Americans Are Drowning in Debt. Let’s Forgive All of It.

In 1770, the novelist Oliver Goldsmith observed, ​“Ill fares the land, to hastening ills a prey, where wealth accumulates, and men decay.” Modernize the language, and he could have been writing about the situation in the United States today. 

The pandemic has exacerbated a debt epidemic that’s been festering for decades. Some Covid-19 patients have racked up astronomical medical bills which often run into the thousands of dollars, as many are dismayed to discover. Uninsured patients and family members, meanwhile, are often being wrongly charged, even though the CARES Act theoretically covers uninsured patients’ Covid bills. While $1,200 stimulus checks temporarily improved many workers’ financial situations in the spring, now close to 8 million people have fallen into poverty. 

Layoffs and cutbacks in work hours and paychecks are decimating working peoples’ budgets, provoking an unprecedented spike in hunger, especially among children. Around 26 million people now don’t have enough food. Widespread income reductions are also forcing people to withhold utility payments and rent: 12 million renters will owe an average of $5,850 in back rent and utilities by the beginning of 2021. This back rent is a ticking time bomb: it threatens to create a wave of evictions and homelessness after the federal eviction moratorium expires on December 31. 

Small businesses are struggling, and many are on the brink of closure. All this even as America’s billionaires have swollen their fortunes by $931 billion since March. It’s a grim picture. As we grope toward a post-Covid future, the disastrous economic situation for millions of working-class people — and billionaires’ continued enrichment at their expense — demands a radical solution: universal debt forgiveness for rent, medical debt, and student loans. The federal government holds immense power and could immediately forgive public student loan debt and pay off all other debts, giving ordinary Americans a chance to start fresh. This debt relief could easily be funded by wealth and income taxes on the rich.

Such a debt jubilee might sound unnecessarily sweeping, but Americans’ debt burden is staggering — and a massive drag on the economy. The $2 trillion stimulus package passed in March enabled people to pay down credit card balances, leading to a drop in credit card debt and other debts. Despite that temporary respite, Americans now hold a stunning $4.13 trillion in total non-housing debt, which includes $861 billion in credit card debt and $1.55 trillion in student loan debt. Even before the pandemic hit, medical debt was the biggest cause of personal bankruptcy, spawning about 530,000 bankruptcies annually, even for those who have health insurance. In 2018, 137.1 million Americans suffered some medical expense-related financial hardship — no surprise in a system where people are being saddled with six-digit bills.

Conservatives and individualists might fret about personal responsibility, moral hazard, and the cost of such an immense relief program. But in an America where billionaires and large corporations evade taxes on a massive scale, receive enormous government subsidies (the 2017 Trump tax cuts cost $1.5 trillion; the Bush tax cuts cost $5.6 trillion), and pay next to nothing in taxes, concerns about increasing the national debt and pulling oneself up by their bootstraps come off as anti-working-class claptrap. Viewing debt moralistically and asking why people don’t live within their means is intuitive, but mistaken. Poverty is a vicious cycle with hidden costs that prevent people from clawing their way out. Debt is expensive. Interest compounds. As interest grows, people fall behind on payments and decreased credit scores, an inability to rent and save, and bankruptcy are often just around the corner. Debt is the enemy of freedom. It forces people to make unsavory choices in a vain effort to escape the hole they’re in. Imprisoning people in debt without a way out is immoral. Freeing them from debt is the epitome of morality.

We’re living in the worst economic crisis since the Great Depression. Job growth is slow. The economy is plagued by a level of inequality that is worse than at the start of the American Revolution. The path to recovery is uncertain. What’s clear is that we’ll need far more stimulus if we want a full recovery. Universal debt forgiveness would be an extremely effective impetus to economic convalescence. It would eliminate socially unproductive interest payments while saving people from eviction, homelessness, and the downward spiral that follows. It would liberate people from overwhelming insecurity, allowing them to spend with confidence and buoy depressed consumer demand. It would enable many to finally save for retirement. Unlike Republicans’ much-beloved tax cuts, which benefit plutocrats and do nothing to increase investment in the real economy, debt forgiveness would promote genuine economic growth. And there would be political benefits, too. Although he didn’t win the Democratic nomination, much of Bernie Sanders’ policy appeal came from his full-throated advocacy of ending student loan debt and overdue medical debt.

It’s promising that calls for President-elect Joe Biden to cancel student loan debt are gaining some traction. But that alone won’t go far enough given the impending avalanche of back rent, utility payments and medical debt. In an era of unprecedented economic upheaval, it’s time for a debt jubilee, one which wipes the slate clean, boosts the economy and frees working-class Americans to pursue their dreams unfettered by debt.