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Bernie's Student Debt Plan Creates a Million More Jobs Than Warren's-She Should Embrace It

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Bernie Sanders and Elizabeth Warren have both offered proposals to cancel student debt, a nearly $1.6 trillion burden on borrowers and a major drag on the economy. While both are aggressive attempts to address the student debt crisis, there is a major difference between the two plans: the Sanders plan is likely to create at least one million more jobs than Warren's, since it cancels roughly $1 trillion more in outstanding debt.

The figure of one million additional jobs was derived from the conclusions of a 2018 report from the Levy Economics Institute at Bard College, which used widely accepted macroeconomic models (the Fair and Moody's models) to project the macroeconomic effect of canceling all student debt. The Levy report used a start date in 2017 for its projections.

As the graph below shows, the models used in the Levy report show that several million jobs are created by the cancellation of all student debt (the exact amount varies, depending on the economic model used):

Averaging these figures, the report shows that approximately 4.4 million jobs would be created by full cancellation in the first five years. Using these figures, it's possible to approximate the differing effects of the Warren and Sanders plan with the following steps:

First, reducing the Levy report's numbers by 60 percent gives us something in the neighborhood of 2.6 million fewer jobs under Warren's plan. Given that the debt is now larger than it was in the Levy study, that number could be bumped by 10 or 15 percent.

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That calculation is, however, too crude. It's fair to assume that the stimulus effect of cancellation is greater on the lower end of the income spectrum, where urgent needs are going unmet, and would be somewhat smaller for the relatively well-off (although not wealthy) households included in the Sanders plan. The multiplier effect of government stimulus measures is also likely to be smaller in the current economy. To ensure that these factors are considered, I have cut the job difference by nearly half to arrive at the figure of one million more jobs created with full cancellation.

The idea that student debt cancellation creates jobs is intuitive, as well. If 44 million student debt holders are relieved of their debt burden, they will have more money to spend each month for food, entertainment, and other purchases. Studies have shown that student debt is also keeping younger people from forming households (which, ironically, means a lower benefit under the Warren plan if they're living with their parents). Household formation, which is the result of longer-term thinking about affordability, in turn means the purchase of home items, cars, and houses.

With those factors in mind, I asked the lead author of the Levy report whether it would be safe to say that the Sanders plan would create a million more jobs than the Warren plan. Professor Stephanie Kelton, of Stony Brook University, replied that a full study would be required to answer the question with confidence. But Kelton said the one-million-jobs figure "looks reasonable." (Kelton, an adviser to Sen. Sanders, is also a macroeconomist and professor. She is not employed by the campaign.)

Why It Matters

Both proposals would create jobs for working people, and the additional one million from Sanders' plan would be useful. Despite today's "excellent" job numbers, the working economy isn't as good as the headlines would have us believe. The number of open jobs (7.2 million) is essentially unchanged from last year's, and is declining slightly. That means there is relatively little pressure to pay workers more. Wage growth remains weak. It's not a great time to be a working person in this country.

The biggest losers in this job economy are millennials, the same group that bears the heaviest burden of student debt. (Student debt affects all adult age groups, including seniors, but falls heaviest on younger adults.) Millennials have become the largest generation in the American workforce, and are still suffering the economic consequences of entering the workforce during the Great Recession.

At $1.6 trillion, full student debt cancellation rivals Trump's tax cut in its scope. It would, however, be far more effective at creating jobs and stimulating the economy. Because the benefits of Trump's cut were directed toward higher earners, who have much less pressure to spend, the Trump cut left the trajectory of job growth essentially unchanged.

Muddled Debate

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Richard (RJ) Eskow is a former executive with experience in health care, benefits, and risk management, finance, and information technology. Richard worked for AIG and other insurance, risk management, and financial organizations. He was also a (more...)
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