Forgive Loans For Students? He Says No

CONSUMING INTERESTS

August 16, 2009|By EILEEN AMBROSE

Would forgiving student loans be good for the economy?

A campaign is under way to get student loans forgiven so grads can spend their money on other things. Proponents say this would stimulate the economy.

Mark Kantrowitz, publisher of Fin-Aid.org, crunched some numbers. Kantrowitz says there is $730 billion in outstanding student loans - $598 billion in federal loans, $132 billion in private loans. But to have an immediate impact on the economy, Kantrowitz notes, you have to consider only loans that are in repayment because that's money now going to loans and not other consumer spending.

But a little less than 4 percent of outstanding debt - or $28.8 billion a year - is now being repaid, Kantrowitz says.

"So assuming that the borrowers would spend this windfall instead of saving it or using it to pay down other debt, this proposal would involve the government spending $730 billion now in order to increase consumer spending by $28 billion," Kantrowitz writes. "Since less than 4 percent of the cost of this proposal would be spent by consumers in the first year, it will clearly not have the 'immediate stimulating effect.' "

Kantrowitz adds: "Forgiving all debt provides a financial windfall to borrowers who are capable of making their monthly loan payments, such as wealthy doctors and lawyers, and not just to borrowers who are experiencing financial difficulty. There are more effective and better-targeted ways of spending taxpayer money."

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