Even before Covid arrived, total household debt in the United States had reached a record-breaking $14 trillion, the result of decades of stagnating wages and slashed social services. The pandemic only reinforces the reality that mass indebtedness is a structural problem, the result of a system that forces people to borrow in order to make ends meet, rather than of poor individual choices. Millennials, in other words, are not drowning in student loans because of a collective penchant for avocado toast.
The only sensible solution is a policy of generous cash payments coupled with wide-scale debt relief. Research shows that people spent 30 percent of their 2020 stimulus checks to service debt, which means the government’s cash transfers were, in the end, a rather roundabout way of bailing out creditors—an absurd and wasteful outcome, given the profitability of the financial sector and the damage it has done to society as a whole. Student loans, medical debt, mortgage payments, rent, and municipal debt (that held by city and local governments) should all be reduced or eliminated outright. There are strong ethical and economic arguments for doing so.
Consider student loans. The Debt Collective, a union for debtors I helped found, has been leading the fight for full abolition on the moral ground that everyone should be entitled to free, quality higher education. At the same time, canceling all federal student debt would boost the economy by up to $108 billion a year, add up to 1.5 million jobs annually, and help close the racial wealth gap.
Similar arguments can be made across the board. For example, medical bills—including those incurred from Covid-19—have continued to pile up during the crisis, a problem made worse by the fact that nearly 15 million people lost their employer-based health insurance. Canceling medical debt would pull millions away from the brink of insolvency, increase spending in the broader economy, and reduce suffering and stress.
Of course, the government has not gone down this route. Instead of getting debt reductions, regular people have been granted insufficient reprieve through a confusing mix of moratoriums and half measures, including a temporary pause on student loan payments and the ineffective halt on evictions by the Centers for Disease Control and Prevention (CDC).
Municipalities are also in dire need of help. As a result of the coronavirus, many communities are facing budget shortfalls, which means shuttered social services, crumbling infrastructure, and layoffs—with an increase in household indebtedness as the inevitable result. As the lawyer and policy expert Robert Hockett told me, Donald Trump and the Republican Party have compounded the harm: Cities have had to incur costs, and debt, for expenses that in normal times would be covered by a functioning federal government. In November, Treasury Secretary Steven Mnuchin stymied assistance to struggling communities by canceling the Municipal Liquidity Facility, which Congress established earlier in the year for that express purpose.
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With a new administration soon to assume office, what happens next depends on two things: whether Democrats retake control of the Senate and how hard social movements push. Should the Democratic Senate challengers prevail in Georgia, we will need to demand far-reaching change. College for All legislation should be passed, which would eliminate student debt and make public two- and four-year colleges and universities tuition-free, sparing future generations from student loan indebtedness.
“Congress should cancel rents and mortgages, cancel all rental debt, erase Covid evictions from people’s records, and pass a full eviction moratorium that bans filings, hearings, and all evictions,” said Tara Raghuveer, director of the Homes Guarantee campaign. “If relief is provided to landlords and others in the industry, it must come with strict conditions like rent control and restrictions on future evictions.” The Rent and Mortgage Cancellation Act, which Minnesota Representative Ilhan Omar introduced in April, points in the right direction.
Canceling medical debt will require some ingenuity, because it is held by innumerable hospitals, private health care providers, and debt collectors—a reflection, said Jenifer Bosco, a staff attorney at the National Consumer Law Center, “of our patchwork system.” The real solution to the problem is single-payer, universal health care; passing legislation so that past-due medical bills don’t negatively affect people’s credit scores would help as an interim measure. Bosco said the federal government could wipe out all medical debt it holds, including debt owed to military or veterans’ hospitals. Democrats could also look to Senator Bernie Sanders’s campaign proposal to erase over $80 billion in medical debt currently in collection by having the federal government purchase and extinguish it.
To aid municipalities, Congress could revive the State and Local Coronavirus Relief Funds portion of the Heroes Act, which passed in the House last year but has been blocked by the GOP-controlled Senate. That bill instructs the Treasury to provide grants for Covid-19–related expenses, replace forgone revenues, and help “frontline health workers, transit employees, teachers, and other workers providing vital services.” Cities shouldn’t have to borrow when the federal government can easily provide the funds.
If Democrats fail to regain control of the Senate, however, we will need to think creatively about approaches that don’t require Congress. Legal research spearheaded by Debt Collective cofounder Luke Herrine demonstrates that any sitting president already possesses the power to direct the secretary of education to cancel all student debt using an authority called “compromise and settlement.” Some conviction and a signature are all that’s required.
The CDC’s current eviction moratorium will need to be extended (it’s set to expire on December 31) and expanded to help renters. In a similar vein, the Biden administration should investigate and utilize existing or emergency powers to make medical debts uncollectible. It can also be more aggressive about oversight and compliance to ensure that people get the care they are legally entitled to from nonprofit hospitals, which are mandated to provide free or reduced-cost services to patients in need (so-called charity care).
As for municipalities, the Federal Reserve Board can offer state, territorial, tribal, and local governments 30-year loans without charging any interest or fees, and without any additional authorization from Congress as long as it rolls over the loans every six months. “Not only would this allow governments to refinance all of their existing debt at 0 percent interest, saving an estimated $160 billion a year in interest payments, but it would also allow them to finance new public works projects to upgrade and green our infrastructure, make our communities more resilient, and expand social services,” said Saqib Bhatti of the Action Center on Race and the Economy.
Movements need to be ready to challenge a bipartisan consensus that denies relief to ordinary people while aiding the rich. As was the case during the last financial crisis, a stunning double standard has been in effect. With the Cares Act, Congress rushed to aid the private sector, rescuing and rewarding overleveraged companies for their risky financial decisions and stabilizing the corporate bond market. For corporations, the Federal Reserve lowered the cost of borrowing to unprecedented rates and bought up bad debt but chose not to impose conditions in the public interest (such as forcing the beneficiaries to retain workers, honor union contracts, curb stock buybacks, trim CEO pay, or advance climate sustainability). Movements will also need to push back against the centrist Democrats and cynical Republicans who are already invoking deficits as an excuse for austerity, even though they were busy showering hundreds of billions of dollars on the private sector only a few months ago.
We have the money to cancel debt, and doing so is in everyone’s interest. The problem is that the powerful rarely listen to reason. “It’s clear that we’re not going to convince [Congress] to relieve suffering through logic or data or stories,” Raghuveer said. “Instead, our movement must build the type of power to force our demands to be met. That means doing something really challenging: transforming an act of desperation into an act of power, withholding rent as a political strategy.” The Debt Collective is planning a campaign of economic disobedience—a student debt strike—to push President Biden to use the compromise and settlement authority to erase all student debt. Should he refuse to take bold action amid a deadly pandemic and a deep recession, it will be an abuse of power.
Many of the debts that weigh us down should never have existed to begin with and should be eliminated on that basis. But it’s not just about morality; it’s also about the math. The fact is, debts that can’t be paid won’t be paid. The Biden administration can face that fact, or it will face the rage and retribution of the people who have been left to drown.