I agree with this. Future loans which have not been taken out yet are potentially a very big issue. If graduates could discharge student debt through bankruptcy, it might make lenders reluctant to issue loans for students who are unlikely to be able to pay them back.
A horrible thought has been crossing my mind. It is too late for us to take on any debt for undergrad. However, one daughter will start a DVM program in September (she has been accepted). I keep wondering if she should take on a little bit of debt just in case the federal government decides to pay it off for us.
We almost certainly will not do this. However, if this has occurred to me it has probably occurred to other people.
I do not understand how we pay off existing loans without encouraging future students to take on more loans.
Why should student loans have zero interest? Lending is a business. If you can’t make money on the loan you’ll simply make a different loan transaction. If you’re making the point that the government should not charge interest that is unfair to the taxpayers footing the bill. I am really surprised how much leeway many posters think should be extended to student debtors.
They are very different. They are unsecured loans given to any student citizen (and a few non-citizens) with very few qualifications (be in school, don’t have a drug conviction while in school). The student going to MIT and majoring in nuclear physics gets the same $5500 as the student going to community college with an undeclared major. There is zero chance a private lender is going to give an unsecured loan to someone who doesn’t have a job and can’t qualify. Oh, and throw in the borrower doesn’t even have to start repayment for 4 years? No chance that loan is being funded. Not even a credit card with no source of income.
Any government financial aid or other funding or subsidy of education (including public K-12, state colleges and universities, military service academies) is based on the idea that a better educated population will be economically more productive, and will repay the initial spending on their education (that would otherwise be limited to the scions of wealth, since most others cannot afford the up-front costs) many times over in economic activity and tax revenue. This was the political consensus for decades, but it may be becoming less so now. Of course, there are also disagreements about what kind of spending along these lines is most effective at getting to these goals.
Your comment focuses on the lending practices, which are unique. The debt is not. The debt is the result of people’s choices…like any debt. The politics are driving at making this debt unique in one way…someone else makes the choice, but the taxpayers (who are only a fraction of the population) pay the cost. That is moral hazard.
As many have pointed out, there is no “cancelling” student loan debt. The politics are just hoping that the separation in time between the borrowing and someone else paying makes this more palatable. Remove the separation in time and instead of “forgiveness”, let’s create a student loan buddy program. Pair a current tax payer with a student seeking financial aid. “Mr./Mrs. taxpayer, you’ve been paired with a student that you have no relationship with, but will be receiving a bill to pay for $10k of their tuition and expenses. Thanks for your participation.”
The total debt possible for federal student loans is not beyond anyone’s ability to pay. The terms (pay back period, interest rate, etc.) are very lenient by lending standards. And unlike other loans, many options exist for pay back through service (military, underserved communities, etc.). Like many other borrowers, I borrowed 6 figures in student loan debt and paid it off completely…first paying off undergrad debt, then going to professional school and later paying that off. But despite responsibly paying my own student loan debts, and paying for my own kids education expenses, I am now responsible for paying the student loan costs of others? Moral hazard only benefits the individual taking the risk, not society.
Education is also a right, not privilege that only people who can afford can attend the college. In my idealistic view I want to see every kid start their adult life with 0 debt, rather reality is they are starting their adult life with student loans that prevents them from making other big financial decisions. Also it doesn’t make sense that loan one takes for 4 years study requires 20+ years to repay, in other words it is broken system.
I do want to see the correlation between debt, a major and state, I am afraid that you may find a smoking gun.
Higher education at a residential 4 year university/college is not a right. It’s that sentiment that has created the crisis we are facing now. The one track mindedness that a college education is the only one worth pursuing is problematic when clearly a great number of “educated” people can’t seem to find jobs after graduating from college which allow them to repay their debt. That’s not a ROI that works for the country as a whole.
The percentage of high school graduates who entered college in 2020 was around 70%, I believe. Many don’t make it 4 years due to finances. Only 36% manage to graduate.
Again, consider that we taxpayers pay for lots we don’t personally need or choose. Your wildfires, droughts, floods, road improvements in other areas, fire/police, when our own neighborhoods may not call on them, the costs of schools, when our kids have aged out, things like Medicaid and Medicare. We could make a long list.
This idea we’re newly ‘robbing Peter taxpayer to pay Paul’ ignores all that. Some act stunned our country might fund something of no direct interest to us as individuals.
I’m a believer in investment in education, whether personally or collectively as a country. However, as any investment, we need to ask ourselves whether the investment is sound and how best to invest, especially when we only have finite resouces.
Student loans are unique in the respect that they are made without assessing the borrower’s ability to repay.
Student loans are unique as they cannot be discharged in bankruptcy.
Student loans are unusual as they were made without regard to the value of the purchase. For example, some schools mislead students as to employment results while others provided no or insufficient information.
Student loans are unusual in the respect that the product purchased cannot be returned for a refund if defective or if the product fails to perform as advertised.
Nowhere in the Constitution or the Bill of Rights are people entitled to any product or service (education, health care, haircuts, etc.). The Declaration of Independence guarantees the unalienable right to life, liberty and the pursuit of happiness. Read carefully…the right to pursue happiness…NOT the right to happiness itself. That is where individual responsibility and accountability come in.
Why am I responsible for paying the way for others to achieve their chosen path
toward happiness?
Plenty of things happened over centuries that contradicts what is written in constitution, slavery is just one of them (their right to pursue happiness was denied).
Probably due to their public colleges and universities having high in-state costs and/or poor in-state financial aid. PA gets a lot more attention on these forums for the same kind of thing, because PA is bigger and has more posters from it complaining about college affordability.