Photo by author.

Bernie Sanders and Elizabeth Warren both have proposals to cancel student debt, a nearly $1.6 trillion burden on borrowers and a major drag on the economy. There is a major difference between the two plans: the Sanders plan, which is spearheaded in the House by Rep. Ilhan Omar, is likely to create at least one million more jobs than Warren’s, since it cancels roughly $1 trillion more in outstanding debt.

Warren’s plan, unlike Sanders’, caps the amount to be cancelled at $50,000 per person. That figure is progressively reduced for income above $100,000 per year per household until it reaches $250,000, at which point no cancellation is offered. But households making $100,000 year aren’t necessarily prosperous. Because of its limits, Warren’s plan would have a significantly smaller stimulus effect and would therefore help all workers somewhat less.

One Million Jobs

Here’s why. A 2018 report from the Levy Economics Institute at Bard College used widely-accepted economic models to project the macroeconomic effect of cancelling all student debt, using a start date in 2017 for its hypothetical cancellation. As the graph below shows, these models show that several million jobs are created by the cancellation of all student debt (the exact amount varies, depending on the economic model used):

Source: “The Macroeconomic Effects of Student Debt Cancellation,” Kelton et al., Levy Economics Institute, 2018

Averaging these figures, the report shows that roughly 4.4 million jobs would be created by full cancellation in the first five years. How would the Warren and Sanders plan affect job creation? Clearly, the models would need to be re-run to get a better forecast. But a back-of-the-envelope estimate can be made, using the following assumptions:

Reducing the Levy report’s numbers by 60 percent gives us something in the neighborhood of 2.6 million fewer jobs under Warren’s plan. Given that the debt is now larger than it was in the Levy study, that figure could be bumped by 10 or 15 percent.

That calculation is, however, too crude. It’s fair to assume that the stimulus effect would be greater on the lower end of the income spectrum, and would be somewhat smaller for the relatively well-off (although not wealthy) households included in the Sanders plan. In addition, topline job numbers have continued to improve. To be conservative, I have cut the job difference by nearly half to arrive at the figure of one million more jobs created will full cancellation.

The job creation figures sense. If 44 million student debt holders are relieved of their debt burden, they will have more money to spend each month for food, entertainment, and other purchases. Studies have shown that student debt is also keeping younger people from forming households (which, ironically, means a greater burden under the Warren plan if they’re living with their parents). Household formation, which is the result of longer-term thinking about affordability, means the purchase of home items, cars, and houses.

With that in mind, I asked the lead author of the Levy report whether it would be safe to say that the Sanders plan would create a million more jobs than the Warren plan. Prof. Stephanie Kelton, of the State University of New York, Stony Brook, reiterated that a full study would be required to answer the question with confidence. But Kelton said the one-million-jobs figure “looks reasonable.” (Kelton, an advisor to Sen. Sanders, is also a macroeconomist and professor. She is not employed by the campaign.)

A million jobs for working people is a significant difference in policy outcomes. It should be considered carefully by voters and policy makers who are weighing the relative merits of both proposals.

Portions of the above text were previously published through the Independent Media Institute.