Student loan forgiveness is regressive measured by income, education, or wealth | Hacker News Reader

Student loan forgiveness is regressive measured by income, education, or wealth

brookings.edu

30 pointsbrimnes45 comments

There’s no need to measure anything. The problem with student loans is qualitative.

Banks are allowed to make unsecured loans and the borrowers can’t usefully declare bankruptcy. Colleges have every reason to raise prices and lenders have no skin in the game.

It isn’t any more complicated, and no amount of data analysis can possibly refute this.

It hasn’t been “banks” for a decade: Student loans today are overwhelmingly supplied directly by the federal Department of Education. That’s why a huge jubilee is even plausible.

My original argument still stands.

And the government was perfectly capable of bailing out private companies at the end of Bush Jr’s second term.

If data showed that at regional state universities and community colleges the rise in tuition corresponded with the decrease in public funding per student then you wouldn’t believe it? Or that such data would mean nothing to you? Consider the linked article and keep in mind that enrollment in higher Ed has declined since 2008.

https://www.cbpp.org/research/state-budget-and-tax/state-hig...

It’s a good question. I would be interested to know which economic forces drove the price changes.

I suspect that prices could still increase even in spite of public funding decreases due to the point in my original post.

But to me, all of these side effects can be thought of as fruit from a poisonous tree, and thus unjustified.

so change the bankruptcy laws. that doesn't require forgiving the loans.

This is the correct answer. Personal bankruptcy is the tool developed and refined for over a century to address exactly this problem.

It should surprise nobody that the banking interests (and industry-adjacent politicians) who pushed so hard for student debtors to be uniquely deprived of their right to shed their debt through the courts are now pushing for taxpayers to repay their unsecured loans.

Again, the banks are almost totally disinterested at this point. The only entity significantly on the hook for these unsecured loans is the taxpayer, via the Department of Education which issued them directly to students.

Great, then it should be easy to fix the law now, right?

Fix the law to do what? The proposal under discussion is to hand $50k to doctors, lawyers, and MBA’s (among others, of course) under the guise of fairness.

You stated that "the banks are almost totally disinterested at this point." My facetious response was just a cheeky way to propose that if your statement is not utter bullshit, then there should be very little opposition from the credit industry to legislation such as the FRESH START act. I guess we'll see soon enough.

I really have no idea what you’re suggesting. What’s the “credit industry” (now not the banks?) role here?

I'm using "credit industry" to distinguish the private-market credit services industry from federal servicers of student loan debt. Your assertion was that the "banks" (which appears to be your shorthand for the same thing) are "almost totally disinterested at this point." I'm saying that smells a little fishy, since the "banks" have generally opposed reforming the restrictions on discharging student loan debt through bankruptcy since they were enacted by congress in 2005. That's it, that's all I'm saying.

Of course and there's no reason to refute this. The reason we got here is that the quantatative measures a Bank would use are biased by actual societal bias. This is a situation like asking why your ML became racist.

Letting a bank choose the interest rate based on your zip code would allow banks to predict which families will remain rich and that would be a self fulfilling continuation of current class distinctions in a system where they are allowed to do that.

>But that’s because such measures exclude the very asset the person borrowed to buy—an education that increases lifetime earnings. That’s like assessing a homeowner’s wealth by counting their mortgage balance but not the value of their home.

The value of a higher education that it's sold to young people with is the income it allegedly brings in. If that's the case someone uses the product and their income goes up then we already have a means to tax that income it's called income tax. If the product fails to deliver that income but the money is still taken (and as others mention in a non dischargeable way) then I don't see how that isn't fradulent.

If you think it’s fraudulent for the federal government to give a 22yo a $120,000 loan for a Master of Fine Arts program in theater, then you have to argue that such loans should stop. Only the rich or the beneficiaries of private charity will be able to access MFA programs—or perhaps the taxpayer should make degree programs like that “free”?

I think that’s a defensible argument, but it’s regressive in a different way from the status quo.

It’s arguably more harmful to give a poor person $120K in debt to study something that almost certainly returns little, especially as those same people (statistically) may not know that some college degrees are worth significantly less than others.

This isn’t fully fleshed out, but the government could set a cap in loans based on anticipated the future earnings. Johnny gets into Med School and wants a $400K loan? Great! Iowa Central College wants to charge $200K for a dance major? Good luck finding students to enroll!

This also has the benefit of placing downward pressure on college tuition.

If you're saying maybe something should be done with the cost of education and incentivising making it a valuable product rather than a way for middlemen to skim money off both students and educators who also haven't benefited from skyrocketing costs then I'd agree 100%. If the programmes are poor then the resulting failures and bankruptcies should be thinning out poor products same as anywhere else.

If some rich people benefit with valuable education (or the ever loved MFAs in this debate), so what? That's what income tax is for. The rich having skin in the game too is a good thing.

I think the best context to this is this earlier discussion of similar analysis:

https://www.currentaffairs.org/2019/06/is-student-debt-cance...

Two points on that discussion:

- AFAICT, the argument that a massive loan forgiveness would not be regressive rests entirely on excluding from the analysis low-income members of the 25-40yo cohort with no student debt. Sure, that fraction may be smaller than in the past, but it’s hard to see how discounting a bunch of poor folks who would see $0 benefit from this expenditure is intellectually honest.

- It’s amusing to see a left-wing analysis complain about policy benefits being described in absolute dollar amounts when it’s a doctor making $250k having $50k of his medical school loans forgiven. As I recall, every tax cut debate of the last 20 years has featured charts in absolute amounts showing the tens of thousands of dollars the average 1%’er would save, not the relatively small fraction of income that represented.

The situation is an entire generation of kids from one point forward were systematically misled about the sure thing security of the benefits of taking a student loan investment vehicle in order to secure their education. When the financial sector was misled about the same regarding "secure" mortgage backed securities in 2008 they were completely bailed out - despite being the sophisticated investors that should have known better.

To allow the same for entire generations of students affects our society - causing declining birth rates, poorer health outcomes, poorer life quality. And why? To enforce fiscal discipline that we have not enforced even on sophisticated actors that systemically made a poor choice?

None of that speaks to whether the proposed $50k forgiveness is a regressive policy relative to other potential uses of several hundred billion dollars.

You can say that about anything. Fixing streets is regressive, it only benefits people with cars. Therefore we should not fix streets.

It’s laughable to call student loan forgiveness “regressive”. The word “regressive” is supposed to be used for policies that benefit the wealthy people more than average people, not for policies that benefit average people more than low income people.

You have inadvertently undermined your own argument using a perfect example. One of the most effective arguments in favor of gas taxes and road tolls is to mitigate the regressive nature of universal taxation for road building and maintenance. Because yes, "fixing the streets" is indeed a regressive tax burden for people who can't afford a car.

> not for policies that benefit average people more than low income people.

According to whom? And are you really satisfied to merely debate semantics?

I don’t accept that view of how taxation works. Taxes are levied to the extent that they are tolerated, and expenditure is made to the extent that it is demanded. Both are subject to independent political processes.

Imagine for the sake of argument that there was a bumper year for vehicle / fuel tax and the tax generated multiplies more revenue than expected. Would the money be spent on diamond encrusted highways or would it instead be spent on other areas that are more in need? Cars are taxed because they can be.

What is the "average person" to a "low income person" if not, relatively speaking, wealthier?

You really can't have that both ways. Unless your intent is to partition by +/- orders of magnitude of relative wealth.

In that case, we're starting to get into equal protection under the law violation territory.

The concept of regressive and progressive taxes are well defined and have nothing to do with the usage of “regressive” and “progressive” in a political context.

I don’t dispute that regressive and progressive have defined meanings for taxes. Government budget allocation is not a tax, it’s not even economics but social policy! Using “regressive” in this context is a category error.

Moreover using the term “regressive” to refer to a potential government expenditure that would primarily benefit average working people, as most expenditures should do, is in my view completely absurd.

I think this is post hoc wrapping usury and massive information asymetry in 'some progressiver than thou' language.

- if it's about taxing some qualitative value of education then it should be a graduate tax applied equally to everyone with tertiary education. I'd be curious how politicans would manage policies on education and taxes on this value when they are paying it too

- if it's not about the qualitative value but about the income, then it should be an income tax.

- if it can't be discharged through normal procedures of bankruptcy and terms are rewritten by politicians then it's not 'just a loan' either.

In the absence of any of these then these are largely generation taxes in terms of how they fall.

It’s really difficult to consider federal student loans as “usurious”. The interest rate is fixed well below market rates for similar unsecured loans. There are numerous income-based repayment & forgiveness schemes that for many borrowers will represent a negative effective interest rate. And no one has had to make any payments on these loans at all for almost two years.

It’s also not at all obvious to me how making such loans dischargeable in bankruptcy would actually help borrowers, other than creating a really nice dodge for recent graduates of Harvard Law.

That's not exactly a ringing endorsement of the system If it's relying on pandemic fiscal policy and/or patchworks of different schemes many operating on political whims to negate fundamental dysfunctional behaviour.

The argument for bringing student loans back into line with normal debt is less to do with poverty and more to do with not creating a system that incentivises racking up the price as much as possible and letting debt (and bailouts) patch up the difference when it all falls apart and the product doesn't actually fulfill any of its sales pitch and the price goes up far beyond what any reasonable income expectations can sustain.

If the system is fixed for graduates of Harvard law then I don't think that's skin off anyone elses teeth. Bankruptcy is not exactly an easy route into legal practice so I think you're being a bit fixated on a v small edge case.

I have always paid all of my debts, including student loans. I think it is quite unfair that some will get off scot-free. What lesson does that teach?

Mathew 20:13 “But he answered one of them, ‘I am not being unfair to you, friend. Didn’t you agree to work for a denarius? 14 Take your pay and go. I want to give the one who was hired last the same as I gave you. 15 Don’t I have the right to do what I want with my own money? Or are you envious because I am generous?’

For student loan forgiveness the government is in the role of the landowner in this parable.

Pay close attention to verse 15. Who's money are we talking about here?

As I said, the government plays the role of the landowner. Perhaps you have the mistaken belief that the money you pay in taxes is still your money and therefore you don’t believe the government can play the role of the landowner.

> Perhaps you have the mistaken belief that the money you pay in taxes is still your money.

More precisely, I'd say that the government's right to take our resources by force and redistribute them is constitutionally subject and subordinate to their obligation to represent our will as voters. Maybe that makes me a radical?

I also wonder why, per your analogy, you think student debtors have some kind of employer-employee relationship with the state?

You are extremely radical because you talked about resources.

The government should absolutely tax limited resources to encourage efficiency and as little waste as possible. What the government should stay away from is taxing human work. There is absolutely no reason to do that.

The government is owed money. It has the ability to forgive it. That is its prerogative (viewing it as a single entity). It can do with its money (or obligations of debt to it) as it sees fit. Just like the landowner in the parable is able to do pay whatever he wants to the workers he hired last.

A long time ago I was on unemployment pay. It was a meager sum of money. I wasn’t upset that during the pandemic unemployment was quite generous.

It would be wonderful if a generous individual wants to pay off someone’s student debt. However, the government shouldn’t force everyone to do it.

To focus on the landowner is to entirely miss the point. It's a parable about envy, not about free enterprise.

So did I. I don't want others to have to go through with it. The lesson will be others will have money to spend on other things that will be more beneficial to me in the long run.

Are you saying a college degree isn’t worth anything? Or that you made a poor decision that someone else has to pay for?

The lesson here is some of us aren’t selfish. Ive paid all my debts, and I found it awful. I would rather a greater proportion of humans weren’t debt slaves

This is an excellent argument that nothing should get better for anyone.

If everyone did that we would have negative interest rates and from my experience economists aren't ready for a world that isn't enslaved through involuntary debt.

Reply on news.ycombinator.com