Forgiving Student Loan Debt Discussion

[MichaelB]

There’s no doubt some students are borrowing more than they can be reasonably expected to repay. Universities and educational institutions enable this. If the Universities had income tied to repayment there would be far less lending, but they have no skin in the game and pure incentive to keep the current system running.

The two largest amounts of student debt are for post graduate studies and for-profit education. Even though post graduate debt is significant, the higher ed should lead to higher earnings potential, and pay for itself, and most economists do not consider this debt to be unmanageable.

Far and away, the greatest amount in arrears or in risk of default is with for profit institutions. Only 9% of students are enrolled in for profit institutions, yet they represent 25% of all borrowers and 45% of defaults.

There has been lots of good analysis on this topic, and it would add some thoughtfulness to this thread discussion. Here’s a link to a Brookings discussion https://www.brookings.edu/events/student-loans-a-look-at-the-evidence/

Here’s a link to a Booth School paper https://review.chicagobooth.edu/public-policy/2019/article/who-s-fault-student-loan-defaults

 

[pb4uski]

My 2 cents her for what it's worth. My brother has a step daughter who is over 100k in student loan debt. She wanted to be a teacher, wanted to go to private schools which she did & now complains that she doesn't get paid enough to repay her loans. ...

All of that was easily determinable when she decided to takout those loans... and to think someone with that lack of common sense is teaching our kids/grandkids.

In high school I want to be a game warden. After reasearching what they made, I decided that I didn't want to be poor more than I wanted to be a game warden so I changed direction.

 

[NoiseBoy]

The two largest amounts of student debt are for post graduate studies and for-profit education. Even though post graduate debt is significant, the higher ed should lead to higher earnings potential, and pay for itself, and most economists do not consider this debt to be unmanageable.

Far and away, the greatest amount in arrears or in risk of default is with for profit institutions. Only 9% of students are enrolled in for profit institutions, yet they represent 25% of all borrowers and 45% of defaults.

Thanks for these data points. I thought that the most trouble was with the for profits, but hadn't done any leg work to confirm it. I would support rules changes or legislation to make it more difficult for these profit driven schools to convince the information deprived prospective student into taking on large debt loads in pursuit of degrees that may have poor ROI.

 

[OldShooter]

... I would support rules changes or legislation to make it more difficult for these profit driven schools to convince the information deprived prospective student into taking on large debt loads in pursuit of degrees that may have poor ROI.

All schools are profit-driven. The only difference is who gets the profits, the owners of the for-profit or the employees of the "nonprofit." The current UT-Austin president is making $1.25 million. The days where teaching and administrative staff took lower salaries in order to enjoy the academic life are long gone, as is the quaint concept that undergraduates will benefit from the wisdom of real professors. Now it is TAs and adjuncts doing the teaching and making dirt.

Any financial pressure exerted on schools should be based on their cost vs other schools and on the success of their graduates. One idea I kind of like is that the school gets paid a percentage of what the graduate makes. That will steer resources in the right direction and will result in price cuts.

 

[Dash man]

If student debt was paid off/forgiven by the government, would student loans end? Or will this just begin another cycle with the next generation?
They need to have skin in the game. I worked three jobs to keep my loans to a minimum while in school. I paid them off after about five years. I saved in a 529 plan to help my son through school. He also worked full time at Starbucks to support himself. It can be done. One daughter-in-law got her degree fully paid courtesy of Starbucks. Our other DIL is deep in debt. Our other son used loans, but we paid them off when he graduated. Sadly, can’t get a decent paying job.
I think there should be a cap on the total student loan amount so these kids don’t get too far over their head.

 

[aaronc879]

If I had to pick one of the points made by the OP that fits my thoughts best it would be #11.

 

[OldShooter]

... I think there should be a cap on the total student loan amount so these kids don’t get too far over their head.

It's not the kids' fault. They are naïve borrowers. What society needs to do is to put that cap on higher education institutions' prices. Why we as a society continue to accept increases without limit is a mystery to me.

 

[RunningBum]

How about this as alternative way to address the problem:

Instead of debt forgiveness, the Federal personal bankruptcy laws, that were modified in the past to make Student Loan debt non-dischargeable, are restored to allow this.

In this fashion, folks that really can't pay the loans could pursue this option, along with the associated personal costs (both tangible and intangible) to the defaulting borrower that come with a bankruptcy.

That way, the students would still have some 'skin in the game' (but hopefully less than a 'pound of flesh.' )

-gauss

That's what I was thinking. There's already a legal mechanism for people who are deep in debt. Why not use that rather than blanket forgiveness, which isn't equitable for those who saved up for college for themselves or their kids, or those who have paid off their loans?

 

[Jerry1]

So if someone worked diligently and/or sacrificed to pay off his (or her debt) will they get reimbursed?

^^This^^ is my concern. My son in law just did a Dave Ramsey’esk pay down on his student loan. It started about a year ago and he is now officially paid in full. Would he and other like him get some consideration or just a pat on the back for doing the right thing.

Also, OldShooter made the comment that they are just kids. Well, they’re 18 but I get it, my kids were “kids” at that age but that also infers that there was an adult behind them supporting the taking of the loans.

About the only way I could support this is, as has been mentioned, if the universities had some skin in the game. Also, if the forgiveness came with some other commitment like two years of work in a designated job that would have social benefit.

Note on loans. I am very familiar with health insurance. It is a common belief that healthcare costs went up significantly due to the disconnect between the buyer (the patient) and the seller (health care providers). The disconnect being health insurance. I contend that the same thing happened in higher education with the proliferation of student loans. The buyer (student) was disconnected from the payment and therefore did not allow market forces to hold down the cost. Never been one to write research papers, but that’s my hypothesis on education inflation.

 

[CardsFan]

Another bit of anecdotal evidence:

A year or two ago I read an article about a woman complaining about her college debt. Seems she decided in her fifties to go back to school to become a social worker. 5-6 years later she was a social worker, making under $30k per year, with something like $65k in student loans.

She lamented that she could never afford to pay back the loan on such a low salary, and she may even have her SS garnished when she starts it.

 

[misanman]

I listened to a WSJ podcast yesterday that made the following points:
- This is mostly a problem of the federal student loan problem, which are not underwritten.
- Not really much of an issue with private student loans.
- Federal program was built on the notion that anyone should be able to get a loan to go to college. Loans are granted without consideration to whether they can be paid back based on the subject they are studying.
- Result is young people with lots of debt and without a career that will allow them to pay it back.

 

[LOL!]

I think student loan debt forgiveness is dead-in-the-water for any meaningful change without giving everybody especially those with no debt some money as well. Already, pretty much everybody without high income can get education tax credits. I know my family got thousands of dollars from the Federal government through tax credits for the college expenses for our children.

Perhaps a bone can be tossed to everyone pretty much like the stimulus payments that happened earlier this year. We got stimulus money and didn't need it, but I'm not giving it back. To some extent that money will just offset lower interest rates and inflation created by increasing the Federal debt.

Another problem is that people game the system in the same way that early retirees game the ACA and get health insurance premium tax credits even though they have millions of dollars saved up. Or farmers who game the agricultural subsidies. Or ....

So I can't get worked up about all this.

 

[Born2BRetd]

We paid for our children's college as we didn't want them to start life out with debt and a part of me does feel it is unfair for others to have their debt wiped clean while we had to shoulder that burden. However, I do feel that many children come from households that don't have a lot of experience with college. All they know is that they were told that if they had a degree they would make good money. They don't really know how much it is going to cost and don't know what it will to take to pay it back. Expecting an 18 year to understand the ramifications of taking on debt is unreasonable and I think some of these programs are truly preying on their ignorance.

 

[Bamaman]

I'm not torn on this matter. The country doesn't have the money to do this.

Student loan debts exceed credit card debt in the U.S., and we know every family owes too much on charge cards already.

My mother went to work to put my sister and I through college. We didn't require student loans in kinder, gentler days of the late 60's/early 70's with tuition running between $117.50 and $192.50 per semester for all the hours I could take. The threat of a young man having the choice of the university or walking point in Vietnam was a big motivator.

There's always the GI Bill. And cheaper junior colleges prior to finishing up at a state college. And working part time on the 5-6 year plan. Our daughter went on and off to college before graduating at age 25 without loans. Forgiving debts is no way fair.

 

[stargazer08]

Some form of student loan forgiveness will probably come to pass because it seems our government likes to reward people who make poor choices.
That's my jaded view of the subject.
God forbid people work fulltime AND go to school part time. That worked for me and my employer had tuition reimbursement. It was hard but I did it. I'm in the STEM field.
Going 100G in debt for a 30G/year job is just plain insanity. I know people who have done it or worse. Started the process and quit with no degree and 40G in debt at 10% interest.

 

[mystang52]

I remember giving a strident response to this topic on a previous thread quite a while back. I just do not see why there should be any forgiveness. Am I at least allowed to ask whose loans get forgiven? Does a college dropout qualify? How about the less-than-practical majors (I won't specify lest it be deemed political)? And like others have said, what about the diligent people that actually thought they had an obligation to pay off a loan they voluntarily took on? How about people that may have taken loans to go to a trade school?
Why stop here? How about credit card debt or car loans? Heck, let's just forgive all loans.
At the least, if any student loans are forgiven I suggest the funding start with an immediate $40,000 cut in each Congressperson's pay, and a 25% cut in professors' salaries.

 

[Aerides]

Just curious...If there were some kind of forgiveness law passed, when would the collective wisdom here estimate would be the earliest it could be expected? Not before January 20, 2021, certainly, but in the first 100 days or not at all? Or could it drag out past then?

General consensus is it cannot be done via executive order, so would need congressional approval. The senate is a question mark, and I'm not sure if this is one of those things that would pass with 51 votes or need 60. Depends what type of legislation I guess. Either way, if it could happen, my bet would be post the 100-day mark.

 

[Stormy Kromer]

It's not the kids' fault. They are naïve borrowers. What society needs to do is to put that cap on higher education institutions' prices. Why we as a society continue to accept increases without limit is a mystery to me.

Couldn't agree more.

 

[nhcycling]

I am struggling with the information and trying to understand what is going on with the talk about forgiving or reducing student loan debt. I am not sure if all the claims on either side are completely valid or without scrutiny. Claims such as:
1. Student debt is holding back those who have it so they can't get ahead.
2. Student loan debt is a racial/poor problem as those groups are more affected by it.
3. Forgiveness will benefit all Americans by freeing up money to flow into the economy.
4. Debt relief benefits the rich more since they are more likely to have higher income due to college degrees and debt incurred getting that degree.
5. Forgiveness is not fair.
6. If you do not support forgiveness you are being selfish.
7. The gov't money for student debt forgiveness could be better used on other spending.
8. Student debt is not as much of a problem as it is made out to be.
9. Forgiveness would be political suicide for Democrats.
10. Students took out debt, knowing what they were doing and need to accept responsibility.
11. Increasing student debt is a self-fulfilling problem since education costs are rising faster than inflation.
12. Forgiveness will not result in more money going to the economy if the debt amount is just sitting there not being paid by borrowers.
13. Millions of American people will be very PO'd.
14. Can forgiveness happen without a law passed by Congress? Can executive action make it happen?



I am sure there are more claims and statements besides what I have listed. Overall I am on the side that student debt loan forgiveness should not happen. I worked my way through school, no debt. I was also on the co-op and 5 year plan getting my engineering degree. What about all the parents that saved and scrimped to help their kids? How do they feel putting off bigger purchases and discretionary spending, just to see their neighbor's kid now potentially get forgiveness?


I do not see any way this can happen without major disruption and even further divide of the country. I fall on the "no" side and probably based on the fact I am firm believer in personal responsibility where you pay your debts.



Overall, please try to keep this out of political and let's discuss the financial aspects of it. I don't want it closed, although I certainly understand there is a bear in the room with the political aspects of it.

I’m torn on this one. What about the newly minted, just graduated Doctors walking into residencies that are essentially Covid care floors, exposed to a virus without proper PPE
that they absolutely did not sign up for, and not learning their in chosen field but have hundreds of thousands of debt?

And for the undergraduate students and parents who scrimped and saved, went to community college or public universities, have not taken loans out who wisely chose majors where their would be a job when graduating. Why would we want to forgive loans for those who went to private universities, took out big loans and majored in low paying or worse, no hope for a job?

 

[MrsHaloFIRE]

"Not the kids' fault. Naive borrower??"

Same could be said for the 20 yr old financing the slightly used Camaro at 27pct. Shall we forgive that also?

5k on a GAP credit card. Should that be forgiven?

My question is: where is the line? How do we define? Is it age? BC 18 year olds can sign binding contracts in the USA.


Or is it loan product: payday advance place, car finance, t mobile for an iphone, mortgage, or college tuition?

 

[cathy63]

IANAL, but wouldn't forcing a haircut to the lender outside of a bankruptcy be unconstitutional? ie. Unreasonable seizure?

As such, my assumption is that the payoff would need to come from Federal government dollars.

There are two kinds of student loans: federal and private. All the discussions about loan forgiveness that I've seen have only concerned federal loans, so there's no question of unconstitutionally taking assets or forcing private lenders to take a haircut. I suspect that if this ever moves forward, many borrowers are going to be disappointed to find that their most expensive loans are not eligible for forgiveness.

There are already several programs in place that forgive federal loans in exchange for public service. Those programs have been mismanged, requirements have been unclear, even to the administrators, and people who meet the requirements have been wrongfully disqualified. I am in favor of "working off your debt" and would like to see this type of forgiveness streamlined and expanded.

 

[LOL!]

Many folks jump to the conclusion that 100% of large loans would be forgiven. I've only seen ideas floated that would limit forgiveness to well under $10K and not for lawyers or doctors. That's about the same amount as legit tax credits and other handouts given to all kinds of people except for the lower taxes given to the wealthy which got bigger handouts.

But as I wrote, this is all DOA because of the discussions such as the one in this thread.

 

[Aerides]

A lot of support here for lower cost colleges, in-state, etc., and in general I agree with that.

But for a lot of the STEM fields, and higher income aspirational degrees, WHERE you get it is as important as what you get. The big companies setup internships and recruiting at the "it" schools.

Stanford grad? Walk right up my dear. CS program grad at South Florida U after 2 years at the community college? Yeah, we'll get back to you.

Recruiters push pursue and push the shiny resumes harder than State U. People like to pick doctors with Ivy League certificates on the wall. Senior VP's like to pick people from their alma maters.

Going to the cheaper school, like most in life, can often end up with getting what you paid for.

 

[jollystomper]

It's not the kids' fault. They are naïve borrowers. What society needs to do is to put that cap on higher education institutions' prices. Why we as a society continue to accept increases without limit is a mystery to me.

I agree with this.

When I graduated from my Ivy League school in 1979, my tuition, room and board was around $6000/year. If that had risen with inflation, the cost toady would be a little more than $21,500. Lets just round that up to $22,000. Even at $25,000, it would be reasonable.

Instead, the current annual cost for tuition alone is approaching $50,000. through it room and board and it gets to over $65,000. ANd... it is not the most expensive university in the world.

At the same time many schools are charging these prices, they have large endowments.

Loans are easy and colleges no longer have accountability for what someone spends, or incentive for students to graduate. In fact... more now seem to be encouraging students to take more than 4 years to graduate... as it means more money to them.

My favorite sad anecdote comes from DW. She was a professor at a private University - an adjunct, but they were pushing here to take a full time position. She attended one of the History department (where she taught) staff meetings. They were discussing how to encourage more students to major in History. She found their discussion very narrowly focused, and asked had they considered emphasizing how the skills in studying, learning about, and analyzing historical information could apply to getting better paying jobs in the business world. The chairman replied curtly "Oh, we don't want to do that. Those are drone jobs!" At that point, DW decided she would not work full time at that University.

 

[Nemo2]

A lot of support here for lower cost colleges, in-state, etc., and in general I agree with that.

But for a lot of the STEM fields, and higher income aspirational degrees, WHERE you get it is as important as what you get. The big companies setup internships and recruiting at the "it" schools.

Stanford grad? Walk right up my dear. CS program grad at South Florida U after 2 years at the community college? Yeah, we'll get back to you.

Recruiters push pursue and push the shiny resumes harder than State U. People like to pick doctors with Ivy League certificates on the wall. Senior VP's like to pick people from their alma maters.

Going to the cheaper school, like most in life, can often end up with getting what you paid for.

So who are the people asking for loan forgiveness, the people with high paying positions , or those with Underwater Basketweaving degrees?