The case for canceling all student debt

http://money.cnn.com/2018/02/15/pf/college/canceling-student-debt/index.html?iid=surge-story-summary

What if the government wiped away everyone's student debt?
Let's be clear. No lawmaker has proposed such a plan. But researchers at the Levy Economics Institute of Bard College say it's a proposal worth considering.

It's a "radical solution to the student debt crisis, but one that deserves serious attention, given the radical scope of the problem," wrote Marshall Steinbaum, one of the authors of the report, in a blog post.

There is currently $1.4 trillion of outstanding student loan debt in the US, held by about 44 million people.

Nearly 70% of college seniors at nonprofit schools left with some debt in 2015.

The researchers looked at what would happen if the government canceled all federal loans (the majority of student debt) and paid off all privately owned loans -— as a one-time policy.

Their economic models show that canceling student debt would lead to a boost in GDP by an average of $86 billion to $108 billion annually over the next 10 years. They also show that it would reduce the unemployment rate by about 0.3%.

Related: Yes, student debt is delaying homeownership

Meanwhile the cost of paying off $1.4 trillion of debt would have a "modest" effect on the deficit and inflation over the next 10 years, the report said.

In his post, Steinbaum addressed two possible criticisms: that eliminating student debt is inequitable because the largest balances are held by the highest-income borrowers, and that the debt isn't a significant drag on the economy to begin with, since a college degree generally leads to higher earnings.

But Steinbaum says that those critiques are "much less true than they are commonly believed."

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My own observations based on my personal experience:
I agree with Steinbaum about the debt being an economic drag and income not necessarily being higher. Mine is nothing to brag about and I'm now making pretty sizeable monthly payments on a pretty large debt balance that will take many, many years to pay off at this rate. It's like indentured servitude. I also left the link in there for a related article about student loan debt delaying home ownership because this is true for me also. With that student loan payment, I would be hard pressed to save up a deposit and make a monthly mortgage payment.

Of course, the root of the problem is college being too expensive. Like healthcare, for reasons that just are not clear to me, higher education is terribly expensive in America and not necessarily better than elsewhere. Also like healthcare, it's one of those things that places an enormous burden on average people while enriching a relative few.

So, I would love to have that debt forgiveness. It would make a serious economic difference to me, and it's interesting that it apparently would not have a very great negative impact on the national economy to do this, yet would be a great benefit to people like me, and so would in turn actually prove an economic benefit the way a tax cut is, only even better since it's likely to make more of a financial difference than the typical tax cut would.

 

When this gigantic student loan program was sold to the public the idea was these were loans that were going to be paid back.

Now (no surprise there) we're finding out many of these students are unable to pay back their loans.

 

Can they reimburse me for paying it all myself?

 

How about just taking 15% out of their paycheck for any annual income over $24,000 ?

(That should also be a guide for just how much money these students can repay if a student loan program is set up in the future)

 

That would be quite a slap in the face of us taxpayers that made good decisions and saved up enough money to pay for our children's college education without them taking student loans. If the government decides to pay off these loans with taxpayer money, they damn well need to reimburse me for having paid for my daughter's education.

 

Colleges would love this. It would give them the ability to raise tuition prices even more.


Anyone that wants to make college cheaper only needs to be advocating for getting govt out of the student loan industry.

 

My initial feeling is "GREAT!!"

But then I think about those who faithfully pay or paid off their loans vs. those who would get a major break in their obligation if all were forgiven.

So here is what may be a better solution. . . . There are people who owe plenty on student debts but just cannot pay it back, and they are in the hands of collection agencies. The way that works is that after the bank has repeatedly tried to get payments and failed every time, the debt is sold for pennies on the dollar to collection agencies that want to take their shot at getting rich. So how about someone seeking "GoFundMe" contributions to buy up such uncollectible debt cheap and then hiring a company to notify all the debtors that their debt is forgiven?

The reason it may be more fair is that to get your debt classified as "uncollectible" it means getting a pretty bad credit rating than many would want to avoid.

Steven Colbert did this and with about $60,000 bought about $5 million in bad debt, and then had it all forgiven.

 

No, you take out a loan you are expected to pay it back. This is the same idiotic thinking that turned Greece into a shithole. As it is right now any remaining debt I have after 10 years is automatically forgiven because I started back at school just after the Obama admin rule changes so essentially I am getting a free ride unless I magically get a job that pays $100,000 a year. Currently my payments are extremely low because honestly I don't make that much which is expected of a poli sci major.

 

First, the government paying off loans means more taxes paid by responsable citizens and more debt incurred by government which leaves our nation in an even more unhealthy state.

Second, College Students need to learn responsibility not absolve themselves from it. Why would we educate kids to be irresponsible?

Third, if this is considered ok, why not pay off everyone's debt..., mortgages, loans, car loans...Or do we do that just for the privilaged...

 

First, government does not/can not wipe away debt. All it can do is redistribute the repayment of it to the taxpaying members of society, collectivization.
On one hand we're told that "a college degree generally leads to higher earnings", 'generally' I suppose being the key word. And, if true, the figures of "currently $1.4 trillion of outstanding student loan debt in the US, held by about 44 million people" would result in an average debt of about $31,818 each. A 4.5% interest rate would result in about a $330/month repayment over a 10 year period. My question is "would a college degree result in $330 or more additional earnings per month?" If not, are you wasting time and money going to college?
How about adding some lines on our tax form?
Enter the number of years of college completed.........?
Multiply the number of years shown above by .01.......?
Multiply your AGI by the number above.......................?
Add the amount above to the tax you owe.
That would hold those who benefit from a college education responsible for paying for both their own free college as well as others to gain a free college education, without burdening those who did not go to college. And the cost would be more relevant to the benefit gained. Perhaps honorary degrees should be included as well?
Imagine the tax revenue gained just from college athletes who become pros.

 

Neither loans or graduate taxes make sense. The gains from education (e.g. higher growth) are not restricted to the graduate. All you really need is a progressive tax system with sufficient variation in the marginal rates of taxation. That will maximise investment and also help with the widening participation agenda

 

But why stop there?
Why not let government wipe everyone's home loan debt, credit card debt, gambling debts, etc.

 

Sometimes, we make bad decisions in life and they affect our whole life. It's sad, but we don't get a trophy for participation.

 

Sometimes policy-makers force poor decision-making. We certainly get that result with the stupidity of student loans (such as reduced investment by gifted individuals from poorer backgrounds). Tertiary education has to be a free investment.

 

Listen, you have to start taking responsibility for your own life.

 

I expect responsible law makers. Charging for tertariary education is not responsible. It is illogical, both in terms of economic efficiency and equity.

 

I would go along with something like that. I am putting two kids through college out of pocket. Kids that do not have money for college could do something crazy like working their way through college. It is not my problem that they borrowed to much money and are having trouble paying it back. Borrowing for tuition is one thing but many students are borrowing for living expenses and books and room also. You could also cheapen the money needed by starting at a 2 year cc. I do not like paying for other people's mistakes.

 

The real issue is that these loans were originally made with unrealistic (or inaccurate) expectations about the students' ability to pay them back.

Some students were able to, and did, pay them back. Many students were not able to (whether through fault of their own or not). That ended up affecting the net balance of repayments. Let's keep in mind that while a loan can greatly benefit a young student's life, it can also ruin it. In other words, this loan program ended up helping some and hurting others.

Let's also keep in mind many of these colleges were telling young people there would be plenty of high paying jobs waiting for them after graduation.
Other young people took a lot longer than 4 years to graduate and so the loan repayment timetable didn't end up looking like people thought. (apparently people didn't factor that in to their decisions)

 

That is not my problem. Would you feel that way if I told you I bought way to much house and now I can not pay it off and the loan should just be forgiven. Nobody forced these people to sign the student loan. Life is a bunch of decisions and learning experiences, sometimes you make a bad one and have to deal with the consequences.

 

It wouldn't matter if they had been crafted by a bleedin genius! Given social benefits from tertariary education, any payment is irrational.

 

not to those who lend the money, obviously!!

 

To everyone. Social benefits means economic well-being is destroyed through reliance on the price mechanism.

 

Of course, Reiver, there's the other side to that coin also.

The costs are not restricted to that graduate.
And his degree may just be taking away a job from someone else without that degree. (some amount of zero sum game aspect to this all)

I know in some fields (even in STEM), the percent of graduates who can find jobs in their chosen careers is low.

I'm not saying there's no truth to what you're saying, of course, but the net external social gains may be smaller than you imagine.

 

What? You forgot an argument

 

why don't we ask everyone and see whether if the liberal gun is taken from their heads they will still want to pay for the social benefit of yet another of your libcommie welfare programs