Cancelling Student Debt Is Unforgivable
betonit.substack.com
betonit.substack.com
For those of you who were too young to remember, there was once a time where merit-based scholarships were not bound to household income; thanks to the Reagan administration, that changed radically in the middle 1980s, with the result that gifted students from middle-income households which possessed any sort of investment income were harshly penalized, without an offset for family size, when it came to financial aid.
Even at a state school, the costs associated with student financial aid (or, stated differently, resulting indebtedness post-graduation) remain one of the key factors at ensuring positive financial stability after graduation.
The issue, though, is that most colleges and universities excel at a narrow range of innovation, while leaving much of the heavy lifting and banal achievement to private industry (in the general sense), whether corporate or individual in scale of effort. Much of this effort is by its nature experiential (though not all of it) and requires individual, life-long learning to contribute to the ecosystem.
The degree farm approach has harmed us all.
University != Trade School
American's insistence on a University education leading to a "good job" is profoundly misguided. If we forgive college debt it shouldn't be because we're trying to provide "college for all", it's because we should be held accountable for lying to vulnerable 18 year olds.
What we should be doing is encouraging, and providing funding for, professions and trades. We can start with the classical professions such as nursing, teaching, law, medicine, engineering and the natural sciences. The trades would include things such as plumbing, electrician, mechanic, welder, carpenter, heavy machinery operator, etc. I'm old enough to remember when one had the opportunity to go to a "career center" in lieu of high school and you could get an education in one of the trades and be ready to go with a job upon graduation. Now you have to pay to get the education that used to be provided for free.
I agree with the author. There is a credentialing arms race that must be cut off at the root - easy access to student loans.
The solution is simple - Government predicates receiving a federal student loan on demonstrating high academic ability, beyond just getting into a college. Standardized tests must be leveraged more to this end - not less - since they're the purest intellectual measure we have left.
https://journals.sagepub.com/doi/10.3102/0013189X20902110
> High school GPAs (HSGPAs) are often perceived to represent inconsistent levels of readiness for college across high schools, whereas test scores (e.g., ACT scores) are seen as comparable. This study tests those assumptions, examining variation across high schools of both HSGPAs and ACT scores as measures of academic readiness for college. We found students with the same HSGPA or the same ACT score graduate at very different rates based on which high school they attended. Yet, the relationship of HSGPAs with college graduation is strong and consistent and larger than school effects. In contrast, the relationship of ACT scores with college graduation is weak and smaller than high school effects, and the slope of the relationship varies by high school.
https://journals.sagepub.com/doi/full/10.3102/00028312198432...
> Since World War II, high school report card grades and standardized college entrance exams—most prominently the SAT and ACT—have been the two gatekeepers of university admissions ... It is surprising, perhaps, that high school grades are a stronger incremental predictor of college outcomes—including what is arguably the most important outcome of all: graduation.
Uhhhhh... I have been aggressively paying off my loans during this freeze. I'm not expecting the forgiveness of my debt.
Tough luck, that is true for everyone having monetary capital. Mostly people without the means to strategically invest. Sure, they are bit better off than those living from paycheck to paycheck.
I think the argument against education due to degree inflation doesn't have the correct goal. Sure, more people would have degrees and perhaps there is an inflation. This is without consequence while higher education does have tangible benefits. The author confirms that these arguments are already blowing in his face.
I would recommend that the author takes a look at other countries without education that costly. We live in the 21st century, the logistics of information have changed and spreading it takes fewer efforts.
It is certainly unfair to those that did need to pay their loans and those that granted them with the belief that they will get the money back at some point. The state really cannot really expropriate their loans as far as I understand it.
Most people who loan money factor in the chance that the money won't be paid back, for example, if the person who took out the loan files for bankruptcy.
Student loans, however, are much harder to discharge than other loans. (See https://www.nolo.com/legal-encyclopedia/student-loan-debt-ba... for how the process works.)
What the state can do is get let student loans be dischargable as normal consumer debt, just like it once was.
This opinion piece titled "Don't Cancel Student Loans. Let Bankruptcy Law Forgive Them" at https://www.newsweek.com/dont-cancel-student-loans-let-bankr... is one of many pieces arguing for that change to bankruptcy law.
The problem of course is that the fix flips it the other way: student loan debt is functionally the safest possible debt because it can't be discharged through bankruptcy. Loan someone any amount of money, and provided you estimate their net productivity over their life accurately, you'll get your money back.
In isolation all of this sounds somewhat justifiable, but in the real world the results are disastrous: students are gate kept from higher income by getting a degree in a serious way, so they take on this undischargeable debt which people are happy to keep lending, so there's never any counter-pressure to colleges raising tuition rates, and government can say "everything is fine! Look at these enrollment numbers not changing!"
The government lending money via blank checks as long as a person is enrolled in an “accredited” school was never justifiable.
Except to voters who wanted lower taxes now and the politician who could deliver those lower taxes by reducing cash spending on higher education facilities and instead lending to students which can then be booked as an asset on the government’s books.
Those waiting periods were put there as a counter to "the obvious play."
Let student loans be dischargable through normal bankruptcy again. If a waiting period of 5 years or 7 years isn't enough, why not?
Why is a potential life-long debt from a mistake made while still a teenager or in one's early 20s that important to maintain?
If it's still so risky, don't issue student loans! If a college education is so important to the country then the government can provide direct funding to the school and students.
> you'll get your money back
Plus interest, with earnings that exceed putting the same money into other investments.
Why do the current debt holders get their debt canceled? What about previous and future student debt holders?
Why are we paying off people’s student debts? What about other forms of debt too?
It doesn’t make sense to me.
Debt is just another name for obligations. Right now, pension fund (and the government i guess?) hold most of them. If the US governement choose to forget that debt, it will take it upon itself. Or issue money to repay it.
However, there is another danger than inflation or more government debt: people choosing to play an alternate game. Each generation have those. The hippies, then the back to landers were probably the first to check out. But now, you can see full communities stopping to play our game. They get an education, grow on adult's production, then after they grew up check out and join an alternative way of life, and produce mainly for themselves. But the proportion is growing way too fast, especially if you count the NEET staying at their parent's home and knowing that they can reach FIRE without the FI with their parent's assets (often high-middle class guys).
I am involved in this communities in my country. I fix electronics and configure arduinos for them. I know that if this continue, this will be an issue for my way of life, but really, the only difference between me and them asset-wise is luck and timing. I can't really blame them for stopping, if i was a minwage earner i would've stopped too.
The problem might be for profit unis rather than the debt itself. This, coupled with the explosion of non teaching or researching staff and facilities jacks the price.
You need to have finished high school to qualify for university, but if you then get into an unpopular field, that is the only real restriction. More popular fields of study at more popular universities require a good high school diploma, but even there it's possible to sit on a waiting list for a couple of years.
I disagree with Caplan's interpretation of this message (and I am also against "free college", generally speaking). I don't understand how one would conclude that "hold a debt for decades that you won't have sufficient employment opportunities to pay down, and then it might be forgiven" is a proposition that will increase attendance in college. To me this is a huge red flag to almost never take out a student loan, or do my due diligence very carefully before I do.
It appears disingenuous to consider student debt forgiveness to be "trillions in spending" (the government will not spend this money, the colleges have already been paid, they will simply stop removing it from the economy via payments from the debt holders). Surely Caplan, as an economist, knows this. He may think that increase in purchasing power due to the lack of debt payments is akin to new spending, but given 99% of debt holders haven't made a payment in 2 years (and we're, apparently, on the brink of a recession) that doesn't ring true to me.
That was probably true in the past, but the GI Bill after WWII definitely changed that.
Most students are in school because they want jobs, not to learn to think. The professors may be interested in that goal but how can they possibly achieve it with a student body that just wants their degree papers and a shot at the upper middle class?
Me learning more doesn't make you less knowledgable. Me printing money makes you poorer. This comparison of the money vs education case isn't useful.
>> colleges rarely teach new, cutting-edge skills
Do colleages teach ANY skills? Is that their purpose? I studied at the University of Glasgow in 2001, in my first programming class when i arrived, i had to land a rocket, SpaceX style, exploring the concepts of safety in the Ada language in the process. In my second year i was thrown into functional programming in Haskell.
Are these skills i could apply in the real world? Not directly, but the concepts were mind-expanding.
Ahem, with all due respect, but perhaps he is just not very good at his job...?
They stopped it I'm the U.K. and do you know what the result was? Slightly fewer educated people.
There are existing data points, you don't need to speculate endlessly about all the terrible things you think could happen. And while I'm ranting, where the hell does the stigma in the U.S.A. come from around helping people? It's not communism, it's just common sense.
Like, I wouldn't say the Zimbabwe dollar is inflating, its instead inflated
I have a cousin who refused to sit down with me to model their future cash flow, and plowed ahead with borrowing $300k between ages 18 and 27 to buy credentials that would only earn them $60k per year! I knew all this, I warned them, tried to educate them, showed them data, and they ignored me.
So if you want to help poor people, help all poor people. Not just the ones with student loans.
If it is a net positive to help a specific group for society, why not?
Why should only people of <characteristic X> get $y of help from the taxpayer funds that come from everyone?
The goal is not let the income/wealth gap get too wide, or to provide more opportunities for all people at the bottom. Giving cash to everyone involves zero politics, wastes zero time in arguing politics, and does the job.
For the record, I am against tax breaks period. If the government wants to incentivize something, it should pony up the cash to do it. This would reduce corruption, make it impossible to fudge the numbers, and increase transparency to prevent corruption.
Why should FEMA only help hurricane victims in a city just hit by a hurricane? "Help everyone and give some money to Boston where the weather is perfect."
Sorry, I don't see how that makes any sense.
Please state the goal of helping people with student loans. Is it because the student loans are causing them to be poorer? If yes, then you have your answer. Help all poor people, regardless if they decided to invest in a overpriced education.
By the way, the national flood insurance program is a political tool to buy votes from the (previously) swing state of Florida. Taxpayers all around the US subsidize Florida homeowners who want to live in the beach and in areas prone to disaster. This is not a good thing. Continuing to invest in flood prone areas over and over again is a waste of the US’s resources.
This is the type of corruption and misallocation of resources that happens when leaders tilt the scales. Subsidizing people spending their 18 to 30 years learning things or partying or whatever that people in the US and around the world are not interested in buying is also a misallocation of resources.
I have no problem with government providing people a floor for standard of living and opportunity to move up. I do have a problem with government rewarding bad choices, intentional or not.
> Please state the goal of helping people with student loans. Is it because the student loans are causing them to be poorer? If yes, then you have your answer. Help all poor people, regardless if they decided to invest in a overpriced education.
Some would argue this. This isn't what I would argue. I would say most that would benefit are certainly not poor.
> Subsidizing people spending their 18 to 30 years learning things or partying or whatever that people in the US and around the world are not interested in buying is also a misallocation of resources.
You can argue that you think the benefits of loan forgiveness are not there and we shouldn't do it for x, y, and z reasons. That's valid. Your argument that loan forgiveness is invalid because everyone should get the same instead, is what I don't necessarily agree with.
Are you stating that the government should help wealthier people, even though there are poorer people?
If so, we will simply have to disagree. The goal of wealth redistribution should be to close the income/wealth gap, and that means helping poor people more and rich people less.
I oppose bailing out only people who borrowed for higher “education” for the same reason I oppose bailing out only people who have equity in a failed business. Some investments succeed, and some do not. Bailing them out disrupts the feedback loop for properly allocating resources in society.
>Your argument that loan forgiveness is invalid because everyone should get the same instead, is what I don't necessarily agree with.
Two scenarios. A person decides to enter the trades because they evaluate the cost of higher education and probabilities of future cash flow, and determine tradespeople are more needed and will earn a more appropriate ROI.
Another person does not do any research and signs up for tens of thousands of loans and uses them to obtain skills society does not want to pay for.
Why would society reward the second person specifically for making a bad investment and not doing their due diligence?
And I am not indifferent to the fact that 18 year olds do not know the future, and anyone can make a mistake in projecting movement of supply and demand curves. Which is why I want to help all poor people, not just the ones that took out student loans that did not result in decent income paying work.
That does not change the fact that the impetus to give people student loan debt relief is that the student loans are making them too poor.
Your logic is flawed.
The logic of helping with student loans is the student loans are making them too poor. Hence the reason to help them is because they are too poor, and government wants them to not be so poor.
Logically, the government should be helping all who are deemed too poor, regardless of why they are poor.
Child tax credits are neither here nor there in this discussion, because their purpose is to be an incentive to raise children for society. Although I would prefer it to be done via straight cash also, as opposed to meddling with taxes.
There may be debt servicing firms making an income from student loan payments, or student loan refinancing companies, but we could ignore those and say they are ineligible.,
I say this as a person who 100% supports student loan forgiveness and will experience no direct benefits (as I re-financed all of me and my wive's (much larger) student debts while interest rates were low).
I don’t know why people feel in opposition to helping people who have gone to school.
Help everyone that needs help, equally. And it is easy, give them cash.
I feel that only helping the subset of students who - with seeing eye - moved into an expensive course and then could not pay back later, while not somehow giving support to more responsible people (who did choose not to go into an overpriced education OR who paid of their debts) is giving the wrong incentives - go yonder and consume, throw out money with both hands, and then wait for the next politician to pay your debt (with money paid for by the more reasonable folks, which we indirectly punish that way).
A marginal income tax takes care of making sure it does not help non poor people.
People and companies go into debt for many reasons, and can declare bankruptcy. That includes income tax debt - also money owed to the government.
And, those who loan money know there's a risk of default.
Quick DDG search finds https://www.bankruptcysoapbox.com/government-loans-that-bank... :
> Believe it or not, certain unsecured loans from government entities are dischargeable in bankruptcy.
> This includes SBA loans, and loans made through The Department of Veteran’s Affairs (VA), Department of Housing and Urban Development (HUD) and others.
or from https://www.alllaw.com/articles/nolo/bankruptcy/discharge-sb...
> On the contrary, with the exception of student loans, most government loans including SBA loans can be easily discharged in bankruptcy.
Without bankruptcy laws we end up with debt bondage and peonage.
You know that companies can also have government loans, right? Because of limited liability, the owners can declare bankruptcy and dissolve the company without being personally liable.
Which sounds like you want capitalists to have more freedom in what they do with government money than those who accept personal debt. The rich get richer and the poor become peons.
While you don't like it, the government is in the student loan business so, like everyone who loans money, must accept that they might not get all the money back.
Besides, your point seems to be that government shouldn't loan any money if there's any sort of risk, not just to students.
And apparently that companies with limited liability protection shouldn't take government loans either.
Do you want veterans leeching off your taxpayer dollars via VA loans and then declaring bankruptcy?
Do you want homeowners leeching of your taxpayer dollars via HUD loans and then declaring bankruptcy?
Had normal bankruptcy law applied, the accumulated debt would be nowhere near this high.
It isn't, however, a justification for why student debt should be treated so specially.
Since the government was also responsible for the mountain, they also need to be part of the solution. Which can include forgiving debt.
What about the student loan "processing agencies" which take a cut from student loan interest? What do they owe society? Are you saying that there's no fault there?
What about the money that does go to uni? Did it just disappear?
What about universities that intentionally increase tuition because of the high availability of student loans? When you're 2-years in to a 4-year degree, and the uni increases prices...what happens then? Abandon the program? Not? Back when I was a student, my uni increased tuition fees nearly every semester.
This is nowhere as clear-cut as you make it out to be.
Edit: one more thing...how in the hell is a 17-year old high-school student supposed to figure all that out when every adult in their life is encouraging them to go to uni? We're essentially saddling our youth today with life-long debt before they're really capable of understanding the consequences of doing so.