Student loan forgiveness would be a bailout for elites
washingtonexaminer.com
washingtonexaminer.com
There is no universe where a multi billion dollar bank is going to let billions of dollars of loans evaporate. They have all the connections in government and the all the right people out to dinner to prevent that.
Instead, the banks will get their bad loans paid off by the taxpayer. This further incentivizes them to embark on worthless loans as they know there can feel a nearly infinite stream of money into their pockets.
The best solution is education: nobody should take out a 70k loan for a job that could only pay 30k. The second is default: lenders should feel the sting of making bad loans and_should not_ be rewarded for bad behavior and taking advantage of kids.
This would require being able to get rid of student loans during bankruptcy. Maybe the best policy is to just allow that.
One approach is free education of course, but I think the context here is to make it work within a free market system.
Reduce the cost of building a better life.
If lenders don't want to make non-guarenteed student loans, then the schools will have to figure out how to lower prices or deal with sharply declining demand.
The ballooning administrative overhead at American universities is a well known phenomenon. Guaranteed student loans means there is little downward pressure on it.
Aside from the effects that wealth can have on early education (which can't really be dealt with effectively so late in the education process anyways), this would eliminate wealth as a barrier to higher education or to continuity of higher education, and protect students from both predatory lenders and misleading marketing by universities. This would also incentivize colleges to invest more heavily into the aspects of education that actually contribute to career success (e.g. practical skills over fancier stadiums) and to rebalance the number of degrees they offer in each field to what is actually valued by society. For example, if they graduate too many people with degrees in communication, and only half get jobs and pay for the education, then maybe they offered too many communication degrees. Likewise, if every mechanical engineer graduated paid highly for their educations in the 10 years post graduation, they should consider offering more of those degrees. Interestingly, this would incentivize high-value education without any more information than level-of-payment; if, for some unknown reason, all of a university's 'basket weaving' graduates make tens of millions after graduation, then you don't need to know how they made so much money to know that you did something right in how you educated them.
And then of course every single generation from now on will ask for student loan forgiveness.
Unless it was paid for by the the government. In which case colleges will keep 10xing prices (as they already did in the last generation), for a subpar education, and have taxpayers foot the bill. Soon people will be asking for autoloan forgiveness.
At a certain point, if colleges are making enough off of students from taxpayers, they will be incentivized to eventually start offering perks to students to come to the college, like kickbacks, automatic 4.0 for 4 years of partying paid for by taxes. Or maybe more than 4 years.
I bet they would.
This is a completely solveable problem without going to the extreme of "no bankruptcy ever." Make bankruptcy contingent upon working for one year per year of schooling. If you still don't have a job that pays well enough to cover your loans and living expenses, then bankruptcy is totally appropriate. Doctors and lawyers won't be eligible until well into their career.
That prevents people from immediately declaring bankruptcy.
Also, bankruptcy sucks a lot more now than it did in the 70s when this policy was put into place. Bankruptcy now prevents you from renting apartments, buying cars/houses, or getting certain jobs. Anyone declaring bankruptcy after college is looking at being in their 30s before they become truly financially independent.
I can't think of a worse system than what we have now. Bankruptcy is a really important component of a functioning financial system, and, IMHO, the lack of bankruptcy for student loans is one of the primary drivers of excessive student loan debt.
1) Allow student loans to be forgiven in bankruptcy like any other debt. I am tickled that this article makes an argument about "moral hazards"; ignoring the fact that student loans are unlike almost any other loan in that they can not be removed with a bankruptcy. That is not a moral hazard, that is a moral abomination.
2) Slowly get out of the business of having the federal government guarantee loans without regard to expected payment. We need to keep the immediate expectations in play to not upset too much. However, any loan made without consideration of repayment potential is absurd. Either just provide a grant or don't provide money.
And that is a risk assessment lenders would need to make. This is how all debt works.
Without avenues of discharge, this debt is like slavery.
Discharging student loans in bankruptcy, will make it so that nobody will lend to students. I wouldn’t. Would you?
I could see a loan program where the terms can be no more then 20% of a graduates income for more than 7 years. But, then would we allow the lenders to discriminate on which degrees they’ll fund? Would you fund a degree in computer science? Maybe? Political science? Is the student studying to be a lawyer? Ok. Art History? Probably not.
Even with a limit of 20% over 7 years, that’s roughly equivalent to 1.4 years of wages. Should the loan cover tuition and living expenses for 4 years of college? That’s a heck of a deal.
I would lend, after carefully evaluating the educational track record of the student and the earning potential of the major.
If a lazy kid tries to get a loan for philosophy without a clear path, they get a high interest loan or no loan at all until they figure out the most efficient major for themselves.
If a poor kid with high GPA in high school wants to major in finance, sure I'll lend at a low interest rate without a collateral.
If a rich kid with low GPA and poor track record comes for a loan, sure I'll lend with a collateral.
If a poor kid with poor GPA and poor track record comes for a loan, sure I'll lend at a high interest rate or wait until they improve their track record to earn the low interest rate.
This is literally how debt is supposed to signal prices. This will ensure that the most deserving kids get the easiest loans, least deserving get a signal that they need to change something. Universities also find it hard to raise tuition since the flood of free flowing loan money is gone.
Where do you expect to find these students who are adverse to 7 years of bad credit, or with exceptional upbringing and ethics?
I’m assuming you care about being repaid. Maybe you’re willing to take a loss on 99% of your loans?
Maybe if you’re wealthy you can afford to make 10 of these loans a year instead of buying a new yacht?
I don’t see how this scales beyond a few wealthy philanthropists.
This is irrelevant as the federal government is the owner of nearly all student debt, which is how they are able to forgive them in the first place. Student loans were de-facto nationalized under Obamacare.
Something like they get a structured payment to get a student, and the only way to get the full payment is the financial success of said student?
Obviously people would declare bankruptcy the day they graduate so there needs to be a special type of process for discharging the loans. There's income based financing and there is loan discharge after a certain time so you're never in a 'spot' not to 'pay' them but the gov't is propping up the market and that needs to end.
1) Those with loans are not elites. Elites have their parents pay for school, they don't need loans.
2) budgets for public colleges have been annihilated over the last ~20 years. State governments used to pay a much larger share of tuition. Bailing out students loan debt would pay some of this gap indirectly
3) student loans cannot be discharged in bankruptcy, unlike any other type of debt. "Debt slavery" is real. I know people that have permanently fled the country because there is no other escape from crushing debt.
4) Democrats are very limited in what they can do for relief. With Republicans stonewalling the Senate, they're basically limited to direct one-time payments. It's basically this or nothing
This crisis was teed up by colleges taking advantage of endlessly subsidized debt being signed onto by 17-18 year old kids. They need to fix it. Immediately. I'm not keen on doing this every few years as a taxpayer so that asshole administrators in universities can continue to not hire professors, underpay graduate staff, and generally give two shits about teaching employable skills.
There was a time when America invested in the education of its children as a way to lift up the country as a whole. But that was a long, long time ago, in political years at least. Certainly, I can see how encouraging an educated populace could be undesireable to a group that’s just spent the last five decades slowly laying the road to a one-party state.
I mean, just look at the GOP base. The party of Lincoln is dead; nothing now but Bozo Haram and Kmart Rouge as far as the eye can see. And those who’ve learned their history already know what that sort likes to make of such “intellectual bourgeoisie”: fertilizer.
The party of Lincoln, in the last 4 years has:
- Given record funding to historically Black colleges
- Seen record low unemployment for Blacks and Hispanics
- Pushed through judicial reform
Etc. There is good to be seen, if it is critically examined.
https://www.epi.org/indicators/state-unemployment-race-ethni...
https://www.theguardian.com/commentisfree/2020/oct/14/the-pr...
https://www.scientificamerican.com/report/the-black-lives-ma...
https://en.wikipedia.org/wiki/Southern_strategy
https://www.amazon.com/Alt-America-Radical-Right-Trump/dp/17...
Really, dude. The Republican party shucked off all moral rights to Lincoln’s name after 1965, when it chose to sell out its principles in exchange for naked power. There’s nothing left now but a cancerous soup of proto fascists, theocrats, oligarch bootboys, and full-time professional liars, lying to the millions of Americans who want to be lied to. Which I’m not, so you can cram your GOP beer goggles where the sun don’t shine, because you’re just not that good at it.
How do you explain Trump getting more Black votes than any Republican since 1960?
But one thing Trump is really good at is lying to people, telling people who want to be lied to just what they want to hear. And Dog knows there’s a lot of relatively rich, pampered, spoiled first-worlders desperate to believe they are special and better than others and that everything will be okay. So you do the math.
https://www.pewresearch.org/fact-tank/2020/10/02/most-cuban-...
https://www.theatlantic.com/ideas/archive/2020/11/racism-isn...
And credit to the GOP where due: their messaging skills are far, fae superior to the Dems, regardless how their actual actions betray their true agendas.
Oh, and p.s.: 10%, while it may be more than 6%, is still absolutely pitiful.
Another thing, wiping out debt just doesn't magically make jobs. People who make more than you but don't have enough time to do something do. Somehow I fail to see how a few noisy self entitled afflueza stricken college kids who wanted a degree it bullshitology now deserve a kickback because they were dumb and didn't make a right choice in life. While I agree with another commenter, banks should be able to feel the sting of the default as well as the federal gov't in terms of backed student loans.
Not only would college degrees not be required for many jobs simply due to the lack of them in general, but students wouldn't waste their time with nanny state experience of college anyway. Nor would they have absurd debt with a worthless degree. And colleges are just as complacent. They market this stuff to be "rewarding" and whatnot but lie through their teeth about the sheer economics about it.
The current situation notwithstanding, why should the government forgive student loans? Shouldn't the responsability lie with the student to actually do the math and not graduate in pottery at 20k$/year since there is no chance of ever paying it back?
Don't get me wrong, I think tuition should be much lower in the US to avoid the situation entirely (much like we do in Canada), but it's not like the debt magically appeared, they had to apply to college knowing what it would cost, chose to take on debt and then the government should "fix" that bad decision for them?
Perhaps your proposal is that, before someone takes out a loan, they take and pass a course that covers interest rates, credit scores, expected income, alternatives, and other such issues? Is that what you meant?
There is nothing wrong (at least compared to student debt) with people having $400k+ mortgage or car payments, the issue arise when that money is used to earn a degree that has no monetary value.
Especially considering people make much more money if they have a college degree. Even if you don't understand debt, you understand that. The problem isn't incapability of understanding debt - it's never actually being taught it.
I guess what I struggle with when shaping my opinion on this issue is to balance accountability and empathy. I absolutely understand that an 18 years old might not do the math at all and I find it difficult to support having them struggle for multiple decades because of it. On the other hand, they are adults and by definition they did borrow that money, the lender is "right" to expect to see that money back.
I don't necessarily agree with that. Who's fault is it really, when banks give out loans to young adults with no credit history to get an unknown degree at an unknown total cost? We punish young adults for making a poor decision, but we don't punish banks for giving out loans that don't have collateral. Seems unfair, no?
And that's the problem. It's a risk free proposition for lenders - students can't default, the interest rates are high. But by allowing bankruptcy, then all the risk falls on the banks. Student loans essentially shouldn't exist, and only do because of the demand for college, which leads into the second problem:
There aren't good alternatives to college in the west.
Besides the obvious first step consequences and moral hazards and not fixing the proper causes of the problem, there are more negative consequences. Think of what would happen to the idea that "the U.S is a fair lender and you can rely on them to do right by you". What happens to the world investors big and small who observe this and then imagine a day where they would do the same to their U.S Treasury loans etc?
At that point all bets are off and no one will loan money to the U.S. The U.S school loan market is greater than $1 trillion, this isn't pocket change.
https://drama.uconn.edu/programs/puppet-arts/mamfa-puppetry/...
All the parents and teachers that you trust want you to be happy. Most of them don't care to inform you that the choices you're making now might leave you destitute for a decade. Most of them probably didn't know, because when they were growing up a college degree by itself was enough to thrust you into the upper middle class (supposedly).
Personally, I didn't get it until my first year of university, when I got a financial report on my $7500 of debt, realized that by graduation it would be $30,000. I looked up some salary numbers and thought about it for literally the first time in my life. That's when I decided I needed to change majors from chemistry to compsci, and I was damn lucky that carnegie mellon was where I chose to study chemistry.
If we ignore lowering the cost of tuition as a solution, what do you think could've helped in your situation? Making high school students aware of what college will cost and having them "do the math"?
Shocking numbers; the sort of APR we’d expect from dodgy pay-day companies and illegal loan sharks. You’d be far better off just taking out a mortgage, plus you get a nice house at the end and they don’t smash your ankles if you default.
Compare and contrast the length of time it takes a convicted felon to repay their debt to society, even in a country like the US where criminal sentences are quite extreme, with the length of time it takes a well-intentioned kid who made a "bad decision" (that they were almost certainly encouraged to make by the authority figures in their young lives) to pay back a large student loan debt that does not pay off with a high-paying job.
> The current situation notwithstanding, why should the government forgive student loans?
This is a weird question because the answer is so obvious. For all the same reasons we got rid of debtors' prisons, we allow normal loans to be discharged through bankruptcy, etc.
The problem is, as I see it, and have been clamoring about for over a decade plus now, is a matter of supply and demand.
The price of tuition is skyrocketing because the source of tuition is just a few clicks away online, in the form of a loan, generally always backed by the government.
If there's no incentive to "shop around" because you can "just get a loan" then the same can be said about a college and how they decide to price themselves. More supply of money (loans) means prices will always go UP. This is common economic sense.
To correct this imbalance, the higher education market needs more competition and that only happens if prices go DOWN, which only happens if LESS money is loaned to students from the government. This would cause tuition to go down because there would be less applicants who have a loan for tuition.
Lastly, I'd also add that it doesn't help there are many, many, many generations of young people who think that they need to go to college to be "successful". That couldn't be farther from the truth and it's shameful that society continues to push this idea.
Assign rates based on course and hours reward and set maximums for a degree. You can damn well bet colleges will rush to meet the requirements after some initial bellyaching. There may even be some degrees which would not qualify. Regardless there should be a cap regardless of degree.
Too many colleges are sitting on billions in endowments and are effectively hedge funds that happen to run universities. Harvard is approaching fifty billion dollars. Besides their endowments many are excused from paying local taxes which puts the cost on the everyday average citizen. We should also investigate clawing back loan money for where the student cannot pay and the load values beyond a certain amount from the university
EDIT: I would directly benefit from this as I have student loans, but if I could make the decision to forgive student loans like this I would say no.
This line of reasoning is nonsense. Paying off tens of thousands of dollars of loans is much more about finding a decently salaried job than it is about holding onto your phone for an extra two years.
> In addition, it would, in effect, mean a huge injection into the higher education racket that would encourage colleges and universities to raise tuition even higher.
I do agree with this. I think the strongest argument that debt cancellation should be done from the legislative branch is that it needs to be coupled with legislation to prevent the future generation from becoming over-indebted in the first place, rather than leaving incentives as-is.
> On top of this, for a Democratic Party that likes to present itself as the party of the worker, it would be a tremendous wealth transfer to the elites. College graduates tend to come from wealthier families and tend to be more well off and connected. A recent Brookings Institution analysis of Federal Reserve data found: “The highest-income 40% of households (those with incomes above $74,000) owe almost 60% of the outstanding education debt and make almost three-quarters of the payments. The lowest-income 40% of households hold just under 20 percent of the outstanding debt and make only 10% of the payments.”
It's a bit disingenuous to call this "elites" when we're talking about actually 40% of the country (per the articles' numbers), but there's some truth here that the top 40% of households certainly have more stability and safety net to help their indebted children.
So let's call cancelling student debt what it is: a bailout mostly for the middle and upper-middle class.
> It would also be quite the spectacle, after years of blasting Trump for executive overreach and calling for more bipartisanship, if Biden came right out of the gate with such an extraordinary power grab.
I feel like this line of discourse needs to die. Every president in my memory has been "blasted" for executive overreach. The tools to actually prevent executive overreach belong to the legislative branch, so why are we blaming executives for trying to execute on their agenda?
Broadly speaking, that top 40% pays back more than their share of the debt. That tells me that people in that bracket pay it off relatively quickly and are replaced with new debtors, whereas the bottom 60% takes significantly longer to pay off their debt.
I paid my loans off about four or five years after I graduated. Forgiving my loans would have been nice but not life changing. But if you’re a family in that lower 40% bracket who struggles to pay your loans off for decades, forgiveness would impact your life more — even if the amount of money was less in absolute terms.