Financial bailouts seem to have become a favorite policy of the U.S. government. Banks, insurance companies, the auto industry, the solar industry -- all have been major beneficiaries of Uncle Sam's largesse. Moreover, Congress is busy giving out money we don't have to Ukraine, Egypt and others instead of taking care of problems at home. One may not agree with how or why every billion-dollar handout takes place, but if we're going to come to the rescue of big business, or even other countries, why not extend a similar helping hand to our children? I'm talking about millions of college graduates saddled with the debt they had to pile up to graduate from college.
There's a fiscally responsible way for us to do for deserving college grads what we did for Wall Street and big business. By relieving millions of young people of onerous debt we would see valuable economic ripple effects that rival any that came from recent industry bailouts.
The current state of student loans and resulting debt is already eating away at our economy. A recent Pew Research report showed that among households with student debt the average outstanding balance was $26,682 in 2010. About 6.7 million of all student borrowers are delinquent on their payments by three months or longer. Compounding the problem is that student debt cannot be discharged through bankruptcies, even though the debts of millionaires and corporations can.
The deleterious effects of student debt can be felt throughout the economy, in key sectors like the housing market. About half of first-time homebuyers are between the ages of 25 and 34, a demographic group that is almost 40 million strong -- and yet may not be able to qualify for mortgages because of their student loans. Only 4 percent were granted mortgage loans in 2012. This is a substantial crowd of potential buyers to be locked out of the housing market. Reduced demand for housing means there is less need for heavy equipment, lumber, steel, electrical fixtures, cement and other building materials, which in turn translates into reduced economic growth in the industrial sector.
Household formation is another casualty of the student debt crisis. Under a heavy cloud of debt most graduates have no choice but to delay getting married and having kids. So along with putting off home buying, they will not be buying such staples of home ownership as carpets, appliances, furniture, TV, and a long list of goods and services that drive the U.S. economy.
The list of lost economic opportunities goes on outside the home, too, with reduced overall consumer spending, which accounts for 70 percent of the U.S. economy. Take those young American consumers out of the country's economic equation -- or at least significantly reduce their place in the equation -- and you have less demand for cars, entertainment, travel, eating out, and other discretionary spending. All of this reduced demand naturally translates into less job creation and puts us in a vicious cycle, with little prospect for a higher standard of living for the next generation.
To break this cycle let's begin by forgiving all student debts -- an astonishing trillion dollars that we, as a country, can readily save and then divert to this worthy cause. We can save those dollars by closing overseas military bases -- there are approximately 865 of them, including more than 200 in Germany alone, which together cost about $102 billion a year.
This expense is something of a double whammy because the U.S. deals with it by piling up debt that our children and their children will effectively have to pay. And these military bases are Cold War relics anyway. They served no purpose in preventing, for example, the 9/11 terrorist attack. Furthermore, it has been convincingly argued that these bases do more harm than good when it comes to America's foreign relations. Even if there are good reasons to keep certain bases to defend our allies, then why not have our allies pay for them? Surely Germany and South Korea can afford to pay the bill.
By eliminating the cost of these bases and saving $102 billion a year, we can pay off $1 trillion in student loans over 10 years. In the long run, the additional tax collected by Uncle Sam due to higher economic activity from this approach will pay for itself -- and young college graduates will have a fresh shot at building their lives. In the meantime, we'll have some homework to do: We must transform our system of higher education to bring down its exorbitant cost, which has almost tripled since 1980 -- from $8,756 to $21,657 annually in 2010 for a four-year college. What this cost-cutting educational transformation should look like I will describe in an upcoming blog. It is a key to ensuring that future generations won't have to dig themselves into a financial hole to get the college education they need and that our economy requires.
This blog is an excerpt from my forthcoming book, The Beltway Beast: A Challenge to Our Democracy.