This morning the Supreme Court struck down a one-time student debt forgiveness program that would have helped more than 40 million borrowers.
I would have been one of the millions who benefited. Forgiveness would have radically changed the trajectory of my financial future.
Opponents of student debt relief argue that debt repayment is a personal responsibility and a moral obligation. While it is true — we should be good stewards of our financial resources — the argument fails to acknowledge fundamental structural problems in our economy.
Your debt isn’t actually meant to be repaid.
Last summer, I wrote an essay about my own experience with student loans. I graduated from college in 2013. Despite surrendering more than $13,000 in student loan payments to the Department of Education since then, my balance has only decreased by $4,000.
I, like millions of borrowers, haven’t reneged on my responsibility to repay my debt. I’ve dutifully made every single payment that was required of me — and then some. Yet, after a decade of repayment, I basically owe the same amount I originally graduated with. The laws of compound interest just haven’t worked out in my favor.
But this isn’t the issue I have with student loans. The reality is debt is an asset that is designed to generate revenue for the lender. Student loans can’t be forgiven because the federal government would lose trillions of dollars in revenue if it wiped those assets off its books.
There’s a false belief that forgiving student loans is impossible. That too is misguided. Throughout history debt jubilees have been implemented to prevent insolvency. Governments past and present can — and have — forgiven debts en masse. The most recent example of one is in Iceland following the collapse of the housing market during the 2008 Financial Crisis.
Today’s decision has dire consequences for the economy. Whether you like it or not, we live in an economy predicated on consumerism and exponential linear growth. Without consumers, companies can’t show growth to their shareholders. Without growth, capital will flee from the economy. Without capital, life as we know it will come screeching to a halt.
This isn’t just about student loans. It’s about the ability of student loan borrowers to fully participate in the economy. Loan payments divert discretionary consumer spending out of the economy and into the hands of lenders. Everyone loses. Everyone except bankers and the federal government.
As it stands, student loan payments will resume in October, right in time for the holiday season. This essay is going to dive into the implications of this and how it will affect everyone regardless of whether you hold student loans or not.
Loan payments — including student loans— reduce the amount of money consumers can spend.
When you take out a loan a portion of your income goes to your lender in the form of a monthly payment. This is common for large purchases like buying a home or purchasing a new car. A loan in and of itself isn’t a bad thing, especially when they are used to purchase an asset. The more monthly loan payments you have, however, the more money you’re diverting away from your local economy.
According to the Social Security Administration, the average American makes $60,575.07 per year. For the sake of this discussion let’s call it $60,000 even. At this wage, you’ll fall into the 22% federal tax bracket. That means Uncle Sam is going to claim $8,800 from you every year. Depending on where you live and other factors impacting your tax situation, you may owe more or less. But for the sake of simplicity let’s say this leaves you with $51,200 in positive annual cash flow.
That sum of money represents what you have at your disposal to pay for living expenses, set aside for a rainy day, and sock away for retirement. The first expense you’ll need to account for is housing. The average mortgage payment is $1,768 while renting an apartment will run you $1,702. That means your mortgage lender or landlord will take 40% of your take-home pay every month.
Chances are you’re going to need a vehicle too. Because American cities and towns are built around car ownership, you’re going to need some form of transportation if you want to participate in the economy. Thanks to supply shortages and inflation, the average used car payment is now $516 per month. If you think that seems like a high payment that’s because it is. The car market favors the purchase of more expensive cars. Even if you wanted a cheaper option, you might not be able to finance it.
If you’re an average American, these two expenses — your home and your car — account for more than half of your take-home pay every month. Sure, there are choices you can make to reduce these expenses, but in the grand scheme of things they are both necessary and unavoidable. If you are one of the millions of Americans with a mortgage, a car payment, or both, a portion of your income is being diverted away from discretionary spending and toward the balance sheet of whoever services your loans.
They probably aren’t your only loans either. Credit card debt is crushing Americans. The average person has a $430 credit card payment they have to account for in their monthly budget. For some people, this could be the result of frivolous purchases. For most people, however, this is debt that has accrued to cover basic necessities during emergencies or employment gaps. Even now millions of Americans are tapping into Buy Now Pay Later apps to cover things like groceries thanks to inflation.
This is why the resumption of student loan payments is such a big problem. The average borrower has a monthly payment of $393. For graduates of advanced degree programs, that figure is much higher. This means 40 million student loan borrowers who would have qualified for some form of relief are now going to lose $400+ in monthly discretionary spending.
When all is said and done these four debts — home, vehicle, credit cards, and student loans — rob Americans of 71% of their monthly take-home pay. The remaining 29% has to cover all the other expenses that come with living like electricity and food. And if you have kids, I can’t even begin to imagine how much money you’re forking over to daycare providers every month.
At the end of the month, there is nothing left for discretionary spending even though that is the fuel that keeps our economy afloat. Most Americans can’t fully participate in the economy because they are too busy slaving away to make monthly debt payments. Their paychecks are going to loan servicers rather than the entities that need their money the most — small businesses.
When Americans have less money to spend everyone in their local community loses.
Small businesses are considered to be the lifeblood of the American economy yet they are the ones who lose out the most when you and I can’t spend money at them. If you fall into the averages laid out above, you probably don’t have enough money to spend on the bare necessities as it is. Thanks to your different debt burdens you’re financially squeezed. This forces you to seek out cheaper options. It’s no accident that Amazon and Walmart are the largest beneficiaries of American discretionary spending.
The more money that is diverted to Wall Street lenders and corporate loan servicers, the less money that is available for average Americans to spend on Main Street.
Where you spend money impacts the types of employment opportunities available in your local community. Money that is diverted to lenders and large corporations isn’t flowing to small businesses and local employers. The people who want to hire locals and pay them a living wage don’t have the revenue to be able to.
Employment opportunities are doled out by large corporate entities that prioritize shareholder value over wages instead. Wages stagnate or decline in order to maximize corporate profit, further siphoning resources out of the local economy. At some point making a living in your local community is no longer viable.
With this context in mind, you can start to see why millions of Americans are burdened with student loans in the first place.
American student loan debtors are actually economic refugees from their local economies. Millennials who entered the workforce during or shortly after the Great Recession had limited employment opportunities. Individuals like me fled our failing Rust Belt communities for larger cities that had economies that could provide better employment opportunities. Others doubled down on their education by pursuing advanced degrees before re-entering the workforce.
Going into student loan debt wasn’t truly a choice. It was a trickle-down effect from decades of economic erosion that was already happening in local communities across America.
The resumption of student loans this fall will further bleed local economies of the financial resources they need to grow. Discretionary spending will disappear. Instead of your money being spent on Main Street, it will find its way to Wall Street. Regardless of whether or not you personally struggle with student loans, someone in your community is. That affects your local economy and everyone who exists in it — including you.
Final takeaway.
Something has to give. With today’s Supreme Court decision, we are racing toward insolvency.
Employers aren’t going to magically start paying workers a wage commensurate with the skyrocketing cost of living. New affordable housing projects aren’t going to spontaneously emerge. Inflation is tempering but it is far from coming back down.
There are fundamental problems that are beyond our control.
But that doesn’t mean we have to sit idle and wallow in the misery of our respective financial situations.
First things first, we have to recognize that we are all collectively suffering. This isn’t a matter of personal responsibility or keeping up with the Joneses anymore. We have to move beyond judging one another for perceived egregious spending behaviors and recognize we are all doing the best we can in the economy we’ve been given.
We can’t change the outcome of today’s Supreme Court decision. Millions of Americans will resume loan payments this fall at a time when they can least afford to.
That is why we also need to vote with our wallets. When money walks corporations and policymakers start to listen. Especially during Q4 when Santa Claus is supposed to come to town.
Take what little money you have and redirect it back into your local economy. Don’t just talk about shopping locally, actually do it.
The 1% choices we all individually make now will compound into structural changes later on. We can’t fix Washington but we can fix the places we call home. Let’s start there and see what happens.
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