This is a transfer of resources from a group of people who are on average less well off, to a group of people who are on average more well off.
Major reform is needed in student loans, and university costs in general. Maybe a big flashy headline here makes political action easier for real reform.
But I doubt it.
This is from the White House fact sheet
To address the financial harms of the pandemic for low- and middle-income borrowers and avoid defaults as loan repayment restarts next year, the Department of Education will provide up to $20,000 in loan relief to borrowers with loans held by the Department of Education whose individual income is less than $125,000 ($250,000 for married couples) and who received a Pell Grant. Nearly every Pell Grant recipient came from a family that made less than $60,000 a year, and Pell Grant recipients typically experience more challenges repaying their debt than other borrowers. Borrowers who meet those income standards but did not receive a Pell Grant in college can receive up to $10,000 in loan relief.
In context , it seems that anyone who received a Pell Grant at any time is eligible for the $20K. It seems that the idea is to provide more relief to those from lower income families *. In practice, there are few, if any, students who received a Pell Grant for only a semester or two. It seems they are trying to limit the relief offered to people whose families were well-off enough that they weren’t eligible for Pell Grants
I (naively?) assume that more federal taxes are paid by college graduates than those who have not graduated from college. Probably as a percentage of personal income as well.
Cite? How much money is going from poorer people to wealthier people via this program, according to your sources?
Because my off-the-top-of-the-head estimate suggests that it’s the other way around. Nobody who earns over $125K is even eligible for this forgiveness program, and the majority of tax revenue comes from people above that cap.
Think of all the taxes paid by poor people who couldn’t afford college as going towards…I dunno, Medicare or Social Security, and only rich peoples’ taxes going towards this program, if it makes you feel better.
I borrowed heavily to go through medical school, through a provincial program with an interest free period and reasonable interest rates. In general, I support forgiving a reasonable amount of student debt. It should apply mainly to those who need it. I do not know all the details and suspect one could quibble about a few things. But it was a campaign promise and, I think, more reasonable than otherwise. Of course good government supports education. I suspect the best American schools offer good scholarships but that the forgiven amounts are a drop in the bucket of the cost to attend them?
This.
I graduated without debt – in 1973; and with my parents having paid for it. An option which was available to a lot more parents in '73; but which wasn’t available to many actual or potential students even then.
People who are not yet fully adult get pushed, by all or nearly all their adult advisers, into borrowing huge amounts of money to go to college. And, even worse, they have to guess, at 17 or 18 or not much older, what field they’re suited to work in; without having had any time or any chance to try out various possibilities, or to learn what they themselves will be like as adults.
Even if they can get jobs in their field – they’re stuck. They can’t quit the job they discovered they’re bad at and can’t stand, and go learn to be a plumber or a farmer, or even in many cases to switch to another field that does want a college degree, just not the one they’ve got. (Not that a lot of plumbers and farmers don’t have college degrees.)
So the people are miserable, and the work gets done badly, and all of us pay for it. Forgive the damn loans already, and give people some breathing room to find the work they should be doing. Only a few people know what that is at 18, and a lot still don’t at 22.
Well personally, I made the excellent decision of being born to parents who made enough money to cover my educational expenses. Failure to do that just demonstrates the poor pre-natal planning of those graduates demanding a handout now.
More seriously, for political reasons I probably would have preferred something that was more of a loan modification rather than loan forgiveness, say drop the interest rate to zero and require an annual payment equal to 10% of your federal income taxes that year, with an equal amount matched by the government. That way those who sacrificed to avoid the debt get some advantage for having done so, but those who accrued debt aren’t overburdened.
I hear ya. I went to school awhile back when it was actually affordable. I had a financial guy advise me on how much it would cost to send my now 5yr old daughter to college when she turns 18. $250,000 for four years at University of Texas. That’s just insane to me.
It’s about resources in general, not just the federal budget.
Suppose I borrow money from the feds and make an investment in physical capital which afterward makes a high rate of return. We can say society benefits from the increased efficiency – that’s arguably why the return is so high. But clearly I’m benefitting, too, from the part of the return which accrues directly to me.
“Ah, clearly this was a good investment”, the feds say, as they wipe away part of my debt. What has happened? The dissolution of the debt has increased my ability to claim and consume yet more societal resources, even in excess of the return on the machine.
Production is finite. Those extra resources I claim will be because I outbid others with what was gifted to me.
One could rightly argue, in most other circumstances, that production is finite but not fixed: my wise investment increased total production, and the extra resources I claim for myself comes precisely from that extra productivity of the physical capital in which I invested. I claim more, because my investment created more. That is the standard argument, in fact.
But that does not include the original debt.
It is the ability to repay the original debt which signals the worthiness of the investment. When I am gifted with not only the return on the investment, but also forgiveness of the loan itself, the extra resources I’m allowed to claim benefits me in excess of my marginal contribution to total production.
This is true on top of any tax issues. (Which are really federal debt and inflationary issues, which are yet more complicated. Tax revenues are only part of the equation there.)
If the individual return exceeds the societal return, the cost is greater still.
But this is not necessarily a good analogy with education. The reason societies support education in the first place is because it has a shit-ton of positive externalities in all sorts of areas.
The benefit to society from an individual’s education is not limited to the amount of interest the government accrues from their paying off their student loans. Not by a long chalk.
10k sorry to say is a drop in the bucket. However It is welcome and supported. Thanks Joe.
My 2018/19 graduate accepted both subsidized and non-sub federal student loans. The interest rates at disbursement were 3-4%.
Along with small scholarships and university grants we still had to make up the difference. I co-signed sallie mae loans. Variable rates pre pay interest auto deduction my 800 credit score Great low. Low rates until recently, still under 5% though. And they get the education tax deduction as co signors on the loan.
State school in the UP.
They’re in repayment for the fed loans but it was suspended since 3/2020. Lives and works in Chicago. Saving rather than paying principal. I’d pay on it if I could. They’re. A Thrifter recycler, baker art maker, the 10k is welcome!
This doesn’t make sense to me. Please provide a cite. Most income taxes are paid by higher income people, and that’s what will be used to pay for this. (payroll taxes are paid for by everyone, but they won’t be used for this)
$10K or $20K is likely just a portion of a lot of people’s college debt, so AIUI, the payments on the rest of the debt resume in January (this was extended from 8/31), as does the accrual of interest on those loans (both of which were paused during the pandemic). So the relief provided here only shortens the length of time people with these loans have to repay, unless their debt was under $10K or $20K, in which case their entire debt is now wiped. So, the timing of all this is great in terms of the mid-terms, but reality will set back in come January and it will be business as usual for those with remaining debt - they are going to have to start paying off those loans again.
I have no beef with forgiving this small amount of debt - as mentioned it is likely to do more good than harm. I wonder why they didn’t go bigger? My issue is this sort of thing does nothing about the main problem here: why is college so damn expensive? I feel the loans themselves have driven-up college costs by making opaque the true cost to the customer. It’s probably been a great deal for banks and colleges who are guaranteed to get paid - the sky’s the limit with credit, right? While students absorb all the risk. If these loans were unavailable, or limited in some way, perhaps costs would not have risen so dramatically.
My wife went to school over a decade ago, experienced several health crises, and never finished. She still owes over $14,000 in debt. In fact, she owes more now than she did when she took the loans out because of interest and income-based deferred payment. She’s not a doctor or a lawyer or anything, just a woman approaching middle-age still carrying the baggage of poor decisions made in youth and bad luck. She is the sort of person this cancellation is meant for.
How long ago was this? College tuition, even at state schools, is massively higher now than it was thirty or forty years ago. I graduated from the University of Wisconsin-Madison with minimal debt, but that was 35 years ago, and the annual tuition for an undergraduate was only about $1000.
Here’s an example of a “cow college in flyover country”: University of Wisconsin-Eau Claire. It’s a good public school, but not a “public ivy.” Cost for a year there (two semesters, including dorm and meal plan) for an in-state resident student is over $17,000; for an out-of state student, it’s over $26,000.
For kids who aren’t from wealthy families (or parents who put a large chunk of change into college savings), and don’t get scholarships, loans are a reality now, even just for getting a bachelor’s degree. This site shows that 55% of students at public four-year colleges have student loans, and that, on average, they wind up with a loan debt of over $28,000.
I’ve heard some talk about capping monthly payments at 5% of income - not sure if that’s still a thing or not, or part of this program or not. I wonder if that would appease some of the cries of “responsibility!” while still enabling people to pay the rent, buy food, and the like?
For what it’s worth, it’s all basically direct lending now, from the feds to the student. Banks do make loans as well, but they’re no longer backed by the government and aren’t part of this program.
Although if you do that without capping interest, you end up with debt that is ever increasing and never ending.
There’s no matching, but it looks like there are already several programs that limit the payment amount:
https://studentaid.gov/manage-loans/repayment/plans/income-driven
They also limit the total repayment period to 20-25 years. I’m not entirely sure what advantages the forgiveness plan has over the current system–i.e., who is overly burdened with the existing programs?