Cancel student loan debt?

[lomiller]

Guy goes to the bank to get a small business loan. He's got an idea for a do-it-yourself bakery, where he supplies the ingredients, the bowls, the ovens, and the instructions, and people can come bake their own cookies and whatnot. He manages to sell the bank on that idea, so they loan him $100K to start it up.

Guy spends that money to get up and running... but the idea just doesn't take off. People don't seem all that interested in traveling to his shop to do something they can do in their own homes just as easily. Guy's business goes bust.

He goes back to the bank and says "That didn't work out, and I can't pay the loan back".

Is it reasonable for the bank to say "Oh, it didn't turn out the way you thought it would, so you don't have to pay back the money you borrowed. It's okay, we forgive the loan"?

Yes, it is reasonable. In fact it's economically beneficial because it encourages risk taking and entrepreneurialism. There is a well established legal mechanism for doing exactly this. It's called bankruptcy law.

 

[TragicMonkey]

Yes, it is reasonable. In fact it's economically beneficial because it encourages risk taking and entrepreneurialism. There is a well established legal mechanism for doing exactly this. It's called bankruptcy law.

It's not economically beneficial for the bank, though. It may or may not be economically beneficial for society at large, but the bank's eating the loss. This will make them less inclined to lend money to other people.

Bankruptcy is like amputation of a limb: sometimes it's necessary, and better than not doing it, but it's not a desirable treatment and should never be relied upon as a reasonable outcome. Ideally we want to avoid disaster, not merely ameliorate it when it happens.

 

[Beelzebuddy]

Because not everyone is getting debts forgiven. Is the exchange of favors, out of niceness, alien to you? My parents fed and housed me when I was a kid, I certainly didn't pay them back equivalently for that but I did mow the lawn several hundred times.

I'm not "getting pissy". As I said several times already, including the post you responded to, I'm not against debt forgiveness. I just think it would be nice if people getting such a lovely gift from the public did something nice for the public. As thanks. Which today of all days if you're American ought not to be an alien concept!

Informal rules of niceness and etiquette are great for individuals, but should be kept as far as humanly possible from any kind of government function.

One of the things I'm thankful for is not living in a country where my life depends on some stranger deciding if I've been nice enough to repay a favor.

 

[lomiller]

Prestige's question is a good one. Had I not been priced out of the education market, I might have reached a level of employment that would have paid back the loans in only a few years. At this point, having seen no return at all on investment, doe you see why I'm reluctant to risk more?

The underlying logic is flawed. We should not just be considering the risk/reward for the individual involved. When people are productive only a part of the fruits of that productivity flow back to them, their employer benefits, so does the employers customers, so do the business that sell services to that person. In fact there is an economy wide trickle down benefit not being accounted for if you just do a cost-benefit analysis for a single person..

On a per person basis this may be large in some cases, small or even zero in others but added up over tens of millions of employees the net gain economy wide is huge and everyone who participates in that economy benefits from it.

A second issue is that for much of the money university students spend isn't directly funding their education, rather it's funding the overall operation of the University, which in turn is helping that University participate in the basic research most of our knowledge and economic success ultimately arise from. How much time does a typical university professor spend teaching, in most cases it's a relatively small amount. Maybe a little more if you add in graduate courses, but graduate students are also supposed to be adding and contributing to our overall knowledge and understanding. Again the overall public benefit not accounted for just by looking at cost-benefit to an individual student is huge.

 

[lomiller]

It's not economically beneficial for the bank, though. It may or may not be economically beneficial for society at large, but the bank's eating the loss. This will make them less inclined to lend money to other people.

Bankruptcy is like amputation of a limb: sometimes it's necessary, and better than not doing it, but it's not a desirable treatment and should never be relied upon as a reasonable outcome. Ideally we want to avoid disaster, not merely ameliorate it when it happens.

In the early the early to mid 1800's the US had bankruptcy laws Britain had debtors prison. Bankruptcy laws proved to be a large economic advantage for the US and was a major factor in higher US growth, higher US productivity and higher US standards of living. Lenders took a hit, but the spin off economic benefits far outweigh it, even for the banks themselves.

 

[TragicMonkey]

In the early the early to mid 1800's the US had bankruptcy laws Britain had debtors prison. Bankruptcy laws proved to be a large economic advantage for the US and was a major factor in higher US growth, higher US productivity and higher US standards of living. Lenders took a hit, but the spin off economic benefits far outweigh it, even for the banks themselves.

I'm not saying bankruptcy law is worse than not having bankruptcy law, I'm saying it's insufficient to solve the problem.

 

[Checkmite]

There's a point where rewarding people for having made bad decisions is really just not a good idea.

This is where the disconnect is. You see the forgiveness of predatory education loans as a "reward" to irresponsible people. I see them as more a combination of humanitarian aid - essentially a form of financial disaster assistance - and restitution for having been victimized as a teenager by a financial entrapment scheme. Because of these point-of-view differences we're not likely to ever see eye to eye on this issue.

 

[theprestige]

Prestige's question is a good one. Had I not been priced out of the education market, I might have reached a level of employment that would have paid back the loans in only a few years. At this point, having seen no return at all on investment, doe you see why I'm reluctant to risk more?

I'm glad you think my question is a good one. I don't see how this answers it, though. You got a degree. Degree-related jobs pay well, yes? So you start earning, you support yourself, and you have a little left over every month to pay towards the loan. Sure, the education was expensive, and it'll take a while to pay off, but so what? You knew that going in, right?

 

[theprestige]

I also worked my way out of student debt. It was a crappy situation and I wouldn't wish it on anyone

This is the part I don't get. Debt isn't automatically a bad thing. Borrowing money for some fruitful purpose, and repaying the lender with some of that fruit, is generally viewed as a positive thing. What made it so crappy for you?

And you did wish it on someone - yourself. Did you not know what you were getting into at the time? Did a wealthy scoundrel seduce and betray you or something?

 

[theprestige]

The underlying logic is flawed. We should not just be considering the risk/reward for the individual involved. When people are productive only a part of the fruits of that productivity flow back to them, their employer benefits, so does the employers customers, so do the business that sell services to that person. In fact there is an economy wide trickle down benefit not being accounted for if you just do a cost-benefit analysis for a single person.

Two things: First, the individual who borrows the money should absolutely be considering the risk/reward for themselves. Regardless of how much society benefits from their education, they still have a debt to pay off.

Second, as the lender, taxpayers and their government representatives should also absolutely be considering the risk/reward to our society, from making these kinds of investments. If we need more, better schoolteachers, then we should lend money specifically for that purpose. And if schoolteaching just isn't profitable, then we should give this money, not lend it.

If these loans are so productive and beneficial for society, how come we're talking about forgiving them?

 

[gnome]

And if schoolteaching just isn't profitable, then we should give this money, not lend it.

If these loans are so productive and beneficial for society, how come we're talking about forgiving them?

I think you're striking gold right here. I have an answer though--We absolutely should be granting money instead of lending, for a vital field like schoolteaching. The reason we're not is because there's a dogpile of "socialism!" on any perceived giveaway. The idea that we're buying something with that money is lost. So the only option that passes is half-assed measures.

 

[Silly Green Monkey]

I'm glad you think my question is a good one. I don't see how this answers it, though. You got a degree. Degree-related jobs pay well, yes? So you start earning, you support yourself, and you have a little left over every month to pay towards the loan. Sure, the education was expensive, and it'll take a while to pay off, but so what? You knew that going in, right?

I got my degree in 2005, and while I'm sure degree-related jobs do pay well, the newspaper delivery job I got did not. It did however occupy my time so that I didn't have time during the day when places were open to try finding another job. When cancer ended that job, my sister got me a job in a call center. That also doesn't pay well. Now I make even less, and if I want to try to scrape the rust off, pay another chunk of money I don't have and get a certification that employers require in order to start training me for the job all of which doesn't seem worth the risk to me. I was priced out of education in 2007, and I'm still priced out now.

 

[TurkeysGhost]

Because not everyone is getting debts forgiven. Is the exchange of favors, out of niceness, alien to you? My parents fed and housed me when I was a kid, I certainly didn't pay them back equivalently for that but I did mow the lawn several hundred times.



I'm not "getting pissy". As I said several times already, including the post you responded to, I'm not against debt forgiveness. I just think it would be nice if people getting such a lovely gift from the public did something nice for the public. As thanks. Which today of all days if you're American ought not to be an alien concept!

Perhaps, but any notion of gratitude or community spirit is dead the moment such a scheme becomes formalized as a compulsory program.

For example, it would be nice if criminals that injured broader society engaged in labor to show contrition and a spirit of restitution, but we all know how prison slave-labor supply has very little to do with honest contrition.

There's plenty of ways for people who have benefited from government services to show gratitude. The best way is to remember that government exists to help people, and that they should support such efforts even when they don't directly benefit themselves. They can show gratitude by not selling off the ladders that were provided to them to climb out of poverty after they reach the top and by refusing a "**** you, I got mine" attitude that has so infected our country.

 

[theprestige]

I got my degree in 2005, and while I'm sure degree-related jobs do pay well, the newspaper delivery job I got did not. It did however occupy my time so that I didn't have time during the day when places were open to try finding another job. When cancer ended that job, my sister got me a job in a call center. That also doesn't pay well. Now I make even less, and if I want to try to scrape the rust off, pay another chunk of money I don't have and get a certification that employers require in order to start training me for the job all of which doesn't seem worth the risk to me. I was priced out of education in 2007, and I'm still priced out now.

You weren't priced out of education, though. You got generous loans that paid for your education. You got a degree, even a degree in a field that actually pays well. I'm not sure what you got priced out of, but it wasn't education. It sounds like you probably should have passed on the newspaper delivery job, and committed to the internship/certification/training track for your degreed career. For the taxpayer, it seems like this loan for this degree was a bad investment. And for you, too, it seems like it was a bad investment.

Going back to TM's proposal, it seems like doing unskilled public service for a living wage, and keeping all of that wage, is probably a better loan repayment option than doing other unskilled work and giving up part of your wage to pay off your student loan debt. I'm not sure why you're so offended by the idea. Do you not want to pay off the debt?

 

[lomiller]

Two things: First, the individual who borrows the money should absolutely be considering the risk/reward for themselves.

I never said anything about that. The issue is that when you disassociate individual decisions with external costs/benefits it's incentivises making decisions that are bad for both the economy and society as a whole. It literally promotes economic inefficiency, lower economic growth and lower standards of living all-round.

Regardless of how much society benefits from their education, they still have a debt to pay off.

Except this debt is treated differently than other debt is that the same bankruptcy laws don't apply to it.

Second, as the lender, taxpayers and their government representatives should also absolutely be considering the risk/reward to our society, from making these kinds of investments. If we need more, better schoolteachers, then we should lend money specifically for that purpose.

Nah, that smacks of a Command Economy, and we have more that enough data to show those don't work.

And if schoolteaching just isn't profitable, then we should give this money, not lend it.

Making post secondary education free would be the best solution, but it should be open to any university collage or trades training.

If these loans are so productive and beneficial for society, how come we're talking about forgiving them?

Because society took all the benefits and left only some people paying the costs.

 

[theprestige]

Nah, that smacks of a Command Economy, and we have more that enough data to show those don't work.

The government makes loans, grants tax relief, and does other things all the time to incentivize specific economic activities that it sees as a priority.

 

[Delvo]

The government makes loans, grants tax relief, and does other things all the time to incentivize specific economic activities that it sees as a priority.

If it were just about what's best for the national economy, then forgiving these debts would be the perfectly obvious thing to do, because it would free people to participate in the economy in ways that they currently can't. Anybody arguing not to do it is arguing that there's some other cause that's worth deliberately sacrificing the economy for.

 

[gnome]

You weren't priced out of education, though.

If you're arguing that the person couldn't really afford the education, and shouldn't have gotten the loan, it sounds like being "priced out" is what you advocate here.

 

[theprestige]

If you're arguing that the person couldn't really afford the education, and shouldn't have gotten the loan, it sounds like being "priced out" is what you advocate here.

SGM is being a bit vague about the details of their education-driven business plan, so I'm not sure that they're actually being priced out of education. As best I can tell, the degree in question is supposed to be profitable, and a career in a related field would make the education loan totally affordable, but for whatever reason SGM opted not to go that route after taking out a loan for that purpose.

If I opt not to make a profitable investment with borrowed money, I don't think it makes sense to say that my inability to repay the loan is because I was priced out of profitable investments.

If colleges are lying about the value of the degrees they confer, then we should probably stop student loans altogether. We should probably also investigate whether people in SGM's position have a good case to bring suit against their college for fraud, or if we as lenders should hold them accountable for not doing their due diligence before spending the money they borrowed from us.

I get that bad luck happens and sometimes it doesn't work out. I get that debt forgiveness is sometimes the right thing to do, in both financial and humanitarian terms. But if I loan money for a profitable purpose, and the borrower ends up not turning a profit, I'd like to at least find out WTF happened to the investment we understood when the loan was made.

 

[dirtywick]

I get that bad luck happens and sometimes it doesn't work out. I get that debt forgiveness is sometimes the right thing to do, in both financial and humanitarian terms. But if I loan money for a profitable purpose, and the borrower ends up not turning a profit, I'd like to at least find out WTF happened to the investment we understood when the loan was made.

Part of the nature of loaning money to people is that some will make poor choices. Student loans is one of the few areas that investors have completely insulated themselves from any risk, so they don’t really need to know what happened or even try and understand what went wrong, since there’s no problem on their end.