Forgiving Student Loan Debt as an Economic Stimulus; What Does a Local Economist Think?

Posted by erik devaney

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A recent story I wrote for New England Post, Should the Government Forgive Student Loan Debt? College Grads Say Yes; Economists Say No, has been garnering a lot of feedback in the comments section. The story highlights the ideas of economist Justin Wolfers, who argues that forgiving student loan debt would be the “worst idea ever.”

One of the most pertinent arguments that showed up in the comments section of that story contended that Wolfers cannot speak to the opinions of all economists. This is certainly a valid point, but it has proven a challenge to find an economist that doesn’t agree with Wolfers.

Prof. Michael J. Carter

Professor Michael J. Carter is the chairman of the UMass Lowell Economics Department. He earned his B.A. at Yale, and earned both his M.A. and Ph.D. at Stanford. “I am sympathetic to the plight of recent college graduates who are burdened with substantial student loans,” Carter told New England Post. These college grads “face a labor market that in recent years has offered far fewer decent paying professional level job openings for college graduates than has long been the norm.”

However, Carter went on to say that forgiving all student loan debt would be a “huge mistake,” and would undermine the sanctity of contracts. “If loans to recent graduates were forgiven, sources of loan funding to current and future college students would become unavailable or available only at significantly higher cost,” said Carter. “One of the most important avenues of upward mobility for students from families in the bottom 70% of the income distribution would be destroyed.”

As Carter points out, there are other strategies that could help out recent college grads who are struggling with loan debt. Carter suggests slowing down required rates of repayment for recent grads who are unable to find employment despite demonstrated ongoing search efforts. Such a strategy “might reduce default rates and give struggling young graduates some help without undermining the market for higher education lending.”

There are certainly many educated people out there who argue against the position on forgiving student loan debt. Examples include Robert Applebaum (former politician), Kevin M. Bartoy (archaeologist) and James Sano (city councilman and educator). But for the time being, no mainstream economist has stepped up in support of the idea. So, New England Post challenges you to find an economist who supports forgiving student loan debt. Leave a comment or shoot me an email at [email protected].

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Posted by erik devaney on Sep 26 2011. Filed under Featured - For home page featured article. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

2 Comments for “Forgiving Student Loan Debt as an Economic Stimulus; What Does a Local Economist Think?”

  1. Michele

    How is this idea any worse then giving more money to large corporations and crossing our fingers that they don’t use the money to grant themselves large year end bonuses? If you are going to give away money it should go to the people if for no other reason than to once again give the public faith that our government will do what is right for the people and not big business. Someone in any scenario you use, is going to lose it should not be middle class American’s again who frequent make to much for help and to little not to struggle. Sallie and other loan institutions are highly responsible for some of the ongoing student loan repayment problems graduates face with their unethical collection practices and there has yet to be any reform of the student loan system. Perhaps this should be as much of a call to reform the current system as it is to help out middle America. Perhaps with reform and forgiveness we will see colleges change their practices of raising fees every year and the cost of education can once again properly align itself because banks won’t be able to lend more than the job will actually pay.

  2. Kurt

    Here’s a point of view that needs processed. What does this idea benefit the college students who have loan debt? Let’s say it’s the day after the debt has been forgiven. These students still don’t have the job they wanted when they started out for their education. They are in the same situation as yesterday except they just don’t owe the debt they decided to take for their education. Now, what about the money that was lent…? Where did that come from? Now that is just another broken fragment of the “economy” where are trying HELP. Don’t ‘GIVE’ money to anyone. Therein lies the problem. Money has to be first possessed, before it can be given. The US Government doesn’t have money to give. Students who took loans are responsible for those loans. (I should know, I and my wife are part of that crowd) It would be nice to just be free of the debt, but that doesn’t solve much of anything on the big picture. ‘Stimulus’ is not the answer and nothing that has been done under that moniker by the government has resulted in any type of positive, lasting change. Rather than forgive the debt, those who owe on student loans need the means to repay. I understand the dilemma, however forgiving the debt is not the solution. The effect of that move on the economy would make it HARDER for these students to find a job. Making it easier for business to prosper makes it easier for business to grow, necessitating the growth of the labor force. Don’t give ANY MONEY. Just don’t take everything from the people who are the real “job creators;” the small businesses.

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