Stimulate the economy with student loan forgiveness?


With economic stimulus money flowing around like a peace pipe at Woodstock, everyone has their ideas about how to stimulate the economy. One proposal gathering a following on Facebook is "Cancel Student Loan Debt to Stimulate the Economy.

The group currently boasts more than 160,000 members. Founder Robert Applebaum told BusinessWeek that after graduating from law school and earning a salary too low to make payments, his student debt load has grown to $100,000. "Despite having a law degree, I'm middle class and I don't have any money at all," he says. "I don't own a house or a car. My only assets are my couch and television," he said.

Forgiving student loans as part of a stimulus package has a certain appeal to it -- It's definitely a better idea than paying bonuses to the losers at AIG. And as Applebaum writes, it would certainly increase consumer spending:

"Forgiving student loan debt would have an IMMEDIATE stimulating effect on the economy. Responsible people who did nothing other than pursue a higher education would have hundreds, if not thousands of extra dollars per month to spend, fueling the economy NOW. Those extra dollars being pumped into the economy would have a multiplying effect, unlike many of the provisions of the new stimulus package. As a result, tax revenues would go up, the credit markets will unfreeze and jobs will be created."