Our government spent trillions of dollars responding to COVID, and just about everybody got a little something from Uncle Sam. Sometimes I think my wife and I are the only people in the United States who didn’t get a COVID relief check.
For example, 14,000 law firms got Payroll Protection money, ostensibly to help them avoid laying off lawyers during the COVID crisis. Eleven firms got $10 million each, but all 14,000 firms got at least $150,000.
Prisoners also got some COVID cash. More than a half-million incarcerated individuals got three-quarters of a billion dollars in stimulus checks.
Even drinking establishments managed to get their noses in the trough. Hooters of Louisiana, a “full-service restaurant,” got $156,000.
In short, the U.S. government has been spewing out COVID cash like a drunken sailor on shore leave. So why not forgive all student-loan debt–all $1.7 trillion?
After all, student-loan forgiveness makes more sense than handing out Payroll Protection money to professional athletes and politicians.
Wiping out all student-loan debt would benefit 45 million student borrowers, giving them extra cash to put into the American economy. That’s got to be a good thing.
Moreover, many student debtors took out loans to get college degrees that are worthless to them. Maybe they attended one of the dodgy for-profit colleges where they paid too much for a mediocre educational experience. Perhaps they borrowed $100,000 to get a gender studies degree from an elite college–a degree that did not lead to a good job.
So–you can put me down as a supporter of total student-loan forgiveness.
That’s right; let’s wipe out everybody’s federal student-loan debt.
But we should recognize the perils of this course of action. First of all, student loans constitute the largest category of federal assets. If those loans disappear from the nation’s balance sheet, the government’s fiscal situation will look bleaker than it already does.
Secondly, we should recognize the moral hazard of wholesale student-loan forgiveness. People who take out student loans in the future will likely do so with the expectation that the feds will eventually forgive the debt. Thus, they may conclude they can default on their loans with no penalty.
Finally, wiping out all student debt does nothing to pressure colleges to get their costs under control. The higher education industry will continue raising tuition rates, forcing future students to take out more student loans to finance their studies.
In conclusion, I support student-loan forgiveness. Nevertheless, wholesale loan forgiveness will not solve the student-loan crisis.
Until higher education cleans up its act and reduces costs, future generations of colleges students will continue getting hammered with unmanageable college-loan debt.
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Richard, we are in 100% agreement. You, Steve, and I have made common sense points, but unfortunately there is no common sense in our government. Expect something massive and wrong-headed from our inept “leaders”, just to try and get a boost for the midterms. They’ll continue to get rich off their lifetime salaries, political payola, trading on inside information, etc., and avoid taxes, while leaving the taxpaying citizens holding the bag.
Hi, Steve.
I agree that the best solution to the student-loan crisis (and it is a massive crisis) is to amend the Bankruptcy Code to allow honest but unfortunate debtors to discharge their loans in bankruptcy.
Bankruptcy gives down-and-out debtors a fresh start–the very purpose of the bankruptcy courts. I have always opposed long-term, income-based repayment plans for two reasons: 1) People in these plans are making payments that aren’t large enough to pay accruing interest, so they will never repay their loans. 2) IBRPs are demoralizing to people who must make student-loan payments for 25 years. They’ve eventually become serfs to the Department of Education.
I can’t predict what President Biden will do but I think everyone expects him to grant massive student-loan forgiveness in time to make an impact on the midterm elections. I think this is unfortunate and will have bad consequences down the road.
Certainly, the President shouldn’t do this unless he and Congress are willing to clean up the higher-education industry, which has become a huge racket. But we won’t clean up the higher education industry because too many people are getting rich off the status quo and the colleges themselves have become addicted to student-aid money.
Thanks for the chance to comment!
Hi, Leon.
I agree with all you say. I worked my way through law school without taking on any student loans, which is one of my proudest accomplishments. I borrowed money to attend graduate school at Harvard (a complete waste of time), but I paid it all back. My wife and I put four kids through college without taking out any loans.
I argued that we might as well pay off everyone else’s loans because the government is throwing so much money around that it might as well throw away $1.7 trillion in student loans. But I was being facetious.
The better approach to the student-loa mess–which I have argued for 20 years–would be to amend the bankruptcy code and allow federal bankruptcy judges to discharge debt that honest debtors simply can’t repay.
Unfortunately, I think what we will see is some kind of massive loan forgiveness program that will be announced during the midterm election season. This will make a lot of college borrowers happy, but what we really need to do is close the for-profit colleges, cancel the Parent PLUS program, and force the colleges to reduce their costs.
But Congress and the Biden administration won’t do that. Instead, I think we will see reckless loan forgiveness that will encourage future student-loan borrowers to believe they won’t have to pay back their loans either.
And of course, the colleges don’t care whether student loans get paid back because they get their money upfront. Loan forgiveness will give them no incentive to try to get their costs down.
Total student-loan forgiveness will be a disaster. Maybe I wasn’t clear enough about that in my essay.
Thanks for writing!
No COVID checks, borrowed and paid back my student loans, and paid for college for 4 kids out of pocket. My taxes will have to increase to pay for the COVID checks others received, and will increase further, if I have to pay for everyone else’s college. Eliminating debt across the board is not a good plan. If any is to be forgiven, it should be targeted to those who need it through bankruptcy, or at least through means testing, so that people who can afford to pay and/or did receive great benefit from their education will not get a free ride. The rich kids that got those gender studies degrees from elite colleges don’t need my money. Payroll Protection (and other giveaways) were probably not a good idea, and the execution of the giveaway plan was poor. I’m not a supported of compounding it with more bad fiscal decisions.
Allowing student loans to be discharged through a proven and accepted bankruptcy process sure seems like a commonsense approach. Unfortunately, too many people have a different opinion and those folks write the laws.