Are you this dramatic about every form of government bailout that doesn’t directly benefit you?
Edited subsidy to bailout.
Edited subsidy to bailout.
Normally a subsidy is established in advance to incentivize some behaviour, like... manufacturing solar panels or something.
A retroactive payment to only specific indebted solar panel manufacturers is called a bailout and does not have that effect, unless it was widely anticipated. It distorts the competitive landscape because it gives them a leg up over competing manufacturers who held back on investments that they would have made if they'd known the debt would be forgiven, and over new companies who are about to take loans to invest in their own factories, who now have to compete against fully-amortized equipment.
So in other words, it's not really a proper subsidy unless it's also available to new students going forward. But due to the weirdness of the education market, that would probably require some form of tuition price controls too.
One complex bit of debt forgiveness is what happens with those who have sacrificed much to already pay off much of their debt. Should they get some kind of repayment?
All it will do is encourage more borrowing in the hope that there will be another future round of forgiveness. And lenders will have every incentive to offer those loans in the hope that the government pays for it. This money will enable colleges to raise tuitions more, and we get the same problem we've had, just grown more.
Instead allow student loans to be disengaged in bankruptcy. Just like other debts, and just like student loans could before George "W" Bush changed the laws. Now students aren't incentivized to hope for another forgiveness round, lenders aren't either, and we aren't pouring fuel on rising tuition. Plus we'd offer ongoing assistance to those who got in the worst binds. (Unpleasant assistance to be sure. But not a one time bandaid, and very precisely targeted at those who need it most.)
Countries that offer free tuition tend to pay universities directly and cap payments. That provides a strong incentive for universities to control costs. Similarly students who take advantage of the prospect of free tuition do not themselves go into debt.
By contrast student loan forgiveness involves forgiving loans to students who have already gone into debt. This makes their private loans easier to pay for them. The prospect of this makes people more willing to go into debt. Nothing about this program gives universities an incentive to control costs.
Rather than compare this to free tuition, it is better to compare this to other programs that make it easier for students to borrow to pay high tuition. The USA has had a lot of these programs, and the result is one of the factors driving tuition to rise faster than inflation for a half-century now.
I'm just predicting that the result of this program will be the same result that we've seen for the last half-century.
I took out students loans and struggled financially with very little help from my parents. I graduated with about $25k in debt.
Ten years later, I’m finally about to pay it off completely. I’ve been very fortunate to get jobs with salaries that allowed me to do this.
I realize not everyone is fortunate in this way. But, at least in America, college is a financial decision. The argument about whether or not it should be is meaningless here. People knew going in what the cost would be, and how much in loans they’d need to take out.
Someone taking out $100k for an art degree made a decision that likely wasn’t very wise. Why should someone that made more responsible decisions and made sure they’d be able to pay their debts now foot the bill for those that didn’t? This isn’t like other welfare — food stamps, for example. This is someone taking out a loan for something and not being able to pay it back.
It might not directly benefit me because I worked to make sure my student loan could be settled. It’s a really tough sell to anyone that has done that. Had I felt confident we would be forgiving student debt, I would have simply reconfigured my pay off so that it was over the longest possible term with the lowest possible monthly payment and just wait.
If our government decides to forgive student loan debt, I’d fully expect a check in the mail for what I paid. That only seems fair.
Sue the school if they lied to you about the prospects of the degree. If they didn't and you went into this deal clear eyed, why am I paying for your years of partying?
But I was too poor to even think of going to University in the UK, and that's not even half as bad as it is in the US; it's not just the student loans; it is also student living (rent, food, supplies), putting earnings on hold for half-a-decade and the possibility that you may not even have anything to show for it in the end (if you can't hack it or if the degree turns out to be not in-demand) it's not like you're guaranteed work.
It's a gamble, and a hard one to make if you're from a lower-class blue-collar or non-working household.
I'm sure I'll get a deluge of very privileged people here telling me that it would be effectively free to have an education in the UK due to certain debt forgiveness models and earning thresholds, I'm aware of those, but people would be hugely missing the point.
We need to stop treating colleges and college administrators as only the purest churches and priests.
It would be a major net positive if half of all universities went bankrupt, as was already predicted by HBS professor to be in 10-15 years.