I don't totally understand the idea of forgiving student debt. Isn't it fairly healthy to take out a loan to invest in yourself and then pay it back?
Would a bank approve an 18 year old high school grad for a $100k mortgage at the same rates? Say, $0 down, 5% interest, no mortgage payments for 4 years?
Why can a high school grad get the first one and not the other? Is an 18 year old even smart enough about personal finance and debt to understand the differences between the two?
I was a kid who took out a huge student loan to attend university. At the time, all I knew was that “college was mandatory” and I was encouraged to “study my passion”. Fortunately for me I’ve been able to monetize my passion... but at the time, I had no concept of how much money I’d be needing, or how interest stacks debt on top of debt, or how it would affect my credit when I wanted to buy a house at the age of 30, because no one told me these things and with a verbal agreement my parents co-signed the loan (I never signed a paper myself) for me and now I have this baggage for probably a few more decades.
It’s almost impossible to expect an 18 year old in today’s American society to fully understand the crippling punishment of six figure debt and its long term effects on your life. When you have 1 year to figure it out, and the choices are “go to college” or “be a failure” then there is only one way forward — isn’t there? I feel so badly for people in my situation that aren’t working at tech industry wages... and there are many.
Average student debt load I believe is much less than $100k.
5% interest accrues very modestly.
The bankruptcy thing is irrelevant to this discussion.
Well if we are talking about the American educational financial system then it's absolutely relevant to the discussion.
Cars, houses, credit card debt etc. are all discharged with bankruptcy which keeps the markets in check. Student loan debt is the only debt that cannot be discharged when it becomes impossible for the debtor to repay. As a result we are with in a 1.3 trillion dollar[0] debt bubble. And with the government printing IOUs for the students, the universities/profit education centers take full advantage. If the students were able to discharge the debt then the market would correct itself and education would be affordable and there would be less economic risk.
Right now the government is projected to go to a 30 trillion dollar deficit by 2030 with its government job programs and these education 'loans'. Even if you do not have student loans or work in the education system, you should be aware of the large debt bubble that's forming. And if Saudi Arabia, Iran, etc. decide to trade oil on different currencies... well then things will get interesting...
It will affect everyone just like the mortgage crisis in 2008.
Wait, what??
Why do you think costs of education are skyrocketing? It's because lenders can write blank checks to 18 year olds who are going to be the ones footing the bill for the next 20-30 years.
If student loans were bankruptcy-forgiveable, lenders would think very carefully about what loans they give out to who, and why. Schools would be focusing on education instead of building worthless buildings that remain mostly-empty (yes, I saw this happen at UC Santa Cruz) or lining the pockets of the administrators. Lenders would be incentivized to loan people money based on their income potential in the future, which does not currently happen.
Bankruptcy is not only relevant, it's the entire crux of the issue. Make lenders partially responsible for the debt and you solve an entire slew of problems we currently face.
The things that fucks this whole calculation up is that student loans in the U.S. can't be gotten out of via personal bankruptcy, so, in reality, a lot of dumb young people rack up way more student loan debt than they really should. And the people lending them that money have no incentive to think about the student's ability to pay the loan back, due to the bankruptcy exemption. Oh, right, and the loans are often guaranteed by the government, so there's yet another thing which screws up the incentives.
That's the part that I think is a bad idea.
At the same time, there are plenty of extremely bright people who take a scholarship to study a subject with approximately zero real world applicability. That often doesn't matter though, because they made it through and are now able to signal their status to employers.
I happen to own a copy of Caplan's The Case Against Education and I don't buy his arguments for trade schools. People go to school to signal status, mostly because humans engage in assortative mating, and trades offer money rather than status.
Besides that, many trades are very physically taxing and tend to cause injuries which result in chronic pain later in life. Who wants that? The epidemic of suicides and drug overdoses in the US is occurring precisely within the populations of older, injured workers who were essentially forced into retirement.
It's nuts.
Especially given that we already have a way for students to earn a free university education by serving in the military. And if we wanted a sane system of increasing access to student loans, it would probably look something like garnishing up to 10% of a student's wages for up to 10 years, after which the student can file for bankruptcy to clear out any remaining loan balance. And get the government out of securing student loans. Students would still carry a significant burden, but lenders and institutions would also have to pay a lot of attention to the economic benefit of their offering, and it would leave me and my descendants out of this whole thing.
I am directly responding to this sentence in your post...
Fun anecdote, an ex of mine was admitted to Mayo Clinic Medical School back when we were seniors in college. I don't remember all the details completely well, but they put a huge emphasis on getting students through med school debt-free so they could focus on being the best physicians possible in any area of medicine and for however long it took. My ex ended up with a full-ride with their help and it made it much easier for her to focus on being the best physician possible, less stress/able to buy a small home while in med school/take up additional study opportunities/trips/and again much less general stress (we are still friends 14 years later).
It sucks that us Americans are so boot-strapped oriented, but ah-well it makes them easier to exploit.