Real Economic Stimulus Through Student Loan Forgiveness

By Noel Bagwell
June 2, 2009

One of the best ways to stimulate the U.S. (and subsequently global) economy is to relieve the financial burdens on those who are in a position to make and spend a substantial amount of capital. Very generally speaking, persons who acquire undergraduate and advanced degrees (Ph.D., J.D., M.D., M.Div., et al., etc.) make more money, on average, than persons who do not acquire said degrees.

It is common for individuals who pursue undergraduate and advanced degrees to do so at significant personal expense, often reaching sums of $150,000 or more. The general principle of my proposal is to free up capital raised through gainful employment by providing a tax credit to college, graduate and post-graduate students who complete degrees for which they took out student loans by providing tax credits in an amount equal to the cost of the tuition, fees and books (but not living expenses) amortized over a period of 20 years.

For example, if Neil Barton attends State University and completes a four-year Undergraduate Degree (B.A., B.S., etc.; not an Associate’s Degree), and the total cost of tuition, fees and books for that four-year degree comes to $35,000, Mr. Barton would receive – beginning the tax year in which he graduates – a tax credit of up to $1,750 per year for 20 years, not to exceed the amount of taxes actually owed the federal government. This tax credit would be tax-free, if used to pay for student loans. Additionally, if Mr. Barton decides to attend graduate school to receive an advanced degree, he can defer the credit until after he graduates with his advanced degree(s).

Similarly, if Mr. Barton decides to attend law school, and the cost for his tuition, fees and books total $100,000 by the end of his law school “career,” the $35,000 from his undergraduate studies could be added to that amount, and he would then receive a credit in the amount of $6,750 per year for 20 years, not to exceed the amount of taxes actually owed the federal government. This tax credit would be tax-free, if used to pay for student loans.

This is, of course, just a rough sketch of an idea that could be developed further, but you see where I’m going with this, I think. I welcome suggestions, comments and revisions to develop this idea further. Please feel free to comment on this article.