Elizabeth Warren’s College Debt Cancellation Plan Would Boost The Economy

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Warren's plan to forgive student-loan debt could provide a major boost to the U.S. economy.

2020 Democratic presidential candidate and Massachusetts senator Elizabeth Warren has put student-loan debt forgiveness and free public college not only at the forefront of her campaign, but at the forefront of public discussion, Business Insider reports.

She proposed the plan earlier this week, and users on Twitter debated whether it was fair for those that have already paid off their student-loan debt. Experts, however, believe that Warren’s proposal could provide a boost to the U.S. economy.

In the last quarter of 2018, higher education debt rose to $1.57 trillion. More than 40 million Americans carry student-loan debt, according to the U.S. Department of Education. The average amount of debt possessed by graduates was $28,500 in 2017.

As a result, student loans can hinder debt-holders from buying homes or cars, paying off other types of debt, or contributing to long-term savings accounts. A 2019 Bankrate survey revealed that 73% of individuals “delayed at least one major life milestone because of their student loan debt."

In a blog post on Medium, Senator Warren said that 75 percent of individuals with student-loan debt would have their debts canceled entirely, and 95 percent would receive some form of assistance. She also cited a Brandeis University economic study that found that her proposal would have "a substantial impact on student debt forgiveness and would greatly benefit households with the least ability to repay.” Warren’s plan also would help close the racial wealth gap, the economists found.

Moreover, researchers said that student-debt forgiveness could provide substantial benefits to the economy.

"It would likely entail consumer-driven economic stimulus, improved credit scores, greater home-buying rates and housing stability, higher college completion rates, and greater business formation," analysts said.

Research director at the Economic Policy Institute Josh Bivens said that the proposal’s "short-run macro benefits are neutral to good."

"This would certainly boost spending by households, who would be wealthier (since debt has been extinguished) and have more disposable income since debt service payments are no longer needed," Bivens said. "There is definitely research indicating that student loan payments are holding back home and car purchases — particularly for young adults."

However, the long-term effects are largely dependent on employment rates and how the Fed responds through interest rate levels.

"My sense is that we still have a little bit of daylight between current conditions and unambiguous full employment—so the extra spending really would create some more jobs and income," he said. "And the Fed has signaled that it might wait until inflation shows up in the data before raising rates."

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