Standalone student debt forgiveness is a terrible policy

Great Debates
141

Does debt forgiveness teach financial responsibility?

Some newly graduated doctors and dentists have problems because even though they make some good money, they have this huge student debt which they dont hit right away and instead, start an affluent lifestyle with the expensive houses and cars.

I mean what even a doctor making $200,000 should do is keep an austere college student lifestyle of beans and ramen and riding a bicycle for about 2-3 years until their student debt is gone before buying that big house and cars.

142

Also whats causing the high cost of college ARE these student loans. Colleges have no reason to cut costs because they know no matter what students will be able to pay for it.

So if all the student loans are forgiven in 2020 whats to keep colleges from doubling the prices and cutting student aid in 2021?

143

Gosh, I wonder why so few people want to go to medical school nowadays.

I don’t think I want a heart surgeon who lives on beans and ramen and rode a bicycle to work. I think I want one who is well-fed, well-rested, and is moderately satisfied with the fruits of living on a shoestring budget through 12+ years of schooling and residency.

To address the OP, I think loan forgiveness can be a good tool if done correctly. Perhaps exclude certain fluffy academic fields, perhaps means-test the forgiveness, perhaps gradually phase out the benefit as it rises beyond $100,000 and cap it entirely at $150,000.

I think it’s entirely unrealistic to expect folks to self-fund any sizable part of a $100K education, by doing so, we get less doctors, engineers, scientists, etc. But there’s got to be some modicum of accountability to discourage people from overspending, and to encourage people to choose fields that are useful to someone other than themselves.

144

You also shouldnt want a doctor who has $200,000 in outstanding loans PLUS an expensive lifestyle they just started and must keep up.

145

Well, yes, I don’t want a doctor with $200,000 outstanding loans. That’s sort of the point of loan forgiveness.

Are you suggesting $200,000 is excessive for 4 years of university plus 4 years of medical school plus 4 years of working as a resident, supporting a family on a salary of barely $60K per year? Do you know anything about medical schooling expenses at all?

146

As a general proposition, I tend to agree with this. There is no doubt that society benefits, in the aggregate, from an educated population.

In terms of the tangible financial benefits of a college education, though, most of those tend to accrue to the actual people who go to college. Why shouldn’t the people who stand to benefit financially from attending college (to the tune of about $1 million over the course of their working life, on average) be required to pay for a considerable portion of the education that gave them the opportunity to increase their earning capacity?

I think that Australia, where I did my undergraduate degree, does quite a good job of balancing the general public interest benefit of making college accessible, on the one hand, with the personal responsibility aspect of paying for your own education, on the other. Basically, if you’re an Australian citizen attending an Australian university, you can get a loan from the federal government to pay your tuition fees. You then start paying back the loan after you graduate and begin earning money.

Sounds pretty similar to the United States so far, right?

That loan, however, is not administered in the same way as American student loans. Rather, loans repayments are automatic, and are essentially administered through the taxation system. Your loan repayments are added to your regular income tax bill. The repayment levels are also automatic, and are calculated based on your income.

Currently, if you owe money for your education, but earn less than $A46,620 per year, you do not have to make any repayments. Above that threshold, repayment percentages increase as your income goes up. A person making $A50,000 per year pays 1% of their income towards their loan; a person making $A80,000 pays 5%, and a person making over $A136,740 pays 10% per year. The full set of tables can be found here.

These repayment brackets are marginal, but they don’t work quite the same way as regular marginal tax rates. Once you qualify for any level of repayment, that percentage applies to your whole income. So, for a person making $A50,000 per year, the repayment is 1% of $50,000, not just 1% of the portion above $A46,620. A person making $150,000 per year owes 10% of that, or 15 grand, to pay back the loan.

This system is designed to ensure that people on lower incomes are not excessively burdened by large loan payments, especially early in their careers, while people on high incomes have to pay back their loans quickly, ensuring that there is a steady stream of money back into the system. It also ensures that people who benefit financially from their decision to go to college end up paying for most of their own tuition.

These loans do not attract interest in the way that American loans do, although they are indexed to inflation. Each year, the government calculated the consumer price index (CPI) inflation for the year, and that is added to the amount of the loan. They are basically designed to be revenue-neutral for the government.

Of course, a system like this, whatever its benefits and drawbacks, would be very difficult to introduce in the United States because it is run by the federal government, and Americans tend to be much more wary than Australians of federally-controlled systems like this.

147

This. I also believe those who went to (now defunct) privately owned trade type schools should also be granted forgiveness. I know some have, but it wasn’t blanket forgiveness, and very few requests were actually approved.

If a person has been granted a deferral multiple times, there should at least be permanent waiving of interest, if not outright partial / full forgiveness.

I know a younger person (27) who currently has over $180k in student loans because she couldn’t decide what she wanted to be when she grew up and in her family not going to college was not an option. In her six years of undergrad studies, she changed majors at least four times. She changed schools three times. After all that, she ended up with a BA having to do with social media and marketing. She’s currently a glorified assistant at a non-profit and a barista. She’s also considering going back and trying to go down the Pre-Law route (again).
In a situation such as hers, I honestly do not believe full flat out forgiveness would be appropriate. However, I do believe there should be some plan to assist - whether it’s waiving of interest and dollar-for-dollar forgiveness or something like volunteer for forgiveness.

148

I am not sure that loan forgiveness is GOOD policy, but I can see the argument for why it could be justified as PUBLIC policy when forgiving those other consumer loans could not.

149

Ok, it can be used as an argument. It is just an excuse though. You can say exactly the same thing about car loans which allow people to work and mortgages that allow people to live indoors. Make it into a political issue and you’ll get the same kind of support.

150

You cannot, however, make a good argument that car loans can be forgiven via executive order, which is why this thread has occurred and not a different one.

The question “why this and not other things” has been asked and answered. It’s really a question of whether the nothing, or nearly nothing, that he will end up doing, is better than the something of giving people more money to spend by taking away their $500 student loan payments at the stroke of a pen.

151

I was curious what percentage of borrowers are currently on an income-driven repayment plan for federal student loans, so I found some numbers.

Income-driven repayment plans, which are four different plans that set monthly payments based on income and family size, have become increasingly popular among borrowers. From 2010 to 2017, the percent of undergraduate borrowers enrolled in income-driven repayment plans grew from 11% to 24% and the percent of graduate borrowers enrolled in income-driven repayment plans grew from 6% to 39%, according to a 2020 report from the Congressional Budget Office.

So when it comes to graduate students (more likely to have large debt burdens), we have 39% of them in some form of income-driven repayment plan, which probably means they’re not making any payments on the principal of the loan. If they remain on these plans, the debt will continue to grow. If these repayment options suddenly vanished, a huge number of borrowers would likely go into default. So I guess they can’t meaningfully be thought of as people who can afford to repay their loans.

152

Banks aren’t the ones making these loans. The loans come from the government.

And part of the reason for high medical costs is because these doctors are paying off these $200,000 loans.

If medical degrees didn’t cost as much, medical care may not cost quite as much either.

That Australian model seems pretty good, and while I can see reasons why it may see resistance here, the student loan program is already run by the federal government. That’s why, in theory, Biden may be able to cancel that loan debt by EO.

Well, we do have mass transit, and we do have subsidized housing. I would argue that both can and should be made better, but to the idea that it is a public policy to give people means of transportation and the ability to live indoors is already in play.

We don’t have a means of providing post high school education as a public good, other than the student loan program.

153

This ^ I think that this one policy change alone would help.

It would also put an end to unscrupulous business, er, “student recruiting” practices of some schools who get students on the hook knowing that they’re in the high risk category of not being able to complete their education. AFAIK, higher ed loans are the only types of debt that can’t be discharged other than taxes, and you can often cut deals with the IRS or local tax agency if you can show cause.

If we want to discharge or set up a plan to work toward discharging certain amounts of debt, I might be on board with that. But discharging all loan debt across the board just strikes me as setting up moral hazard.

154

No one’s actually made any real argument for the notion that student loans, and student loans alone, can be forgiven by executive order. It’s just been a loudly repeated premise but as I pointed out the only reasons given to think it has a grounding in law are “Chuck Schumer said so” and “for political reasons, it likely wouldn’t be challenged.” Neither one is particularly convincing as far as the actual legal basis goes.

155

But the government involvement is much greater in Australia, because the vast majority of the Australian university system consists of a federally-funded system of public universities. In some ways, the Australian system is like a national version of a large American state university system, like the University of California, or the California State University, or the State University of New York, each of which has multiple campuses under a single umbrella, and under government authority.

The federal government can oversee the student loan and repayment system because the federal government determines not only how much they will lend to students, but also determines the budgets of the universities themselves and the fees that they are allowed to charge to students. There is no massive discrepancy between universities in Australia, the way there is in the United States, where prestigious private universities charge over $50,000 per year, while lower-tier state schools might charge $5,000 for in-state students.

In fact, for students at Australian universities, the amount they pay for their degree depends not on which particular university they attend, but on their area of study. There’s a table on this Wikipedia page showing the full-fee annual cost of each degree, the government contribution, and the student contribution. As you can see, a student studying in the Humanities, Social and Behavioral Sciences, and Education pays just over $6,000 per year for their education. A student studying Mathematics or Engineering or Science pays about $9,000 per year, and a student studying Law or Medicine (both are undergraduate degrees in Australia) pays about $10,500 per year. While students in fields like engineering and medicine pay more, you can see form the table that the government actually subsidizes their education to a greater extent than other fields. The areas of study that get the least government subsidy (as a percentage) are Law, accounting, commerce, economics, administration.

The heavy government subsidies for education means that the government and the universities try to claw back some money through the admission of full-fee-paying international students. Australia has more international students in its universities than any other country in the world, with almost 27% of the student population in Aussie uni9versities coming from overseas and paying full fees for their degree. Those full fees, though, are often still a fair bit cheaper than full out-of-state/international fees at American institutions.

156

Are there no private universities in Australia?

Looking at it, there are 3 private, and 2 international private universities, out of 42 total.

That’s definitely less, seems that US is about half and half, though out of a much higher number.

Of course, a public university in the US is more run and funded by the state than the Fed, so definitely some issues there. Ultimately, though, I think that if you want to go to a private university, you should either pay your way or get a scholarship or something. Student loans, grants, and potential forgiveness for those loans should only apply to public colleges and universities.

157

Of the three domestic private universities in Australia, none of them are comprehensive universities like Harvard or Johns Hopkins or Stanford. Bond University has programs in law and business and health sciences, while Torrens focuses on business administration, public health, commerce, and media and design. They are, in some ways, vocational universities. They don’t have large humanities and social science schools, or engineering, or the range of hard sciences (physics, chemistry, etc.) that regular universities have. The third private university is a divinity school.

I’ve been through the Aussie system, and I have nieces and nephews and friends’ kids who are at university there now, and for basically 99 percent of the population in Australia, it’s only the regular public universities that are on their radar. The private colleges are considered, for most people, a measure of last resort. It’s nothing even comparable to the system in the United States, where many of the best and most prestigious comprehensive universities are private.

The irony is that, especially at the undergraduate level, student loan debt is, on the whole, much greater for students who attend public universities. That’s partly because a lot of private schools attract wealthy students whose families have no trouble paying for their education, but, just as importantly, private universities generally have financial aid and tuition waiver programs for the less wealthy families, as well as merit-based educational and athletic scholarships.

At many private schools–especially the prestigious, well-endowed universities–if they accept you, then they also make sure that you get financial assistance if you need it. One of my colleagues sent his daughter to Cornell a few years ago. He’s a history professor, and makes decent money, but there’s no way that they could afford the full cost of attendance, which is currently $58K per year for education, plus about $15K for housing. His daughter got some of her tuition reduced by an athletic scholarship (she was on the cross-country team), and some by other grants and aid from the university.

I went to grad school at Johns Hopkins, whose prices are similar to Cornell’s. Right now, over 50% of Hopkins undergrad freshmen receive need-based financial aid, and the average need-based grant for those students is $44,000. If you are one of the lucky ones who get accepted, the fancy private schools often end up being a lot less expensive than they first appear.

158

Ok. So how does it follow that we have a loan program but don’t make people repay the loans? Do we refund the money people spend to take the bus to work?

159

Ivy League schools do not give athletic scholarships.

Still, it is true that for the most part, the household name private universities give aid packages to students that make the school affordable and the debt burden very reasonable.

I am surprised that most student loans are federal student loans (as the bulk of mine were private). That makes the Australian model more interesting.

160

Right - they just happen to find dozens people every year with the size and skill of Division I football and basketball players who are also able to get into Harvard on academic merit, and then “meet 100% of financial need.” It’s an amazing streak of luck.