As of September 2023, student loan interests will no longer be paused
43 million Americans have student loan debt
Patterns of how people spent their COVID-19 stimulus checks indicate about half of the money from the second and third checks was used to pay off debts
In addition to helping people pay off debt, the stimulus checks prevented people from having to take on more debt
This pattern of avoiding debt and paying it off has been found in guaranteed income pilots as well
Since the start of the pandemic, household debt has increased by $2.9 trillion and totals to $17 trillion
Americans need debt relief and more direct cash payments like stimulus checks and guaranteed income pilots can be part of that much-needed relief
It’s September 2023, so the pause on student loan interest is ending. With this in mind, I wanted to write about debt relief and what basic income would mean for it.
Not unlike 43 million other Americans, I have student loan debt. During the brief period that debt forgiveness was on the horizon, August 2022, I undoubtedly felt like future financial stability was more likely. It was a huge letdown when that was blocked in June 2023.
As I navigate paying off my student loans in the upcoming years, maybe even decades, I consider myself one of the lucky ones.
I’ve never owned a credit card, as a nondriver I don’t have a car payment, and what student loans I do have total less than $25,000. There are people whose debt is significantly more of a barrier to financial stability than myself and it is those people I am thinking about when I write this piece.
I usually speak on unconditional basic income found in small guaranteed income pilots and how such a recurring supplemental income stream would be an ideal approach to ending abject poverty. Today I’m highlighting the one-time payments that we have had in recent times to explore how we as a nation could explore debt relief.
What one-time payments have impacted a huge number of people and have happened in recent times: The stimulus checks of 2020 and 2021.
First Stimulus Check in Response to the Covid Pandemic
Included in the H.R.748 - CARES Act
$401,511,524,000 Spent by Government
167,643,546 Payments
$1,200 Payment Per Tax Filer, $500 Per Child of Tax Filer
People Spent 74% of their Stimulus Check
People Saved 14% of their Stimulus Check
People Paid Off Debt with 11% of their Stimulus Check
Second Stimulus Check in Response to the Covid Pandemic
Included in the H.R.133 - Consolidated Appropriations Act, 2021
$141,471,821,000 Spent by Government
146,547,277 Payments
$600 Payment Per Tax Filer, $600 Per Child of Tax Filer
People Spent 22% of their Stimulus Check
People Saved 26% of their Stimulus Check
People Paid Off Debt with 51% of their Stimulus Check
Third Stimulus Check in Response to the Covid Pandemic
Included in the H.R.1319 - American Rescue Plan Act of 2021
$271,421,557,000 Spent by Government
161,943,888 Payments
$1,400 Payment Per Tax Filer, $1,400 Per Child of Tax Filer
People Spent 19% of their Stimulus Check
People Saved 32% of their Stimulus Check
People Paid Off Debt with 49% of their Stimulus Check
One pattern that is easy to observe is that people spent most of their second and third stimulus checks paying off debt.
Since the early years of the pandemic, people accumulated more debt. Household debt increased by $2.9 trillion, totaling up to $17 trillion. This means that the stimulus money that was collectively spent to alleviate debt pressures was spent also to counter the new debts.
The stimulus checks were not unique in providing debt relief. Results from the Stockton Economic Empowerment Demonstration (SEED) showed that in the first year of the guaranteed income pilot, 52% of recipients were making payments on their debts, and in the second year of the program that number was up to 62%.
Don’t forget that the stimulus checks, not unlike numerous guaranteed income pilots, allowed people to avoid taking on more debt as well. Imagine what the household debt increase would have been had there been no capital leverage in these bills.
Too many people facing a daunting uphill battle to pay off student loans, medical, vehicle, and credit card debt need some form of economic boost. Whether this is in the form of another round of stimulus checks, a local guaranteed income pilot, a raise to the minimum wage, or a combination of all of these, the people need something.
So what does basic income mean for debt relief? It means that with a supplemental income (and policies that alleviate debt interest rates and amounts) people will have a much greater chance of getting out of debt before they age out of existence than they do with the system and trajectory we are on now.
Fact: When you amortize a loan, you "kill it off" gradually by paying it down in installments.
Modern bank loans are all "fractional reserve" loans. [https://www.investopedia.com/terms/f/fractionalreservebanking.asp
Fractional Reserve Banking: What It Is and How It Works.]
This is good from the perspective of the borrower. However, from the perspective of the bank, it creates a big problem. Banks must scramble to find new borrowers. Else the money supply shrinks. Thence the "value of money" will rise. Therefore prices will drop. While this is good for the people who buy things it simultaneously makes those remaining loan payments hurt like the proverbial toothache.
Banks cannot permit deflation. That would cause loan defaults. Defaults, like repayments, shrink the money supply. Banks can live with the former (if they can find more worthy borrowers) but the defaults can kill the bank off. Defaulted loans destroy some of the bank's reserve. This is bad (for the bank). Then the bank must either re-capitalize itself or face a forced sale at fire sale prices.
The government, in guaranteeing the repayment of school loans, massively supports money supply expansion ( i.e. inflation ) AND prevents default (the banks are "made whole" in case the student defaults).
I am truly sorry your government has done this to you. In my eyes you are vastly more important than the bankers' profits and its government protection from bankruptcy. Making a whole generation of wage slaves is not a valid function of good governance. It is a public display of corruption.