Thursday, March 1, 2012

Student Loans

In this article from 2009, the author suggests that the methods being used at the time to stimulate the economy would only be effective in one small section of the class system. The author talks about how the rich generally get richer, and when they get poorer, they get bailed out. This partially makes sense, because with the rich richer, they will have more money to spend to stimulate the economy. But, the problem with this is there are many more of the working class in America than there are rich, and the only way to affectively stimulate the economy is to get them to spend money. The author suggests a way to get the working class spending again is to get ride of their Student Loan debt. He suggests that if that is forgiven, then a huge portion of the population will have more money in their pocket and will have a drastic effect on the economy.

In this article some years later, President Obama has passed a bill that is supposed to help people with student loan debt either get them completely forgiven or lower the payments per month from 15% of the house hold income to 10%. None of the programs will forgive students loans immediately but a majority will forgive after either 20 years or 10 years for a public service worker. The forgiveness plans work differently for different types of jobs and loans, and doesn't apply to everyone with student loan debt. But based on the state of our economy, getting any portion of the population to spend more than usual will have an obvious positive effect on the economy, and hopefully give us that push we need to get into recovery (if we aren't already there).


Daniella said...

I think this idea of giving people with student loans a break. Forgiving these loans will definitely be positive for our economy. I don't think this alone will give our country the push we need to make the majority of America be confident that we are in recovery. Today we talked about three things that would shrink our economic cycle, but I think if we have multiple plans like this we will most definitely be full swing in recovery.

Taylor said...

I completely agree with you Daniella. Forgiving Student Loans will play as only one of the many key factors needed to jump start spending in the avg. household. But, it will still likely show visible improvement to the economy. Many people don't spend money because they don't have it (or it's tied up in various expenses) and if they do, they don't feel comfortable putting it anywhere other than a savings account. Forgiving of Student Loans will free some of that tied up money for people that they will be able to put else where. The next problem to deal with, is giving people the confidence to put their money in other places other than savings accounts.