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Americans owe $1.57 trillion in student debt, a figure that has set off alarm bells about potential economic damage from widespread default or lower consumer spending. To help struggling borrowers, some 2020 White House hopefuls have embraced an idea once on the political fringes: forgiving large parts of that debt load.
Sen. Elizabeth Warren, D-Mass., is the most prominent Democrat to call for widespread relief for borrowers. She released a plan Monday to cancel at least some of the student debt held by 95% of the Americans carrying it. Entrepreneur Andrew Yang and Sen. Cory Booker, D-N.J., have also said they will push for loan forgiveness plans. Sen. Bernie Sanders, I-Vt., helped to kick-start the debate with a proposal for free public college during his 2016 presidential run.
Proponents of forgiving student debt argue it will jolt the economy, helping Americans who have not started businesses or bought homes because of their monthly payments. In announcing her plan Monday, Warren said it "helps millions of families and removes a weight that's holding back our economy."
The concept should appeal to younger Democratic primary voters buried under student debt. It also further sets Democrats apart from President Donald Trump, who despite pledging to "fix" student debt and directing his administration to find ways to ease the burden on borrowers, has proposed to scrap a popular loan forgiveness program and subsidized loans.
But loan forgiveness carries some risks. Costs for wiping out debt would shift to taxpayers. The benefits could skew toward the highly educated borrowers at the top of the income bracket who hold much of the student loan burden — a concern Warren aims to address in her proposal.
While experts who study student loan debt say widespread forgiveness would boost the economy, some question whether it is the most effective way to stimulate the economy — or the best method to ease the strain on the borrowers who need relief most. Backlash could even come from the political left, as blanket debt relief is expected to benefit people with higher incomes who borrowed more to get advanced degrees.
"I think you also are going to see some concerns from the left that if you are wiping out all the debt, that that would be a pretty regressive thing to do," said Matthew Chingos, the vice president of education data and policy at the Urban Institute. "And once you look at the numbers, this looks like the Trump tax cuts in terms of who it benefits. So it's a little hard to be out there saying, well, 'I'm against tax cuts for the wealthy, but at the same time I want to give this big handout to the wealthy.'"
As college costs climb, students have had to borrow more to get through school. Total student debt rose to $1.57 trillion in the fourth quarter of last year, from about $676 billion at the end of 2008.
The average amount of debt per student has climbed not only because college costs have increased but also because state financing for schools has fallen, said Cliff Robb, an associate professor of consumer science at the University of Wisconsin-Madison. The issue is particularly pronounced at for-profit institutions: 23% of borrowers who attended one were behind on student loan payments in 2017, according to the Federal Reserve.
In theory, and often in practice, borrowing to go to school pays for itself by increasing the opportunities and earnings potential for students. The conventional wisdom says a college degree boosts pay for the student, who benefits in the long run despite having to pay back loans for years or decades.
But taking on debt does not always work out. Among students who started to pursue a bachelor's degree at a four-year institution in 2010, 60 percent finished within six years, according to the National Center for Education Statistics.
That leaves many others who are "paying for college, in many cases taking on debt to do that, but not getting the earnings bump that comes along with it," said Beth Akers, a senior fellow at the Manhattan Institute. At the same time, wage growth has not kept pace with the rising cost of college, she added.
If it chooses, the government can take a more direct role in easing the student debt burden than in helping with other types of obligations such as credit card or mortgage debt. That's because the U.S. held about $1.44 trillion in student debt in the fourth quarter of last year, about 92% of total student loans.
As borrowers face a mounting burden, and Democrats angle for support from young primary voters, Warren and her rivals have embraced loan forgiveness plans. In a video accompanying the announcement of her proposal, Warren argued for her proposal in part by saying "young people can't buy homes, they can't start businesses."
The senator's proposal would eliminate up to $50,000 in debt for people with household incomes under $100,000, while giving smaller amounts of relief to people with higher incomes. People making $250,000 or more would get no forgiveness. To prevent future students from racking up debt, Warren also aims to make public college tuition-free.
Yang says he wants to "explore a blanket partial reduction" in student loan principal and ask schools to forgive part of all of the debt for students who do not graduate, among other proposals. Booker also told South Carolina students that he wants to look into loan forgiveness, although he has not released a specific proposal yet.
Other 2020 candidates such as Sens. Kamala Harris and Kirsten Gillibrand have endorsed Sanders' free college legislation. Those senators, along with Warren and Booker, also endorsed a debt-free college bill proposed by Sen. Brian Schatz.
Plans to relieve student debt hold obvious political appeal for voters eager to shed hundreds of dollars in loan payments every month. It remains to be seen, though, how much voters care about student debt relative to other issues.
Liz Smith, a 24-year-old who works in advertising in Des Moines, Iowa, says she took on more than $30,000 in debt to get through Iowa State University. While her loan payments have not started yet, Smith recently bought a car and worries about making car and loan payments at the same time. Still, she currently thinks taking on the debt will prove worthwhile.
"I wish it wasn't that much debt, but I don't think I would be able to kind of make a career that I would have wanted without a degree," she said.
Smith plans to participate in the first-in-the-nation Iowa Democratic caucuses next year and vote in the general election. While she said student loan policy is not her top priority, she noted that "it'll definitely be nice to have a candidate that I think has a good plan for student debt and college costs and making all of that more manageable."
Supporters of debt forgiveness mainly argue relief will help students hurt by a flawed higher education system — and boost the economy in the process. Aside from Warren, Yang has also argued that forgiveness "for a huge chunk of student loans" would stimulate the economy.
Student debt relief "would without question be an economic stimulus," said the Manhattan Institute's Akers. Loan forgiveness would "put more money into the hands of consumers that can go out and spend," she said.
The question becomes how much debt relief would help the economy — and whether the money spent on it would be better used elsewhere. A plan in which the government cancels all of the loans it holds directly could increase real gross domestic product by an average of $86 billion to $108 billion per year, according to a study last year by the Levy Economics Institute at Bard College. It could reduce the average unemployment rate by 0.22 to 0.36 percentage points over the same period, the study found.
But Akers said "we can think of better, more efficient ways" to stimulate the economy than to give relief to student debt holders, a large portion of whom have high earnings potential. Generally, people with higher incomes are expected to save more money than those with lower incomes.
Loan forgiveness proposals will face their share of backlash. Some critics will say debt relief will disproportionately benefit higher income people or require tax increases to pay for it. It also sparks another question: if former students get debt relief, what happens to future borrowers who will have to take on massive debt to get through school?
Warren's plan aims to alleviate some of those concerns by scaling back relief for higher-income borrowers. So while the bottom four-fifths of the income bracket would all see 80% of loans erased under her proposal, the top fifth and top 10% of earners would only have 48% and 27% of their obligations forgiven, respectively, according to a Brandeis University study done for the Warren campaign.
While people with household income under $100,000 would get $50,000 in debt canceled, someone who makes $130,000 would qualify for $40,000 in forgiveness, while an individual with an income of $160,000 could get $30,000 taken off their obligation. People with household incomes above $250,000 would not get any relief.
The senator would use her proposed 2% annual tax on families with more than $50 million in wealth to offset the debt forgiveness. Her campaign expects the tax to raise $2.75 trillion over a decade. Her plan also includes several provisions to make college more affordable in the future, such as federal investment to eliminate tuition at two-year and four-year public college programs and putting an additional $100 billion into Pell Grants.
Widespread debt relief may not be politically feasible. Even if a Democrat who proposes it wins the White House, the plan could face resistance from some Republicans and Democrats in Congress. The GOP currently controls the Senate.
Experts say there are more realistic ways to address the student loan crisis. First, they say the U.S. could do a better job educating students about and enrolling them in income-based repayment programs, which cap monthly loan payments, often at 10% of discretionary income.
Reducing the wide variety of loans and repayment options offered to students could also help them manage their debt burdens.
Chingos of the Urban Institute points to Australia as one possible guide. The country automatically takes an income-based student loan payment out of paychecks, which automatically changes with the borrower's income. Payments do not start until borrowers reach a certain income threshold.
Other countries also provide some clues about how to ease the loan burden. In Britain, students also do not have to start making payments on their debt until they make a certain amount of money. In Sweden, borrowers have a longer period to pay back loans than they do in the U.S.
Even if those options may not affect the economy as much as widespread forgiveness, many who study the issue see them as a more feasible way to address the student debt crisis.
"I do think there are many Americans out there that are struggling with student loan debt," Wisconsin-Madison's Robb said. "And there should be models in place to assist and help those individuals. But I don't know if the answer is as simple as, well if the debt goes away universally, then it's much better for everybody."
— Additional reporting by CNBC's Jaden Urbi and graphics by CNBC's John Schoen