The United States has a debt crisis. On top of all the debt that can be forgiven in bankruptcy, there are billions in debt that can't be. This is the student debt crisis and it's only going to get worse. Many people who came out of university in the last 10 years can expect to go their entire working life saddled by debt accrued in college.
There are many factors, but the ever-rising tuition at most universities, the prevalence of expensive, predatory private colleges, and the poor job market for those who entered the workforce around the Great Recession, are the largest.
Walking around with anywhere between $10,000 and $200,000 in student debt, many graduates are resigned to the long-term economic delay that manifests thereafter. They buy houses later in life, they're more likely to delay starting a family, and they have less capacity to start a business, a cornerstone of the American economy.
As the student debt level reaches levels equivalent to the housing crisis debt level, policymakers need to come up with solutions. A debt bubble this massive, if enough people default, can wreck the entire U.S. education system. Luckily, we can learn from our mistakes in 2008 and come up with a real strategy to save the U.S. economy.
Jubilee
The Jubilee is a practice dating back to biblical times whereby on a set schedule every seven to 10 years, all debts would be forgiven.
A modern jubilee would function a little differently. Taking from Keynesian economics, a modern Jubilee would consist of the government paying off individual debts rather than institutional ones during an economic downturn.
The Keynesian theory attempts to use government spending to stimulate a stagnating economy and saving money for the next downturn after a crisis has been solved.
Instead of the government providing jobs, like FDR's new deal, the government could spend to reduce individual debt levels. This makes sense especially in instances where the debt cannot be forgiven through traditional means.
Bank Bailouts
The last time the government paid off debt en mass was the 2008 financial crisis where the banks deemed "too big to fail" were given billions in loans.
The government eventually made money back from those loans, but the plan still left a sour taste in many people's mouths. American's had their homes foreclosed on, they lost their jobs, and many lost healthcare coverage while bankers were keeping their livelihoods and even getting massive golden parachutes.
Imagine instead that the government saved the banks and the people by using the stimulus money to pay for people's mortgages. In this system, the government still gives the banks some of their money back by helping clear them of some of their toxic assets while still causing the most reckless speculators to lose money, as they deserved, but unlike what happened, in this system, the American people are also saved.
If the concern is that the government would lose all their money rather than gain it back, then one should conceive of a system where the government buys the mortgages only to refinance them with the banks at a lower interest with less principle. The will of the banks to re-assume the toxic assets they previously held might not be there, but luckily the federal government owns a mortgage bank through whom they can resettle the debts.
Allaying fears
A Jubilee in the next financial crisis makes sense. It restores political trust, maintains a strong economy from both the individual and financial viewpoints, and only costs as much as there is a problem, meaning the government won't overspend. The fear that this would cause more toxic assets to be sold can be solved through reasonable regulation, as long as it isn't constantly rolled back.
Politically, the first person to propose a Jubilee could win the entirety of the suburbs, where millions of people are trying to pay off their school loans. All-in-all, a modern jubilee is possible, proactive, and positive; it should get more major political consideration.
