Student Debt proposals

Canceling $1.3 trillion in predatory student debt is a top priority for the Stein/Baraka campaign. If we could bail out the crooks on Wall Street, we can bail out their victims – the students who are struggling with an insecure, part-time, low-wage economy. The US government has consistently bailed out big banks and financial industry elites, often when they’ve engaged in abusive and illegal activity with disastrous consequences for regular people.

No one can credibly deny that our society has the resources to provide world-class free higher education to all. We could easily free up enough resources to invest in higher education for all by canceling the F-35 fighter jet program, reinstating Wall Street transaction taxes, or canceling a planned expansion of the US nuclear arsenal. Unlike arms programs and tax cuts for the super rich, investing in higher education and freeing millions of Americans from debt will have tremendous benefits for the real economy. All that’s missing to free 43 million Americans from crushing debt is the political will.

Canceling student debt is just one part of a sweeping shift from an economy run by and for the super-rich to a new economy in which education, jobs, healthcare, food, housing, energy and other necessities are guaranteed to all as basic human rights.

Here are 2 of the potential methods for cancelling student debt under consideration by the Stein/Baraka campaign:

Option #1: Quantitative easing

Student debt can be ‘removed’ from household consumers’ balance sheets in a manner similar to how the FED removes debt from investors’ balance sheets via quantitative easing, according to Dr. Jack Rasmus, professor of political economy at St. Mary’s College.

To bail out holders of student debt, we could have the Fed create a special debt retirement account on its balance sheet worth $1.3 trillion. The Department of Education, which owns most of the student debt, and the private banks, which own the rest, could then sell their promissory notes for the student debt to the Fed. The Fed would then take the debt onto its own balance sheet. The private banks that sold the debt to the Fed would have a credit line at the Fed for their share, and the Dept. of Education would have a credit line for its share. The DoE could draw on its line for purchases of goods or services it would make over time from the private banking system, transferring part of its credit line to the private banks’ credit line at the Fed as it made purchases from the banks. (For example, the Dept. of Education could finance community college facilities’ expansions, which otherwise would require it to borrow from banks, but now would instead involve just a transfer of credit accounts at the Fed. So the Fed’s $1.3 trillion in part at least would go back into education spending).

The accounting arrangement could be structured in other ways as well. It’s fundamentally about the Fed creating money electronically, which is what it did when it bailed out the banks. It’s just about ‘whose credit line’ is created at the central bank, on behalf of whom, and accessed by whom.

If Wall Street can be bailed out by the Fed, then it should be an option for Main Street as well.

Option #2: Education Finance Commission

We could create an Education Finance Commission similar to the New Deal-Era Reconstruction Finance Corporation. The EFC, financed by the Treasury, would purchase and make payments on all outstanding student loan debt – with roughly $1.3T in outstanding student debt, the payments would come to roughly $150 billion per year until all the debt is retired, according to Dr. Randall Wray, Senior Scholar at the Levy Economic Institute.

At the same time we will make public higher education tuition-free, as many other developed countries have already done. This investment in higher education will pay for itself many times over in economic terms alone, and also strengthen our society and democracy.

Even after transitioning to tuition-free public higher education, students will still need loans (for living expenses as well as tuition at private institutions of higher education). The EFC can offer these loans on very favorable terms including much lower interest rates than are available from for-profit financial institutions.

These EFC loans will be similar to the model of the UK’s public Student Loans Company. After students graduate, their paychecks would have automatic payments deducted, which are calculated based on ability to pay (when income exceeds a certain threshold; in the UK this threshold is 85% of the average annual full-time wage, currently £28,828 (roughly $35,000 USD) for the 2015/16 academic year). The maximum length of time one must pay is 25 years, after which the debt is forgiven. The payments collected are used to service the loans and cover losses on forgiven loans.

Canceling student debt and making public higher education tuition-free will be a tremendous stimulus to the real economy by freeing 43 million Americans, as well as generations to come, to use their earnings towards buying homes, consuming goods and starting businesses, and putting their training, resourcefulness, and creativity to work to shape the economy of the future.