The Progressive Policy Institute proposes the creation of a new, private sector Student Debt Investment Fund (“SDIF”) that would address the student debt crisis. The proposed SDIF would act as a secondary market for student loan debt, capitalized by corporate profits currently held abroad. In return, participating U.S. corporate entities would receive tax credits. The SDIF would purchase existing student loans, apply a discount to the loan amount, and restructure the loan through refinancing the debt.
By matching need for financial relief with available investment funds, the proposed SDIF could be a private sector solution to a public problem. Without action, the student debt crisis will be the next financial disaster. One in five households is currently saddled with student debt, now over $1 trillion, which cannot be discharged in bankruptcy or refinanced at today’s historically low interest rates. At the same time, multinational U.S.-based companies are sitting on an estimated $2 trillion in cash reserves, much of it profits held abroad. Companies are unwilling to repatriate these profits under current tax law for fear of excessive financial penalties.
Societal benefits of the proposed SDIF include: (1) deflating the student debt bubble slowly, (2) facilitating economic growth by freeing financial resources for millions of young Americans, (3) enabling more young people to invest in their human capital, and (4) providing a way for U.S. corporate entities to invest their excess funds in America strategically and promote public well-being. The benefits to business include tax credits issued annually over the term of the investment and the potential for an annual return on investment depending on the success of the SDIF. The benefits to government include transferred risk to the private sector from reduced student loan exposure and potential tax revenue that would not have been received otherwise.