is a disturbing potential for an accelerating debt cycle that becomes impossible to escape.

Even for those who are able to pay off their debts may feel pressured by the monthly payments to accept employment that they otherwise wouldn't — contributing to an imbalance in the employee-employer relationship that could further suppress wages. In short, it's bad.

So while it's valid to point out that there are others in the economy more in need than college graduates, we can't ignore the reality of the student debt crisis. Along with other important measures — further extension and expansion of unemployment benefits, rent subsidies, and direct payments to make it easier for people to stay home — student loan forgiveness should be considered an essential part of COVID relief.

Which leaves only one complaint left: It wouldn't do enough to stimulate the economy.

The basic issue is that the benefit of debt forgiveness is spread out over years or decades of remaining loan payments. And because it would also contribute to recipient's tax burdens, there is a concern that much of the cost of debt relief would not result in short term increases in consumer spending — the kind that spurs quick economic growth.

While that's worth being aware of, doesn't this objection have its priorities reversed? Isn't the entire purpose of a strong economy to improve people's lives? So why are we unwilling to improve people's lives unless it primarily contributes to short term economic growth?

Clearly our entire system has embraced this inverted way of thinking. That's why it can pass almost without notice when the Federal Reserve spends $4 trillion to prop up investment markets.

We happily spend that amount on measures that only directly benefit the wealthy, and yet — when it's suggested that we should spend a fraction of that on a popular policy that could improve the lives of 45 million Americans — it becomes a point of great contention.

We all seem to have forgotten the essential truth that the economy is meant to serve us — not the other way around.

Reopening Isn't About the Economy—It's About Kicking People off Unemployment

The economic impact of reopening is unclear, but the goal to keep government "small" is unwavering even in a crisis

In the coming weeks many US states will begin the process of loosening COVID-19 lockdown restrictions and "reopening" their economies.

Other states have already done so.

While the argument for reopening has been unequivocal—it's supposedly what we need to save our flagging economy from a full-blown depression—it's not clear that it will serve that function at all. Recent polling has shown that the vast majority of Americans support social-distancing and stay-at-home measures and are not enthusiastic about the prospect of going back to restaurants and crowded stores while the coronavirus pandemic is ongoing. Which means that the number of customers who return as states drop their restrictions may not be enough to keep small businesses afloat.

Unfortunately that majority opinion has not received as much attention as many of the loudest advocates for reopening—who have argued that a death toll that is likely to more than double current figures is worth it, or that the whole pandemic is just a hoax. Of course it makes sense for small business owners and people who are struggling to make ends meet right now to want to get back to work, but what good will it do?

If cases spike, overwhelming local hospital systems and causing deaths and tremendous medical debt in the process, then restrictions will need to be reinstated, and the economic problems we're currently dealing with will only be prolonged. Right now we lack the widespread testing and the sufficiently improving conditions to support reopening without a vaccine. There are measures we could take at the federal level to improve the situation without such startling risks, but we are ignoring those options—treating reopening like it's the only solution available—for one simple reason: Americans hate "big government."

Since at least the 1980s our society has been flooded with anti-government propaganda. We recite mantras about government mismanagement, waste, incompetence, while ignoring successful programs at home and abroad. One of our two major parties has devoted much of its political willpower to actively sabotaging federal programs and agencies like the US Postal Service to prove their point and push for further privatization (that they, along with their donors and friends, stand to personally profit from). In this context, the kind of aggressive federal spending we would need to keep small businesses and struggling families afloat in current conditions is virtually unthinkable.

Even America's relatively compassionate party is only pushing fairly moderate measures that are likely to be whittled down and paired with massive business subsidies in the Senate—just like what happened with the Cares Act in March. In its current form the Heroes Act includes $175 billion in housing assistance, a second round of $1200 stimulus payments (with children receiving as much as adults this time), $200 billion in hazard pay for essential workers, $1 trillion in funding for states to pay their vital workers, and a six month extension of the $600 unemployment expansion.

Undoubtedly these measures will help a lot—though not as much as more generous proposals—but they ignore some major issues. The biggest problem (apart from the fact that the senate isn't going to let the bill pass as is) is that states are straining to make the basic unemployment payments that the $600 expansion is meant to supplement. As a result, many of the tens of millions of people trying to file for unemployment have been stymied by bureaucratic foot-dragging and red tape, and now states are using reopening as a way to push workers off of unemployment and protect state budgets from possible bankruptcy—an outcome which Senate Majority Leader Mitch McConnell has no interest in preventing. In some states there are even systems being implemented to report workers who refuse to go back to work, regardless of their circumstances or legitimate fears.

Mitch McConnell

Whether any of this will improve the national economy in the long run remains to be seen. What is clear is that state governments are being understandably cautious with their budgets, and the Republican party is playing their usual political games with lives, health, and livelihoods on the line. The result is that states are reopening, and millions of workers are about to be pushed off unemployment. The next stop is cutting retirement benefits, and fully dissolving any remnant of a social safety net this country has.

As we enter what is likely to be another global depression, it's worth keeping in mind that these programs are among the measures that helped us get through the last one under FDR and that countries that chose a different path were pushed toward a scarier form of politics that has lately been threatening resurgence: outright fascism. Let's try not to repeat the mistakes of the 1930s.