There has been a lot of talk in recent years about the potential for the government to cancel student loan debt. In his latest blog post, Ben Carlson explains the arguments for and against this idea and proposes the following instead.
I don’t have a dog in this fight but how about this as a compromise — just cancel the interest payments. Make everyone’s loan 0%.
I did a little research on the rates people pay on these loans:
- The average rate for existing borrowers is 5.8%
- A 5.8% interest rate on $1.6 trillion equates to $93 billion a year in interest payments for those paying back their loans.
- The government owns 92% of all student loan debt.1
Why does anyone need to make so much money on this debt? The government can effectively borrow at 0% short-term rates right now. Wouldn’t this be a good investment to make for future generations of workers?
The average student loan debt for a bachelor’s degree is more than $28,000. At 5.8% interest, over 10 years, your monthly payment on $28,000 of student loans would be $308.
Now put the interest rate at 0% and we’re talking a monthly payment of $230. Over the course of the 10 year life of the loan, that’s a total savings of almost $9,000. And that $80 or so of monthly savings offers a nice little bump in the bottom line for young people.
Obviously, everyone’s balance and interest rate are going to be different but I don’t see who gets harmed here.
You’re never going to make everyone happy but isn’t this a good compromise? People still pay back the money they borrowed, but now they do so at a lower cost of capital.
What are your thoughts?
- Student loan debt should be cancelled entirely
- Cancelling just the interest is a fair compromise