This sounds like a terrible idea to me.

Am I missing something?

You want the pros and cons?

I'd love the pros and cons. I have an idea of some of them, but I'm sure I'm missing others.

Cravenly, it seems to me to be the voting equivalent of putting unqualified 33-year-olds on the federal bench--problematic in some very important ways, but a win for one side that will reverberate for generations.

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Originally posted by Mary Anna:
I'd love the pros and cons.

As would I....

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Originally posted by Piano*Dad:
You want the pros and cons?

Yes, please!

No worries. The Onion is on it!

I'm on the "con" side. Here are a couple of non-technical articles that explain it:

Canceling Student Loans isn't an Effective Stimulus

Matt has actually missed a point that makes loan cancellation even worse as a stimulus. You have to pay taxes NOW on your forgiveness, and that will depress spending at the moment, when we need more spending.

It's very regressive

Evidence from the Fed on who would benefit most from debt cancellation. It's not lower-income folks.

Pros?

Cynical: look at the politics. The winners are overwhelmingly the people with degrees, who lean Democratic. And well-educated people with above-average incomes tend to vote.

More substantial: Tackling the real problems that have pushed up student borrowing are economically and politically much more difficult to accomplish than waving the magic pen of debt elimination. Loan forgiveness is at least a start at signaling that education won't cripple your financial future with debt. The problem, as the above articles note, is that the bulk of the relief goes to people who CAN pay off the debt and who will likely be firmly lodged in the top 20% of the income distribution when they are middle aged.

Despite its regressiveness, wiping out loan debt does a bit of what social security does ... it wraps a benefit for lower-income people inside a program that benefits many more people. That makes the idea more politically viable than simply forgiving poor peoples' debts, or debts of dropouts who fail to earn a valuable credential (a largely overlapping group).

When Bernie talks about cancelling student loan debt, is he talking about stiffing the creditors?

Or paying off the loans with tax money?

The US government is the creditor. Canceling student loan debt wipes out an asset of the federal government the return on which supports future borrowers.

There are a lot of winners from canceling student debt. That's why it's popular with so many. The question (among many) is why we should privilege student debt over other forms of debt. The college grad who makes 75K gets her 30K debt wiped out, but the high school grad who borrowed 30K to equip his plumbing business does not. The person who borrowed 30K to go to Duke gets his debt wiped out but the person who flips burgers at McDonalds because they did NOT want to borrow gets nothing.

These are the kinds of complications the Democrats will face come Jan 20, and Elizabeth Warren's condescending tone will wear thin very fast. I fear the Democrats will overreach, yet again. Incremental progress will be derailed for another generation, on the altar of progressive maximalism.

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The question (among many) is why we should privilege student debt over other forms of debt.

Well, one reason for privileging student loan debt is because education should be free, and it's not.

Having said that...

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The college grad who makes 75K gets her 30K debt wiped out, but the high school grad who borrowed 30K to equip his plumbing business does not.

I agree that this is a problem. Plumbers are super important and we all need them. Privileging student loan debt over this kind of debt strikes me as classist or elitist.

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The person who borrowed 30K to go to Duke gets his debt wiped out but the person who flips burgers at McDonalds because they did NOT want to borrow gets nothing.

Right, this is the other problem.... And it's why education, including higher ed, should be free.

Back to the larger question.... I have not read very much about the push to cancel student loan debt, so this might be an ignorant question but...

Given that there are some people (MDs, say) with massive student loan debt who will also have exponentially more earning power than others (English PhDs, say), what about something like canceling a percentage of a person's student loans based on a ratio of loan debt to income?

Or, what about taking the public service loan forgiveness model and just expanding it to all student loan borrowers? IOW, not just people who work for non-profits or in education (and whatever other criteria the loan forgiveness model uses).

For those of you not familiar with the public service loan forgiveness model, it's supposed to work like this: You pay an amount based on your income for 10 years, or 120 payments, and then the remaining amount is forgiven. I say it's supposed to work that because the last time I read about it, I read that very few people have actually succeeded in having their loans forgiven. And at this point, I'm not remembering any details about why....

Anyway, this seems like a really good idea to me (assuming it has certain criteria in place and is accompanied by efforts to put a stop to those for-profit schools etc.) You get a degree (whether it's a 2-year, 4-year or advanced degree) and then you make payments on your loan (in accordance with your income). At the end of the 10 years worth of payments, the remaining amount is forgiven, without the job-type restrictions in place currently.

So, P*D, what do you think about that approach? What are the pros and cons of something like?

Public Service Loan Forgiveness has been a colossal failure.

A general discussion in the NYT

It's a mess in part because of the complexities built into the program purposefully to prevent people from cheating their way to forgiveness. But the complexity has also left the program remarkably powerless to accomplish its designated goals.

But this failure exemplifies many of the problems in trying to design a responsible way forward. The devil is in the details.

I do NOT begin from the proposition that higher education should be free. The bulk of the benefit of a degree goes to the degree holder in the form of higher income and better life outcomes.

The student loan program is a way to relieve financing constraints that get in the way of qualified people achieving those PRIVATE gains just because of their immediate financial circumstances.

Eliminating debt is mostly about transferring wealth, not about making the system that funnels people into higher education work better going forward. And as a transfer program it shifts wealth from the middle and bottom of the income distribution -- mostly those who don't have a degree -- to those at the upper end of the income distribution who do have a degree. That bothers me.

There are indeed ways to make debt forgiveness more progressive, and I would look at that. The price tag would be a lot lower and we could target the transfer a bit better. But you would lose much of the political bang by cutting out the upper income families whose kids borrowed to go to very fine schools. Again, the devil is in the details.

The push to do this is coming from a false idea of crisis that paints 30K in debt and a degree as a huge social problem worth soaking up a trillion dollars of resources that have better uses. Give me a trillion dollars to improve the aging infrastructure of the US and I'll add 1% to the growth rate of GDP. That will double per capita income over 72 years. Not at all clear that wiping out student debt will add much of anything to real growth rates over the long run.

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The bulk of the benefit of a degree goes to the degree holder in the form of higher income and better life outcomes.

What about the societal benefits of having a higher educated population? That's where my comment was coming from...

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And as a transfer program it shifts wealth from the middle and bottom of the income distribution -- mostly those who don't have a degree -- to those at the upper end of the income distribution who do have a degree. That bothers me.

Agreed.

I need to go back and read about the public service loan forgiveness program and why it isn't working as intended etc., but ...

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complexities built into the program purposefully to prevent people from cheating their way to forgiveness

What does this mean? Who are the cheaters? Presumably someone whose job doesn't fit the definition of "public service" and thereby, someone who's not "worthy" of having their debt forgiven?

If the job-category restriction was removed (i.e., anyone with a job could have their loans forgiven after 10 years' worth of payments), wouldn't that negate this concern?

Ah, or is it more devious? Like, someone who gets a degree and then purposefully works a super low paying job for 10 years in order to have super low monthly payments because the program uses income-driven payments, thereby paying back a much smaller portion of their loan than someone who gets a "normal" job (in a more expected salary range) and thereby pays higher monthly payments for 10 years?

If the latter, I bet the number of people who would actually do that is vanishingly small. It reminds me of the claims of people "taking advantage" of welfare payments.

Or is there some other kind of cheating you're referring to?

quote:

Originally posted by Piano*Dad:
The US government is the creditor. Canceling student loan debt wipes out an asset of the federal government the return on which supports future borrowers.

There are a lot of winners from canceling student debt. That's why it's popular with so many. The question (among many) is why we should privilege student debt over other forms of debt. The college grad who makes 75K gets her 30K debt wiped out, but the high school grad who borrowed 30K to equip his plumbing business does not. The person who borrowed 30K to go to Duke gets his debt wiped out but the person who flips burgers at McDonalds because they did NOT want to borrow gets nothing.

These are the kinds of complications the Democrats will face come Jan 20, and Elizabeth Warren's condescending tone will wear thin very fast. I fear the Democrats will overreach, yet again. Incremental progress will be derailed for another generation, on the altar of progressive maximalism.

Huh? The government is the gurantor. None of which says anything about whether or not the loans were ususy in the first place.

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There are indeed ways to make debt forgiveness more progressive, and I would look at that. The price tag would be a lot lower and we could target the transfer a bit better. But you would lose much of the political bang by cutting out the upper income families whose kids borrowed to go to very fine schools.

Doesn't maxing out the forgiveness at $75,000 (I think that's the current suggested number) partially address this problem. People who borrowed money to go to "very fine schools" will either owe a lot more than this or will have paid a lot more than this out of pocket that they will not see reimbursed. But people who flipped burgers through a state school or community college and still had to borrow a good chunk because they didn't have family resources might well see their whole debt wiped away.

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ususy

Did you mean usury?

I don't think people who advocate for canceling student loans are making that argument based on the interest. Also, I was curious and just googled, and the rates of various kinds of government or federal student loans all seem to be under 10% (i.e., reasonable).

Apologies in advance if I misinterpreted your comment, Daniel.