Cancel student loan debt?

[Emily's Cat]

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 encourages irresponsible, unsound risk taking. It introduces moral hazard.

Bankruptcy is a last resort for mitigating the impact of a risk that could not be avoided. It's irrational to encourage risks that are avoidable, because there's a safety net that makes it "someone else's problem".

 

[Emily's Cat]

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.

Loans aren't "favors". They're contractual agreements. Creating a system where being "nice enough" lets you default on your contractual obligations without consequence seems exceptionally compassionate.

 

[TurkeysGhost]

Loans aren't "favors". They're contractual agreements. Creating a system where being "nice enough" lets you default on your contractual obligations without consequence seems exceptionally compassionate.

I don't really see anyone really suggesting that compassion for student loan borrowers is the prime reason to do this.

Student debt is large enough to impact the larger economy negatively. "But they signed the contract" is pretty unconvincing response to the country spiraling into a financial crisis. Unless you're some libertarian zealot, the government spending money to prevent recessions and depressions is generally considered sound policy.

 

[Emily's Cat]

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.

I'm going to have to challenge your underlying assumption here. What portion of that research do you think actually has a real societal benefit? Sure, you can probably say that a good chunk of STEM fields produce a benefit... but take a moment and think about all of the other fields out there, and all of the professors and grad students involved. I'm not convinced that the overall aggregate calculation leads to a net societal benefit. It might, but I don't think it's reasonable to simply assume it to be true.

 

[dirtywick]

Pretty sure you guys are discussing indentured servitude fyi

 

[Emily's Cat]

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.

I think we can take that disconnect back further in this... I don't see educational loans as predatory or "entrapment schemes".

 

[Emily's Cat]

I got my degree in 2005, and while I'm sure degree-related jobs do pay well...

Kind of depends on the degree, doesn't it?

And hey, for discussion purposes, I got my masters in 2000 in applied mathematics, left school with $70K in debt, then spent the next 12 years studying and taking exams while working full time and paying off my loans. I worked part time through the first half of my undergrad, then full time through the second half and grad school, at some really sucky jobs. I ate a lot of ramen, and shopped at thrift stores.

 

[Emily's Cat]

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

I don't think it's really compulsory if it's an option.

The best way is to remember that government exists to help people...

I'm not sure I agree with your assumption. Actually, I'm not so sure that you agree with your assumption. Do you genuinely feel that the bulk of the politicians in office are there out of an altruistic desire to help people? Because I'm more inclined to think most of them want power and favor-trading so they can personally benefit.

 

[lomiller]

It encourages irresponsible, unsound risk taking. It introduces moral hazard.

The real moral hazard lays in not having the lender properly assess the investment they are making and risks they are taking. Bankruptcy solves this issue, this is part of the reason bankruptcy is so much better for economy and prosperity.

On the borrower side, bankruptcy is enough of a penalty that regular people seek to avoid it if possible, and if they try to use it spuriously, it still needs to go in front of a judge.

Bankruptcy is a last resort for mitigating the impact of a risk that could not be avoided. It's irrational to encourage risks that are avoidable, because there's a safety net that makes it "someone else's problem".

Just the opposite in fact. Bankruptcy works because it encourages risk taking that would otherwise not occur. On an individual basis sometimes this fails, but on mass these additional risks more than pay off. Furthermore it if forces lenders and investors to adopt the pyramid of risk tiers that underpin modern financial and stock markets.

 

[Emily's Cat]

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?

I could be wrong, but I get the impression that SGM doesn't want to be required to pay off the debt.

 

[Emily's Cat]

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

First, I'm not entirely opposed to post-secondary training being a public good. That said, however... if we've got people with degrees already who can't find jobs in relevant fields, what does making it free solve? It removes the debt of those partaking in education, but it still doesn't make them gainfully employed. It does, however, increase the tax burden for the country. What does the country get for those taxes, if the degreed people are still underemployed?

 

[Emily's Cat]

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.

If forgiving debt is unquestionably a boon... then why not argue to forgive ALL debt? All mortgages, car loans, small business loans, and credit card debt. That would also free people up to participate in the economy in ways that they currently can't. Where's the downside?

 

[Emily's Cat]

Right now the total (Federally backed, I'm sure weird edge cases of other types of student loans exist but those are outside the scope of this discussion) of all student loans in the US is 1.6 trillion dollars.

Since the start of the Corona Virus the US Government has already spent 2.3 Trillion bailing out businesses.

There's a bit of a difference in that the government is the one that made those businesses unable to function due to the pandemic. It's not like they just failed all by themselves.

That said, far too much of that bail out went to large corporations that haven't used it to support their employees, and not nearly enough went to small businesses. I've lost track of all of the pieces, but a whole lot of the COVID bail-out is something I consider a bad investment as well as a moral hazard.

 

[ahhell]

I can't think of any reason not to transfer wealth to the 40ish percent of the population at the top of the socio-economic latter.

I'd consider it for tradesmen and women.


Side note, the majority of defaults on student loans comes from folks that never finish there program of study, a lot of that is Junior College, and the relatively small number of folks with 100k plus debt to small worthless liberal arts colleges.

Some interesting data.
https://www.brookings.edu/blog/up-f...-most-in-student-loans-new-data-from-the-fed/

The highest-income 40 percent of households (those with incomes above $74,000) owe almost 60 percent of the outstanding education debt and make almost three-quarters of the payments.

Student debt forgiveness seems fair and a totally progressive policy.

 

[Emily's Cat]

Because it's punitive in motivation.

Just because you don't want to do it doesn't make it punitive.

I detest doing dishes. But dishes need to be done, especially if I want to have clean pots and pans and plates. It's not punishment for me to do the dishes.

 

[Emily's Cat]

What you are talking about is indentured servitude.

Don't exaggerate. Nobody is talking about indentured servitude.

If you had borrowed that money for a business, or a home, or a car, or a casino you could go to a bankruptcy court and have the debts dismissed in whole or in part. Most people in the US are not permitted to do this for student loans.

Sure, but most other types of debt don't have easily accessible forbearance, deferments, income-dependent repayment plans, and debt cancellation options either. All of which student loans DO have.

 

[Emily's Cat]

How about this: for every month a degreed graduate works at least 30 hours a week in private employment at or near minimum wage, they're excused from their regular scheduled loan repayment for that month.

The employment can be verified from income tax records. The whole program could even be treated as a tax credit.

Minimum wage jobs are already the jobs that maximize service to society per dollar earned. No one pays minimum wage for work that doesn't need to be done at all. (Well, there might still be some traditional summer-job nepotism going on, but most nepotism nowadays pays far better than minimum wage.)

And should the graduate eventually break into the managerial or professional position their degree qualifies them for, they'll have some actual life experience at the bottom of the wage scale. Not just some BS volunteer fun-time or pretentious internship.

Oooooh! PhD in Norwegian Language and Folklore, here I come! That should only be a couple hundred thousand in debt, and I like flipping burgers after all.

Snarkiness aside... I do think it's worthwhile to consider whether the proposals being floated have perverse incentives or obvious loopholes.

 

[theprestige]

Because it's punitive in motivation.

Not punitive. Rehabilitative.

 

[Emily's Cat]

Big picture... We've got lenders who aren't evaluating whether or not the student in question is likely to finish their degree, nor whether their degree is likely to put them in a position to repay the loan. We've got borrowers who aren't considering whether or not they've going to graduate, or whether the field they want to study is likely to produce a reasonable income with a degree.

Neither of those is a very good idea.

 

[dirtywick]

Plus, one of those groups is the finance industry and the other was very recently children