Standalone student debt forgiveness is a terrible policy

Great Debates
101

I think you nailed this one, FWIW.

But PhD programs are usually subsidized, so most of the people who currently have hundreds of thousands in debt are not PhD students. They are lawyers, doctors, and other professionals who attended two-or-three year terminal degree programs. Most of them don’t need debt forgiveness, but neither have they made poor financial decisions. I’m willing to bet that most people with student loans did not make poor choices. The debt is still a burden in that it reduces cash flow and opportunities for taking on other debt (such as a mortgage) or investing, so I think it has a damaging impact on the economy overall, but from an individual perspective, taking on debt for a professional program is not, for most people, a bad decision. The major grievance these folks have is that getting a professional degree used to be a path to home ownership, children, retirement savings, etc and that is increasingly not the case. But even with all that debt, they still have a better shot than those who did not pursue higher education.

PhDs are a different kettle of fish. My husband’s PhD was a horrible experience but a smart financial move. On the flip side, I decided not to pursue a PhD because the odds of getting tenure are something like 4% and I would make less as an adjunct professor than I would at the master’s level. Not worth whatever ego boost I might have gotten.

Is the max really $50k? I’m trying to figure how that’s possible if my husband and I both ended up with federal debt greater than $50k. All of our current debt is federal and all of it is from graduate school.

102

It’s capped at different amounts depending on whether it’s undergrad or graduate school.

Undergraduates can borrow up to $12,500 annually and $57,500 total in federal student loans. Graduate students can borrow up to $20,500 annually and $138,500 total.

103

Again, since 2008 the message is “if you don’t get into a T14 school do not go to law school.” This has been made consistently, forcefully, and unambiguously clear from anyone without a financial stake in next-tier law schools that is asked.

104

You should look closer at that picture.

I mentioned that upthread. Why should someone who used the money and went to school and got a job have their loan forgiven?

Again, why does that matter with someone who took out the loan, went to school, got their degree, and got a job? People have houses and car loans on worthless properties. If they’re bankrupt they can discharge those loans but not otherwise, they’ll have to pay them off. Why should a college loan be any different.

Now if someone can’t get a job with their degree, they should get some relief, in the form of a refund from the school they attended. If they didn’t graduate they may be due some relief also, but often from the school that should have had stricter entrance requirements than just paying the bill. And yes, if someone is financially unsound they should be able to discharge their debt through bankruptcy. But I do not see any justification to forgive a loan taken out and used for the purpose that was intended when the debt can be paid off through their income.

105

The discussion that that is a part of was talking about getting a 4 year, and was in reference to people living it up and going to private schools.

106

I don’t have a fully formed opinion on the student debt, but is there even a genuine fiscal impact on forgiving it? Like I can’t imagine the Federal government bases much of its budget on an expectation of those loans being repaid, when Obama federalized a lot of the student loan debt, a huge percentage of it had never been paid on at all by the borrowers, and there is still a huge percentage of this debt that has never been paid down one cent. There’s another huge percentage for which the borrower is in deferment “most of the time” and only occasionally makes payments.

At least some portion of the student loan debt should actually be recognized for what it is–bad debt, and for that reason I’m skeptical it’s going to be much of a negative to forgive it.

107

I think encouraging people to go out and get a degree to make more money makes sense, as that means that they pay more taxes.

(I’m not doing strict math here, but it should be close enough, if you think it really matters, we’ll pull out a calculator.) If you have a 50k student loan, then you are going to pay about 500 a month, so 6,000 a year. If you make 100,000 a year, vs 30k, you are going to be paying 15,000 more a year in taxes.

Also, you get to write off the interest on your loans, which means that you get to “save” about 10,000 over the coarse of the loan in taxes.

So, just on the tax side of the equation, it makes sense to encourage people to go to college and pay for it.

That’s not counting the fact that they will be spending an extra 50,000 a year in the economy, paying sales and excise taxes, paying the salary of those who provide them goods and services, who also pay taxes.

Now, personally, my suggestion which seems to be have been passed over is that you can get your loans forgiven, but then you pay a higher tax rate for the next 10 years. That would mean that those who did not benefit from the loans wouldn’t be paying as much as those who benefitted far more.

108

Here’s a cite I found that supports your argument.

According to a Gallup poll of over 4,000 adults who obtained a law degree between 2000 and 2015, only 23% said obtaining a law degree was worth the cost.1 With the average law school debt coming in around $145,500, according to the most recent data from the National Center for Education Statistics.

I’ll give it to you. Law does not currently seem to be a good bet. But here’s a question. Do we honestly think that people with law degrees are worse off than people with Bachelor’s degrees? “Worth it” after all is subjective. Do we have any data for this?

109

If you spend three years in law school and take on 50K of debt to do it your net worth doesn’t decrease by 50K, it decreases by 50K plus the opportunity cost of what you would have earned working for those three years. Most people never make up for the total 200K or more in the hole that this puts them in because their earning potential isn’t increased by the law degree.

110

Even if you don’t forgive them, or forgive the whole amount, couldn’t you unilaterally drop the interest rates to zero for current and future student loans, would that help people, out or not that much?

111

My wife and I stand to benefit from a loan forgiveness program along the lines of the ones suggested here. As a foreign national, I wasn’t eligible for student loans for my grad degree in the United States, but my wife is American, and had loans from her undergrad and graduate degrees, and we’re still paying those off.

Despite the fact that we might benefit, I still tend to think that a broad-based forgiveness plan is not the best idea. There is overwhelming evidence that having a degree leads to significantly higher lifetime earnings, and I think it’s fair that the people who benefit from having the degree should also contribute significantly to paying it off. We’ve been paying, and it hasn’t sent us to the poorhouse.

And I also have broader concerns about spending and the debt, which have NOT emerged only because a Democrat is now destined to be in the White House. I’ve been heavily critical of Trump’s profligate spending as well, especially since it was combined with tax cuts, which made the deficits even worse than they might otherwise have been.

For the people who have been suggesting 50 grand to everyone, do you know how much money that it? Say we limit it to 50 million people, or less than one-sixth of the US population. That’s $2.5 trillion dollars, on top of the deficits we were already carrying, and on top of the more-than-three-trillion we’ve spent on COVID relief. It’s going to start to add up to real money pretty soon.

I agree that people should also think a bit more carefully before they get into mountains of student debt, but I also object to some of the asinine and reductionist about making “better choices” that have appeared in this thread. I also think there’s a difference between a post-hoc decision to forgive student debt, which is what is currently being considered, and an upfront promise that debt would be forgiven under certain circumstances.

That’s why these comments, in the conversation with @Jimmy_Chitwood, are especially silly:

If I understand @Jimmy_Chitwood correctly, the loan forgiveness he is talking about is the public service loan forgiveness program. This was a program created years ago, under a Republican president (2007), and designed explicitly to encourage and reward people who chose to go into certain areas of employment that could be defined as public service careers by forgiving the remainder of their debt after ten years of on-time payments while working full time in a public service job.

We can argue about whether or not this particular program constituted good policy, but if @Jimmy_Chitwood knew about the program, and explicitly chose to go into lower-paying public service jobs rather than (say) higher-paying corporate law jobs on the understanding that he would have the remainder of his debt forgiven after ten years, then it’s stupid to suggest that he has sacrificed nothing, or that he’s seeking special treatment, or that he’s being greedy. This was the deal that was offered, and he chose to take it. He’s not just being handed something for nothing; he’s getting what was promised for keeping up his end of the bargain.

It’s worth noting, too, that the government has actually (and, some people argue, intentionally) made this public service loan forgiveness program incredibly difficult to navigate and understand, to the extent that somewhere around 98 percent of the people who thought they qualified, and who applied to have their loans forgiven, were rejected. When it became clear that the whole program was labyrinthine and byzantine by design, and was intended to screw over people who thought they qualified, the government actually had to recalibrate the program and allow thousands of people to reapply.

Anyway, that’s my 2c.

Oh, one other thing: I think that this policy would definitely help:

We could quibble about the details of how much and how long, but making student loan debt forgivable in bankruptcy would force the supply side of the student loan equation to think more carefully about just handing over massive amounts of cash. Not only would that slow down the debt wheel, but it might act as a drag on college prices, because it’s at least partly due to the massive availability of easy financing that higher education costs have significantly outstripped inflation over the past few decades.

112

Yes, thank you. All of this, “we shouldn’t pay for their poor choices” nonsense is just the typical conservative party line that is used to keep poor and struggling people poor and struggling.

113

It doesn’t matter how many times you are pointed to facts showing that almost no holders of student debt are “poor and struggling” and that the primary objection to the program is that it is a subsidy tailored to middle class professionals - it feels truthy so we’re just gonna keep going with it.

114

First of all, I had to go hunt down a cite for you. You never responded when I asked for a cite so I’m not sure which facts you think you pointed me to.

I think you must be confusing me with another poster. I’ve said repeatedly, to you, and to all and sundry, that I do not believe student loan forgiveness is a good idea because most people struggling with student loans are not poor and can afford to pay them. That doesn’t mean they’re not struggling in some way, however, as I outlined above, their cash flow issues have affected their ability to take on more debt, to invest, to get married, to have children. It didn’t used to be that way. And that is why they want forgiveness.

“People don’t deserve what I couldn’t have,” as some have stated in this thread, is not an argument, it’s an ideology. We have to get down to brass tacks here about the actual pros and cons of student loan forgiveness, not regurgitate some ideological hogwash. You’ve made it very clear how low your opinion is of educated liberals, so let’s move on from that.

115

You mean the government backed loans? Nobody is forced to borrow the money. When are adults going to act like adults? It’s a bit like the mortgage crises a few years ago. You think it’s a good thing folks can walk away from obligations and allow others to pay their bills?

116

How is it nonsense? Is it different than credit card debt, house debt, vehicle debt, gambling debt, or any other voluntary transaction?

117

Because, as I’ve stated repeatedly, I don’t believe most people carrying student debt have made bad decisions. Nobody who has made that claim in this thread has provided evidence that it is true. The idea that people who struggle financially do so because of bad decisions is a tired conservative canard that shows its ugly face at every level, including, apparently, whether people should have their loans forgiven.*

*In case anyone forgot, I don’t believe that they should.

118

Saying something is a tired conservative canard is not a refutation of the fact that borrowing 10s if not over a hundred thousand dollars AND the opportunity costs of 4+ years of time for a degree that doesn’t have much market value is an irrational decision. It may not be technically stupid but it surely isn’t wise. There is plenty of data for what the cost of college is in terms of books, tuition, and housing. There is plenty of data for historical salaries and wages. It’s basic arithmetic to calculate the differences.

When money is spent on something such as an education typically people refer to that as an investment. If an investment has a negative return it’s not wise. Adults, adults who can serve in the military, marry and have children, and even vote should spend a few hours researching the current and the likely job market with regards to the degree they are purchasing.

Would you buy a $45,000 excavator if there was no market in which you could use the excavator to pay for it’s costs (including the time value of money)? Furthermore, every time there is a large scale debt forgiveness the signal sent is that irresponsibility is rewarded and responsibility is punished.

If I knew for a fact that debt forgiveness was coming, why shouldn’t I invest what I’m currently paying for a student loan into the stock market?

119

It’s actually nothing at all like the rent moratorium.

The rent moratorium has the cover that this is an emergency. Allowing a large number of people to be kicked out of their homes during a pandemic when it is unclear how long it will be before jobs return is a horrible idea with clear negative consequences and it had to be addressed right away. The rent moratorium is not a well thought out way of doing it, and creates a number of downstream issues, but it kept things from going off a cliff that was right there. It’s a crisis response to an immediate crisis.

Student loan debt isn’t a crisis. For a lot of people it means that they’re not participating as fully in the economy as they (or we) would like them to. For some, it’s more acute and they’re making choices between student loans and more pressing necessities. But for the most part, if the student loan problem isn’t taken care of tomorrow, or even next month, people are going to fine. This isn’t something that needs this kind of crisis-style immediate, first-day-of-office response. I’m not seeing good reasons not to take the time to find a comprehensive thorough approach to the problem and solution - this current proposal doesn’t seem like that at all.

120

Many people do the arithmetic and end up better off than they would have been if they had not gone to school. What percentage of people who currently have greater than $50k in student loans are better off financially than they would be without an education? What percentage had a reasonable expectation of employment going into their programs? That’s the question nobody even seems to want to try to answer. Because their assertions that these people have made “bad decisions” are grounded in ideology rather than fact.

People already do this. As I explained upthread, current federal loan repayment options make it possible to reduce your payments to amounts that are so small they don’t even cover interest on the loan. Some very low income people pay nothing at all. In our household we’ve gone back and forth between prioritizing the debt and prioritizing retirement. The reason for this, in all honesty, is that I hate debt and want it gone forever, and my husband doesn’t mind it as long as we’re coming out ahead in terms of net worth. A financial advisor may advise us to prioritize investments over paying down student loans because the return on investment would be greater than the interest rate of the loan. From an individual perspective, what matters in the end is not necessarily paying down the debt, it’s the final calculation of net worth.