Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Tuesday, December 10, 2019

If $1.6 Trillion Of Student Loan Debt Is Forgiven, This Is What Happens

LoanforgivenessWhat would happen if the country's entire student loan debt was forgiven, all $1.6 trillion of it?

Presidential candidate Senator Bernie Sanders (I-VT) wants to do just that, according to his campaign pitch. His plan has no eligibility requirements, meaning every single borrow - all 45 million, regardless if the loan is federal or through a private lender, would be eligible for a student loan discharge. Sanders says that he would fund this forgiveness plan through a new tax on financial transactions, to the tune of a 0.5% fee on all stock trades, a 0.1% fee on all bond trades and a 0.005% fee on all derivatives trades.

Presidential hopeful Elizabeth Warren has a similar plan, except 95% of borrowers would be eligible for some student loan forgiveness and 75% of borrowers would be eligible for a complete discharge of their student loans. She would also fund the program through a new tax, and neither plan would tax the discharge as income.

Both Warren and Sanders believe that student loan forgiveness would minimize the wealth gap of the country and benefit the middle class. Moody’s assessed the economic impact and found that student loan debt cancellation would result in, a modest increase in household consumption and investment, an improvement in small business and household formation, and increased home ownership over the long-term. However, Moody's also found that the near-term economic impact would be minimal, similar to a tax-cut stimulus. As the majority of those that would benefit from student loan forgiveness would be high income earners, the economic benefit would be limited.

See Zach Friedman, If $1.6 Trillion Of Student Loan Debt Is Forgiven, This Is What Happens, Forbes, December 3, 2019.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.


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