Thread
The problem with this decision is that it pits Americans against other Americans, while politicians and universities benefit.
Several sides to the story + a proposal that should appeal to pretty much everyone.
1/
www.npr.org/2022/08/24/1118879917/student-loan-forgiveness-biden
Several sides to the story + a proposal that should appeal to pretty much everyone.
1/
www.npr.org/2022/08/24/1118879917/student-loan-forgiveness-biden
First, the obvious.
Some people hate this and some love it.
Those who hate it: paid their loans off on time, feel like they are forced to pay for irresponsibilities of others
Those who love it: were told college was worth the investment, and now can't pay their debt.
Some people hate this and some love it.
Those who hate it: paid their loans off on time, feel like they are forced to pay for irresponsibilities of others
Those who love it: were told college was worth the investment, and now can't pay their debt.
Some arguments for and against those who hate the decision.
Argument for: personal responsibility, another bailout they're forced to pay for, unfair to those who pay their debts.
Argument against: there are people who need help, we're all better off as a result
Argument for: personal responsibility, another bailout they're forced to pay for, unfair to those who pay their debts.
Argument against: there are people who need help, we're all better off as a result
Arguments for/against those who love it.
Argument for: were led to believe the investment was worth it, that they'd be able to pay back after graduation
Argument against: buyer beware. Taking debt to fund education is an investment, you made a bad investment, deal with it.
Argument for: were led to believe the investment was worth it, that they'd be able to pay back after graduation
Argument against: buyer beware. Taking debt to fund education is an investment, you made a bad investment, deal with it.
Legitimate arguments, but forget them. They only distract from the real problems.
- Universities unaccountable for false promises and subpar quality
- College tuition too high
- College education not valued by market
- Federal gov't irresponsible with tax money
- Universities unaccountable for false promises and subpar quality
- College tuition too high
- College education not valued by market
- Federal gov't irresponsible with tax money
Problem #1: Federal government shouldn't be in business of giving loans to individuals.
1. They are gambling with taxpayer money. (Not their job.)
2. They are obviously very bad at this.
But ...
1. They are gambling with taxpayer money. (Not their job.)
2. They are obviously very bad at this.
But ...
if gov't chooses to act as a financial institution, then it has a fiduciary responsibility to its stakeholders (i.e., taxpayers).
It would be neglectful for any company to forgive $100s of millions in debt at expense of stakeholders. The same holds for the gov't.
It would be neglectful for any company to forgive $100s of millions in debt at expense of stakeholders. The same holds for the gov't.
Problem #2: Student loan rates are lower than mortgage rates. Today 4.99% vs. 6.5%
Mortgages are secured loans -- the bank can foreclose on the property -- therefore lower risk than other kinds of debt.
If student loans are even lower rate, then what is securing student loans?
Mortgages are secured loans -- the bank can foreclose on the property -- therefore lower risk than other kinds of debt.
If student loans are even lower rate, then what is securing student loans?
Conventional wisdom was that the value of college education lowered the risk of student loans.
College graduates make more money (on average) therefore
(1) the debt is a worthwhile investment for students
(2) the loan is less risky for the government
College graduates make more money (on average) therefore
(1) the debt is a worthwhile investment for students
(2) the loan is less risky for the government
Flaws in the argument:
In the absence of student loans, college graduates earn more money
But in this scenario, the demographic of college graduates is very different than in the scenario with students attending on loan
In the absence of student loans, college graduates earn more money
But in this scenario, the demographic of college graduates is very different than in the scenario with students attending on loan
First, the argument assumes that those who earn more after college are earning more *because* they went to college.
This might be true, but there's confounding with the fact that these students didn't have the option to take federal loans.
This might be true, but there's confounding with the fact that these students didn't have the option to take federal loans.
Either
(1) They come from a family wealthy enough to afford tuition.
(2) They aren't wealthy but have made a calculated decision that college is worth it.
(1) They come from a family wealthy enough to afford tuition.
(2) They aren't wealthy but have made a calculated decision that college is worth it.
Both of the above groups are very different than those who are compelled to go to college because "it's what everyone else is doing" or because they got a loan.
They haven't made a calculated decision, and don't have a clear plan for how to take advantage of the opportunity.
They haven't made a calculated decision, and don't have a clear plan for how to take advantage of the opportunity.
Not to mention, as more people graduate college, the value of the degree diminishes due to lack of scarcity.
The result: very similar to sub-prime mortgage crisis.
The belief that college education made everyone better off led to loans being given to "bad debts". Ultimately those bad debts were defaulted (or now forgiven).
But the huge difference: debtors can't foreclose on the loan!
The belief that college education made everyone better off led to loans being given to "bad debts". Ultimately those bad debts were defaulted (or now forgiven).
But the huge difference: debtors can't foreclose on the loan!
The universities, who collected inflated tuition, a large % paid by federal grants and loans, aren't responsible for the value of their product.
Instead, tax exempt Universities collect federal tax $$$ from loans, students default on loans, and the taxpayers are left to pay.
Instead, tax exempt Universities collect federal tax $$$ from loans, students default on loans, and the taxpayers are left to pay.
Proposal: federal student loans should be guaranteed by the University which the student attends.
If a University collects tuition money from federal loans, the federal gov't should be able to "foreclose" on that debt if the University fails to provide the value it promised.
If a University collects tuition money from federal loans, the federal gov't should be able to "foreclose" on that debt if the University fails to provide the value it promised.
So by all means forgive $100s of millions or billions in student loans -- but send the bill to the Universities who cashed the checks for empty promises.
They can afford it -- plus it's the right thing to do.
They can afford it -- plus it's the right thing to do.
As it stands, Harvard, Princeton, Yale, and every other over-priced university US (just about all of them) will be allowed to keep the billions of tax dollars they collected in exchange for a criminally overvalued piece of paper.
