Forgive College Loans

The economy has been in the news a lot lately. The debates over whether or not we're in a recession (we are) and whether or not inflation is rising (it is) belie the reality of the situation for most Americans: Americans' incomes are not keeping up with costs, even while the wealthiest do great. The economic stimulus package passed by Congress is sending checks out to just about everyone, but there is a real question as to how much good that will actually do.

In order for government money to do good, it needs to be targeted and monitored. Blithely issuing checks to everyone is neither. Even as we struggle through this economic downturn, talk turns from time to time to an additional stimulus package from Congress. Before we rush ahead with another round of checks, perhaps we would do well to examine how to do the most good, for the least cost in stimulating the economy. A good economic stimulus option would be one that requires no additional outlay of Federal money, but yields more money in the pockets of Americans likely to use it.

There is debt that the Federal Government owns, which could be forgiven by Congress with a simple act, which would put money, every month, in the pockets of people likely to need and use it: Federal college loans. In 2007, for example, about $39 billion in Federal college loans were issued. These college loans represent a significant drain on the budgets of people who have graduated from college in the past fifteen years, a time when tuition was rising significantly, but grant-based aid was drying up. For the most part, these people are good risks. They have jobs, houses and young families. Similarly, these are people who often have been caught by the mortgage mess when buying their first homes. Forgiving at least a portion of their college loans would free up money each month for any number of things, and perhaps even marginally reduce the number of houses going into foreclosure.

Congress should pass legislation forgiving a portion of outstanding Federal college loans as its next economic stimulus package. Such a plan would have only a marginal impact on short and medium term government revenue, with a multiplied, beneficial effect on a portion of society likely to need and spend the money.

There are thousands of Americans who start college but never finish, and yet have college loans still outstanding, hanging over their heads. This plan would help them as well, by giving them a chance to get out from under debt from which they received little or no benefit. Furthermore, it creates incentives to go to back college, especially for the 2-year Associates Degrees that appear to have a significant impact on income, relative to their cost.

The government at many levels has already taken steps to forgive some college loans, so this is not a new idea. Rather, it is an idea that has worked at the lower level, which can - and should - be implemented nationally. Instead of sending checks, the government should reduce the debt of younger taxpayers. After all, these are the people who we're depending on to keep Social Security solvent and grow the economy for the future.

This is a simple plan, easily implemented which could be enacted quickly and have great benefits for relatively low costs. Hopefully someone in Congress will stand up and do it.