Millennials, myself included, have the honour of facing the Great Recession as we were in or finishing undergrad and now we face the COVID-19 recession, which could be even worse, a decade or so into our working lives. It's a double whammy.
Millennials and Gen Z-ers faced the highest tuition prices in history; both will be graduating loaded with student debt and facing unprecedented recessions.
While it's difficult to aggregate student loans owed across the country given that there is a mix of federal, provincial and bank-based loans in place, a 2015 study suggested the average student owes roughly $27,000 in student loans.
We also know that the federal government holds at least $19 billion in student-loan debt.
Sooner or later, we're talking about real money.
It takes the average student between nine to fifteen years to pay off their debt so tens of thousands of students who graduated before the last recession still hold debt as we enter this new recession.
This is a massive anchor on our economy at a time when we need young people, to quote George W. Bush, to "go shopping".
So, I have a modest proposal to throw into the mix of once radical ideas that now look like common sense in the context of COVID:
The federal government should forgive student-loan debt to stimulate the economy, and allow two generations of young people the chance at a fresh start just as our economy needs young consumers spending.
This is not entirely without precedence: between 2015 and 2019, the federal government already wrote off over $710 million in debt for over 40,000 graduates in rough terms, that is equal to 4% of the total student-loan debt the federal government holds.
Furthermore, it's important to keep in mind that the $19 billion dollars in loans is already money the federal government has expended; indeed, the feds typically book around $860 million in interest charges per year.
Forgiving student-loan debt would have major ripple effects in our economy. Let's say the typical graduate spends $250 per month to service their student debt. Isn't that money better spent at a local restaurants or small businesses when we come out of this lockdown?
Put another way who benefits more from $860 million in annual student-loan interest payments: the federal coffers, or graduates and the businesses their consumer habits support? I know how I would answer that question.
In a world in which the federal deficit could top $300 billion, forgoing $860 million in interest fees per year is a comparative drop in the bucket but one that would have a huge impact on hundreds of thousands of graduates.
Student-loan interest payments are also tax deductible. Take away the debt, you also close off the tax deduction, which represents a natural offset for the government's books.
Three months into lockdown, we now live in a world in which some 24 million Canadians receive some form of government assistance per month from the Canada Emergency Response Benefit to Old Age Security to welfare to the Canada Child Benefit. Although the amounts differ for each program, as Max Fawcett succinctly put it: "The issue for Canada is not whether a good basic income is possible but who is currently left out."
We have a de facto basic income a once radical idea now accepted as (at least temporarily) necessary. (And let's not forget income tax was a temporary, emergency measure 100 years ago.)
I'm all for the idea of keeping some form of a basic income. But I also believe the government should take this opportunity to forgive student loans, a targeted way to stimulate the economy.
One thing I've had in the back of mind throughout this pandemic is the ancient Jewish concept of a "Year of Jubilee", when debts were forgiven and slaves set free. There have been calls for such a concept to apply to African national debts, including during the pandemic. There ought to be a similar approach to student debt.
At the end of the day, it's about enlightened self-interest, not charity. If students or even African nations are free from crippling debt, there's more money being spent in an economy that sorely needs consumers to go shopping.
Photo Credit: Loans Canada
