Office of U.S. Senator Elizabeth Warren (D-Mass)
In a Senate Banking Committee hearing yesterday, Federal Reserve Chairman Jerome Powell confirmed to United States Senator Elizabeth Warren (D-Mass.) that the high level of student debt is a drag on our economy. Chairman Powell agreed that people "weighed down by debt" at a time when unemployment is very high will negatively impact economic activity as people are forced to send money back to the federal government to cover student loan payments instead of spending that money in the economy. This acknowledgment comes at a time when policymakers should be focused on economic recovery.
Canceling billions of dollars in student loan debt is needed now more than ever as more people are getting sick from the coronavirus than at any other time during the pandemic, as 12 million workers will lose unemployment insurance after Christmas Day, and as Republicans continue to block state and local government aid, unemployment benefits, and checks for families.
Canceling student debt would provide a massive stimulus to the economy, and President-elect Biden has the ability to administratively do this on day one by using the authority Congress has already given to the Secretary of Education.
U.S. Senate Committee on Banking, Housing and Urban Affairs
Tuesday, December 1, 2020
Senator Elizabeth Warren: Thank you very much, Mr. Chairman.
So, today, more people are getting sick from the coronavirus than at any other time during the pandemic. And on top of that, many people — the help that many people have relied on is about to disappear. So, the day after Christmas, 12 million workers will lose unemployment benefits. That same week, Secretary Mnuchin will be shutting down the Federal Reserve programs that are designed to help the economy.
So, Chair Powell, you've been clear about the need for more fiscal support to help families and businesses get through this crisis.
So, let me ask you specifically about help to individuals that puts more money in their pockets during an economic crisis. This is kind of economic stimulus 101. If individuals have a bit more cash to spend every month, that helps them, but it also helps the economy, right?
Chairman Jerome Powell: Yes.
Senator Warren: Okay. So, there are two ways to get more money into people's pockets. The first is providing payments like stimulus checks or unemployment insurance, which I strongly support.
The second is by canceling the debts that people owe, so they can spend that money elsewhere. The largest category of household debt other than mortgages is student loans. And most of that debt is owed directly to the federal government.
Now, right now, those debt payments are paused, but the clock is running out. On New Year's Day, the median borrower will have to restart paying more than two hundred dollars a month to the federal government. That's at a time when our economy needs people to be able to spend more money, not less.
So, Mr. Chairman, you've said in testimony before Congress that you think that rising student debt is "the main concern" when looking at the overall household debt picture. You've also said, "It's been rising fast and is now large. There is increasing evidence that shows that students who can't pay that...debt have difficulty having normal economic lives and buying homes and things like that."
Mr. Chairman, would you agree that high levels of student debt will have a negative impact on our economic recovery if millions of households have to reduce spending in order to make debt payments?
Chairman Powell: So, others and I have been calling out the rising student debt for some years now, particularly ...
Senator Warren: Yes, you have.
Chairman Powell: We've singled it out for not being able to be forgiven in, forgiven in solvency among all different kinds of debt. So, that's a longer-term problem. In terms of what appropriate relief would be — what relief would be appropriate here in the current situation, I would — I would have to defer to those who have authority to make that decision.
Senator Warren: I'm not asking you about what the — the question is about what Congress should do. I'm asking you a question about what it does to the economy. If people who, instead of spending that money in the economy, are spending that money by sending money back to the federal government on their student loan payments. That is a problem for the economy, is it not?
Chairman Powell: Certainly, people who are weighed down by debt in a situation like this, where they may be unemployed, or unemployment is very high among, for example, low-wage workers. That can weigh on economic activity. Yes.
Senator Warren: Fair enough, but I think we started with economic stimulus 101. Two-hundred bucks is two-hundred bucks that could be spent in the economy. Now, Mr. Chairman, you've also noted that student loan debt has another impact on a struggling economy and that is that student loan debt makes it harder for people to qualify for mortgages, to buy homes, to start small businesses. You've noted that those things drag our economy down. Do you still feel that way?
Chairman Powell: Yes. So, I think over — data are showing — over longer periods of time people who take on student debt in an effort to make their lives better and brighter, and if it doesn't work out that way, they drag that debt down through their economic lives, and it can get in the way of their credit history, of course, and their ability to own a home, and their whole economic life for many years.
Senator Warren: Right, and then that has an overall impact on the economy in terms of home sales, or in terms of business startups. Is that right?
Chairman Powell: Yes. In effect, those people are unable to participate, perhaps in the economy, to the full extent that they might be able to, which would weigh on the economy.
Senator Warren: So, thank you, Mr. Chairman. You know, I know you've said that you don't know how you could be clearer on pushing Congress to act on more fiscal stimulus, and I agree entirely with you on that. But most types of economic stimulus are pretty much impossible when Republicans in Congress refuse to take action. Aid to state and local governments, unemployment benefits, checks for families - right now, Republicans are blocking help on all of these.
But student loan debt is different. All on his own, President-elect Biden will have the ability to administratively cancel billions of dollars in student loan debt using the authority that Congress has already given to the Secretary of Education. This is the single most effective economic stimulus that is available through executive action.
And as you've noted in the past, research shows that canceling student loan debt would boost GDP, create jobs, reduce unemployment, jumpstart small business formation, support the housing market, promote job and economic and geopolitical mobility, and increase the annual incomes of borrowers by about $4,000. So, it would also help close the racial wealth gap. It is time to act.
Thank you very much.
Thank you, Mr. Chairman.