Help me out here (someone). Lets say $10k of a student’s loan is forgiven, how does that stimulate the economy, particularly for those without employment? Honest question. I can see how those who are making their payments would have more to spend, but aren’t they the minority.
I guess it will stimulate the economy same way tax cut for top 1% did… 
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Well those colleges (and loan programs) have been open a long long time. And middle class kids went to college in the 1980’s. There have always been college loans. What might be different is the amount of noise people with big loans make. In the 1980s about 25% of kids went to college today it’s a lot more. Many don’t graduate.
Defaults aren’t direct debt cancellations. With a default people will have a tough time getting a mortgage, and even in some cases a job.
I think it’s an outrage that college costs so much. But that doesn’t make me want to cancel the debts.
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About the for-profit colleges…
It’s my understanding that a lot of these colleges offered certification programs offering a shorter period of study (18 mos, or 2 years) for a certificate that would lead one to a better paying job, like a paralegal, dental assistant, coding boot camp etc . This directly appeals to someone who is poorer, has been out in the workforce for a bit and knows how difficult it is to survive on minimum wage, and wants to quickly improve their financial situation.
It seems to me that this is one thing that community colleges are ideally situated for, and that if there is a true need for these types of employees, it is a win/win for the community to provide legitimate programs either inexpensively or free to meet this need.
Rather than just do a sweeping loan forgiveness, let’s look at what are the types of loans that people struggle the most with and try to fix those first.
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@Rivet2000, it doesn’t stimulate the economy. It simply takes money from one group of individuals and gives it to another. As you say, it pays off part of the loan but doesn’t actually stimulate anything. If anything it contracts another groups spending because they have to pay extra to cover it thus having less to spend themselves.
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“It simply takes money from one group of individuals and gives it to another.”
Isn’t that how most of our taxes get spent? You build your home in a fire zone or flood plain and I help you recover. Or improve your roads, rebuild your schools. Now, I envision us “paying” for all those covid shots, including to the reckless.
I do see how many feel taking college loans is done based on poor choices or ignorance. You don’t want to pay for that. Or even see it considered. But I think some miss the number of ways we already do pass out breaks, one way or another.
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Nearly all (more than 90%) student loans are quasi-government guaranteed. Taxpayers are already on the hook. Defaults are coming and the question is how to minimize the losses. With the limited resources we have, blanket debt forgiveness is not only too costly, but creates the wrong incentives and raises the fairness question. Instead, we should use the resources to restructure these loans to tie their repayments to borrowers’ incomes. Most borrowers don’t want to default, ruining their credit for years to come.
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@1NJParent, that makes perfect sense to me. Lower the interest rate. Tie repayment to salary. Just don’t give out a blanket forgiveness. That would solve nothing in my opinion.
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It still bothers me that a certain cohort will benefit from this debt forgiveness when the underlying problem will continue to exist. In addition, student debt is hardly dragging down the economy. Housing is booming, unemployment was at its lowest level ever before Covid, and as of right now there are forbearances on student loan payments.
Tax breaks allow people to keep more of their own money instead of giving to the government to spend. Forgiving debt is in no way the same thing. It’s a freebie in the truest sense of the word. No one forced any of those borrowers to take out those loans. Just like we don’t force people to run up credit card debt, buy a bigger house than they can afford or a more luxurious car. I’m sure many people could help stimulate the economy if you paid off $10,000 in car loans, credit card debt and mortgage or rent payments. There is no logical reason to favor student debt over other types of debt if the goal is stimulating the economy.
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The best way to lower the cost of college is to get the government out of the student loan business. The government has given colleges a blank check to charge students whatever they want. That is why tuition has skyrocketed.
The best way to lower tuition cost to to get rid of government student loans after the HS class of 2022. You would see tuition cost plummet. Then colleges would be affordable again.
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I took out college loans from 1969-1973 when I was an undergrad. I didn’t take out huge amounts because my school was not costly. But without those loans, I would not have gone to college at all.
I forget what the name of my federally funded loans were, but they were 100% forgiven if I worked in a low income/priority school district for five years. I did this to get this loan forgiveness. It was a great option and I loved my job!
Folks here are talking like loan forgiveness has never happened. That simply isn’t true.
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Five years is a long time. Most loan repayment schedules are ten years right? I bet the numbers would work out. They pay you a lower salary for five years and ensure the loan gets paid by paying it off. Not the same as forgiveness ( since you are actually working off the debt) but if you want to call it that ok. I’d support working programs like that esp if the timeframe is 5 years. I think Americorps might gave some debt reduction for their participants.
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A common talking point, but if $5.5k to $7.5k per year undergraduate student loans disappeared, how much of an effect would they be on $35k per year public college costs or $80k per year private college costs? Perhaps it could be significant at lower cost community colleges and the like, but the community colleges also depend on state subsidies that would have to be increased if the cost to the student were to be lowered.
Also, the undergraduate Stafford / direct loan limits have not really been going up in real terms.
1967: $1,500 (= $11,626 in 2020)
1973: $1,000 (= $5,848 in 2020)
1977: $2,500 (= $10,619 in 2020)
1987: $2,625 (= $5,977 in 2020)
2007: $3,500 (= $4,354 in 2020)
2008: $5,500 (= $6,479 in 2020)
If the government eliminated college student loans, the lowering of tuition would be huge. Without government loans, who could afford to pay the crazy tuition rates that private colleges are charging? Very few people would be going to these colleges and paying these crazy tuition rates. Thus these colleges would have to lower their tuition to at least fill their freshman classes and survive.
This college tuition rate skyrocketing phenomenon is no different than the housing bubble in 2008. The government was allowing “easy money” to be loaned to borrowers to buy houses. The colleges are raising tuition because there is someone (the government) who is willing to subsidize their actions. If you were a college, you would be raising your tuition every a lot year to get free money from the government.
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You obviously have not compared the limits on government loans for undergraduates to the cost of college these days.
Nor have you checked the history of the government(-backed) student loan limits for undergraduates, which indicate that (in inflation-adjusted terms) the current limit is not larger than the historical range (even though college costs have risen far faster than general inflation).
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I was not working off my loan payments. I got paid exactly the same salary as every other teacher in the district who was new. This was a federally funded program to encourage teachers to take jobs in priority school districts. It wasn’t a work to pay off loan program. My income was actually very good for the area.
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Many people who have $50k in student loans would not see debt forgiveness. Some of that $50k is held by private lenders, so no forgiveness. Perkins loans? Owned by the colleges so no forgiveness. Loans that have been in default for many years? Those notes have been sold for pennies on the dollar to private collectors, so the government is not going to buy them back at full price. No forgiveness. (the notes may be too old to enforce anyway, but no forgiveness). Those people will be in the same position they are in today. If they have payments of $1000/mo that they aren’t paying today, they are going to have the same $1000 payment that they aren’t able to pay on 1/20. They are NOT going to have $1000/mo to stimulate the economy.
If loans are forgiven by executive order, there is no funding. The president can only forgive loan payments the treasury is expecting to receive; there is no money to pay private lenders, private debt collection companies, state loans, Perkins loans, etc.
When debts are discharged in bankruptcy, they aren’t forgiven (and no tax liability for ‘forgiven’ debt). The debt is still there, on the books of the lender (until the lender writes it off), but the permanent ‘stay’ issued by the court prevents the lender from taking steps to collect on the debt. It’s still a loan, the borrower can make voluntary payments and the lender can accept those payments.
I have two kids with loans. D#2 has about $10k remaining. She has the money to pay it off (I told her to stop making payments because it MIGHT be forgiven), but if it is forgiven she’ll just add that to her down payment for the house she’s planning to buy. She’ll buy the same house, but instead of getting a $400k loan, she’ll get a $390k loan.
D#1 has about $20k in loans. She was paying about $220/mo before the freeze. She was having a hard time making those payments (poor, struggling History major with hourly job), so when the freeze happened it was a gift to her. Did she stimulate the economy with that ‘found’ $220/mo? NO. She doesn’t have it. Her hours were cut, she’s been furloughed a couple of times, she hasn’t been able to work for the last 2 weeks because her roommate tested positive for covid… The money isn’t just there waiting to buy consumer goods or houses or cars.
Would forgiveness help my kids? Yes. Do I think it will stimulate the economy? No. Will it help certain students get a ‘fresh start’? I really don’t think so. And I do think that if loans are dischargeable in bankruptcy, it will dry up private lending to those students who are not at least middle class (borrower must qualify). I’m not saying that’s a bad thing, just that it will change borrowing without qualifications.
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Interesting that one of your kids has not paid off her loans based on the possibilities of forgiveness. That’s economics in action. If forgiveness does happen millions will wait/game the system to take advantage if they can. Millions more will borrow more than they can pay On the lottery premise that some might get forgiven in their timeframe. Hey, it’s free money In so many minds.
I seriously doubt this will come to pass. Then again it’s still 2020 so an alternate universe is the notm.
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There was no benefit to her continuing to pay the loan after they announced in March that there was no interest accruing and there were rumors that there may be a forgiveness of student loans. There were several candidates running with the promise that loans would be forgiven.
She was (slightly) better saving the money and getting 1% interest than paying the loan. If the loans are forgiven, she’s better off. If they aren’t, she’s no worse off.
My kids are paying back unsubsidized loan every semester, within 120 days of disbursement w/o paying any accrued interest. Federal law grants 120 days as return/repay w/o any interests.