Politicians from both parties might perform public anguish about the student loan problem but it is painfully obvious that they just don’t get how serious it is. The most recent Congressional legislation tying interest rates on student loans to the several points beyond the interest rates on treasury notes might have looked like an important reform in Washington, where achieving anything bipartisan is hailed a great victory, but not to the 37 million young Americans who are on the hook for more than one trillion dollars in student loans that cannot be discharged in bankruptcy. They owe an average of $29,000. In an economy that no longer produces enough decent jobs that’s enough to prevent many from achieving the perfectly reasonable and certainly laudable aspirations to launch careers, start businesses, begin families, or simply move into their own homes. The soaring loan delinquency and default rates suggest that many of them have already given up hope. Unless something very significant is done soon some will fall from the middle class permanently into the ranks of the working poor.
That an entire cohort of young Americans will be subjected to financial quasi-serfdom throughout the early 21st century is a problem not just for the individual debtors but for American society as a whole. We are diminished as a nation both economically and spiritually if their energy and talents are wasted. To frustrate so many hard working young people betrays the promise of the American Dream. If the United States is to remain a prosperous liberal democracy it needs a large and growing middle class. Greed might tempt some of the one percenters to entertain authoritarian alternatives but the rest of us know that is the path to disorder and violence.
What is needed is debt relief. When Wall Street was in danger of going belly up in 2007 and 2008 the second Bush and Obama administrations rushed to rescue the largest banks with enormous bailouts. The time has arrived to do something comparable for what we hope will become the middle class of the next half century. Writing down the bulk of the student debt would not only emancipate the quasi-serfs but provide the sort of stimulus that would generate a real economic recovery rather than the miserable virtual recovery that we have been experiencing.
The answer to the inevitable criticism that writing down the current student debt would add a lot to the government deficit is that we have done it before to achieve economic growth: the deep tax cuts of the Reagan administration added to the deficit to provide an economic stimulus. The difference is that writing down the student debt would provide far more bang for the buck. It is worth remembering that the same conservative politicians and pundits who now decry the size of the deficit gave their enthusiastic support for the War in Iraq. If we can squander a trillion dollars to replace one Middle Eastern dictatorship with another then we can spend a trillion dollars to guarantee that America has a large and growing middle class.
The answer to the inevitable moral hazards argument that serious debt relief would simply encourage more indebtedness is the reality that much of the current student loan will never be paid off and that the Department of Education and the banks continue to encourage students to take out more student loans. Rather than continue to encourage further indebtedness we need state governments to once again fund higher education as if they understood how important it is for their state economies and for the opportunities it provides to their citizens.
The time has arrived to emancipate tens of millions of Americans and half measures will not suffice. Their futures, and ours, depend upon it.