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
The views, opinions and positions expressed by columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of our publication.