Billionaire Robert F. Smith made headlines last month when he surprised graduates of Morehouse College with the news he would pay off their student loans, saving them millions in life-altering debt. Smith was rightly applauded for his act of generosity.
But for the 45 million other Americans suffering from crushing student debt, relying on a rich savior is not an available solution to their financial troubles. For them, we need an answer that goes much further and addresses this crisis in a systematic way.
Student debt is now over $1.5 trillion in this country, and a suffocating punishment facing young adults whose terrible sin was seeking an education. Like the housing crisis, this is a problem politicians like to talk about, but virtually no one in government has done anything to address. In recent years, candidates and lawmakers have begun to offer solutions like tuition-free college for future generations. These are worthy ideas. But what about the millions already saddled with debt, who won’t benefit at all from these forward-looking solutions? What’s being proposed for those unlucky enough to have gone to school during the last few decades — when tuition was sky high, loans were predatory, and the problem was not yet on politicians’ radar?
Well, I have a solution: The government should forgive student debt. All of it.
It may sound radical at first, but as a progressive entrepreneur and investor who’s helped build successful companies, I believe forgiving student debt in this country is both moral and smart for the economy. It will rescue those who are struggling to make a life for themselves simply because they sought an education, many of whom signed their loans as teenagers. And it will take over a trillion of dollars that is currently doing next to nothing for the economy, and reinvest it back into instant consumer spending on such items as homes, cars and groceries.
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Student debt was sold to many on a false promise of high-paying jobs. If you were middle or working class growing up in the past few decades, you were told to work hard and go to college so you could have a good life. Sure, the loans seemed expensive, but it felt like Monopoly money to a young person who never heard the term “compounding interest.” And besides, your guidance counselor assured you everyone was taking on these debts, and you’d pay them off in your early 20s. Of course, the unfortunate reality became that wages remained flat for many occupations, and with mostly low-wage jobs, many would never be able to repay their debt.
All of us are hurt by this. Those with the debt can’t buy homes, which hurts them and their families. But it also means, for example, that home builders and furniture companies will hire fewer people. That means fewer jobs, and less consumer spending. In short, when a borrower repays a dollar of student debt, no economic activity is created. But for each dollar a home buyer spends on a home, multiples of economic activity are created in the form of employment and consumption.
Another unforeseen consequence is that those with student debt are less likely to start new businesses, which means fewer jobs created, less competition among employers and lower wages. Those with student debt will also be less likely to start families, which means we will soon have a demographic imbalance with more retirees than workers. The result? For the economy to function properly, people may not be able to retire at the age they currently do. In other words, canceling student debt isn’t just about mercy. It’s the savvy way to create a more vibrant economy with higher paying jobs, more entrepreneurship and happier Americans.
To be fair, there is a group that could reasonably oppose this idea: those who recently worked tirelessly and paid off their student loans. What happens to them? While I’d argue that they too will gain from the overall benefits to the economy, let’s not kid ourselves, it would be understandable for them to find this plan unfair. The reality is that every movement that leads to bold change has its heroes — those willing to sacrifice for the greater good, to ensure a better America for all of us. This would be no exception.
When it comes to America’s student debt nightmare, we no longer have time for rhetoric, half- solutions, or Band-Aids. Without dramatic change, this generation will be the first to be worse off than its parents. This is unacceptable, and quite literally the opposite of the American Dream.
The good news? If we get this right, we’ll all reap the benefits.
Joe Sanberg is the founder of Working Hero Action, an advocacy organization for low-income Americans.
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