Politics

Why Debt Relief Matters

Biden can’t fight inequality without debt cancellation.

Two young women hold a chain connected to a gigantic black ball with $1.4 trillion written on it.
Students pull a ball and chain representing student debt at Washington University in St. Louis, Missouri, before a debate between Donald Trump and Hillary Clinton in 2016. Paul J. Richards/AFP via Getty Images

As a devastating pandemic raged, America’s billionaires amassed an additional $1.3 trillion in wealth over the last year, while millions of regular people lost their jobs, health insurance, and homes. The most vulnerable among us have been hardest hit and are, research shows, the least able to recover.

The passage of the $1.9 trillion American Rescue Plan is a welcome development. President Joe Biden, one headline proclaimed, has “launched the second war on poverty.” That’s certainly what this country needs. But if the Biden administration is serious about remedying the pandemic’s uneven impact and prevailing in the battle against poverty, it will have to do more than offer cash assistance and tax credits to struggling citizens. It also needs to write down or cancel debts outright.

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What this moment calls for is a revival of the concept of jubilee, the elimination of debts and a prioritization of the needs of the poor. There is an old and rich tradition to draw on. The practice of jubilee was central to many ancient civilizations that understood how damaging unfettered debt can be to a society as a whole. Jubilee is also a core commandment throughout the Bible, in which not only debts are canceled, but slaves freed, wages paid, and the poor and hungry provisioned.

While the pandemic deepened preexisting social and economic inequalities, it also opened up new possibilities by shifting the narrative on government spending. Alongside the predictable corporate bailouts, regular people have received unprecedented support from the state. Expanded unemployment insurance and stimulus checks have been a lifeline for countless households. Evictions were temporarily halted and student debt payments were paused, providing a bit of breathing room for some.

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These measures are worth cheering, but they haven’t gone far enough. Research shows that people spent 30 percent of their first stimulus checks to pay down debts. Cash assistance means little if it can be garnished by debt collectors or if poor and low-income people have no choice but to use the money they receive to service past-due obligations, be they medical bills or maxed-out credit cards. It instead becomes a roundabout bailout for creditors. Similarly, moratoria on student loans and evictions are insufficient if payments simply turn back on down the road, regardless of people’s ability to make them, and if a mountain of back rent suddenly comes due.

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Millions of Americans aren’t just poor; they have less than nothing. The American dream is no longer owning a house with a white picket fence; it is getting out of debt. In the richest country in the world, millions of people now aspire to have zero dollars. Compounding their trouble, debt amplifies and intensifies economic, racial, and gender inequities. While rich people can pay cash or take advantage of low interest rates, poor people are taken advantage of, sold subprime financial products, and charged predatory interest. People without intergenerational wealth, who suffer from wage discrimination at the workplace, are the most likely to borrow and the least able to keep up with payments.

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In 2019, pre-pandemic, household debt in the United States surpassed $14 trillion for the first time. As of this month, total student loan debt hit $1.8 trillion. More than a million people defaulted on their federal educational loans every year between 2015 and 2019. These record-breaking sums are not the result of personal failures or poor choices. Rather, they are an indictment of a failed economic system that impoverishes millions by design. Underpaid at work and lacking adequate social services, too many people have no choice but to borrow to survive: student loans for college, credit cards and payday loans for food and rent and medical care. We are told debt is a lifeline, but it is actually an anchor, dragging millions of people deeper and deeper into poverty. The time has come to cut the rope.

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The case for a jubilee is morally right and economically sound. A growing number of economists agree that debt cancellation will serve as a stimulus and help avert a depression. Meanwhile, the idea is becoming more popular thanks to the efforts of grassroots organizers who have long recognized that when we lift from the bottom, everybody rises.

On March 28, the Debt Collective, a union of debtors and their allies, launched a national week of action, with protests taking place from Los Angeles, California, to Brattleboro, Vermont, demanding full student debt cancellation, on the grounds that student debt is unjust because everyone is entitled to a quality public education. Student debt is also a racial and economic justice issue: It weighs most heavily on Black women, and serves as a kind of mobility tax of poor people who dream of pursuing a better life. Canceling it all would be a fiscal boon, increasing GDP by a trillion dollars over a decade and creating jobs while helping to narrow the racial wealth gap. The Poor People’s Campaign has also fought for debt relief, including medical debt, housing debt, water/utilities debt, student debt, and municipal debt, as a top priority for the first 100 days of the Biden administration. The Poor People’s Campaign calls its policy agenda the “Jubilee Platform.”

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The call to cancel debt may sound radical, but it isn’t. We know the federal government can alleviate debt, because it did so last spring. The first COVID package contained generous debt relief, but only for the private sector. The Trump administration embarked on an unparalleled program of corporate debt relief, stabilizing the market with its interventions and also offering companies forgivable loans. Even payday lenders and debt collectors that had been fined by regulators in the past got aid. There’s no reason the Biden administration can’t extend the same mercy to regular people who are far more deserving, and frankly desperate.

Biden campaigned promising the immediate cancellation of a minimum of $10,000 of student debt, a policy he presents as a benefit to individual debtors. Yet he has so far failed to deliver, despite the fact he has the executive authority to do so, without waiting on Congress. What the president fails to understand is that when our neighbors are burdened by debt, we all suffer. And when their debts are erased, we all stand to gain. Research indicates that people who receive debt cancellation will be more productive, less stressed, and more inclined to take life-improving risks. People will actually wind up making more money, which they will spend in the local economy, and which will help create jobs, and so on. It’s a virtuous cycle.

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No wonder cities across the country, including D.C. last week, are introducing and passing resolutions calling on the federal government to cancel all student debt for the good of the country. Local representatives recognize that all of their constituencies would benefit from the resulting financial boost. Debt cancellation would certainly help struggling individuals, but it is also about helping entire communities and improving society as a whole.

Ultimately, however, the impact of a jubilee cannot be measured by economic metrics alone. Canceling debt is an act of grace that would reward everyone by helping to make our society less precarious and punitive. It would move us away from a framework that sees debtors as guilty and in need of “forgiveness,” to one that sees all people as entitled to live a dignified life.

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