Forgiving student loan debt maybe isn't such a good idea

Well, as Justin Wolfers writes on the Freakonomics blog, one reason why not is that such a scheme wouldn’t be a particularly efficient fiscal stimulus. Someone who has $50,000 in debt forgiven isn’t likely to pump all those dollars back into the economy in a short amount of time. A much more effective stimulus, Wolfers says, would be to give 50 poor people $1,000 each because that money would almost immediately be spent.

Another problem with such a plan is that most borrowers actually can afford to pay off their student loan debt. There are some borrowers who desperately need relief, but there are many others who would just rather not have to fork over a certain percentage of their income each month to pay for the education they received years ago. But if forgiveness was offered, who wouldn’t take the handout?

As it turns out, the six-figure debts that we keep hearing about in the media are actually pretty unusual. By most estimates, only a tiny minority of student loan borrowers—as little as 1%—graduate with more than $100,000 in debt. Mark Kantrowitz of FinAid.org and FastWeb.com says that only a few thousand students out of the several million who finish college each year graduate with that much debt. The average debt total at graduation is a much more reasonable—yet still significant—$27,500.