Doesn’t someone have to pay in the long run?
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This is mostly philosophical.
The Fed printed literally trillions of dollars during the pandemic, so the idea that “someone has to pay” is mostly rhetorical and not, technically speaking, true. Note the people braying about paying had no problem forgiving PPP loans totaling vastly more nor the Trump tax cuts which cost four times as much as whatever 400 billion worth of loan forgiveness.
Basically, the Fed has as much money as the Fed wants to have at any particular time. The stuff is printed. There is no additional cost (beyond theoretical inflation, but we’d be getting fairly afield here) to the Fed giving itself or it’s prime lending banks another dollar.
Obviously if these student loan borrowers were – I don’t know let’s say Banks betting on risky mortgages – they would get 100% relief TOMORROW – and all the doofus economists lecturing about “having to pay” would just be explaining that this is necessary and will prevent 40% unemployment.
The other piece is just the trash economics of withholding the relief – these borrowers are very likely to spend the difference on consumption which also will generate tax revenue and economic activity that would likely be much more stimulative than just paying the government back.
Tldr: money isn’t real for the government, no not really and student loan borrowers are overwhelming likely to spend the difference on consumption which, from the governments perspective, is just as desirable.
Withholding loan relief is preachy moralizing masquerading as economics.
I have some loans from the federal and provincial governments where I live so if one day our federal government says they forgive those loans, it would be like lending money to a friend and then saying “don’t worry about it.”
You’ll find some other way to get your money back but you won’t get it back from your friend. You’ll pick up a shift at work, or do some odd jobs for a neighbour, etc., but you’ve agreed that your friend won’t have to pay you back.
So if a government that’s expecting these loans to be paid back decides to forgive them, they’ll have to make their money back somehow. Either by cutting survives or increasing taxation, they’ll get their money back somehow.
In the short term, probably not much. In the long term, much more.
So the argument that the taxpayer needs to pay for all the money the Fed doles out to pay for this isn’t completely true. The US prints money and increases the money supply for a lot of things (almost everything) and people are good with it. We could pay for this too. There are down sides to increasing the money supply TOO MUCH, or TOO quickly, but the student debt costs are pretty small in the grand scheme of things.
The real problem is, as the Fed starts paying off student debt, two things happen:
1) Because the cost of collage becomes cheaper (with the Fed picking up some of the bill), collages can raise prices! If you will go to collage for 100k, even if you cannot afford it because you take out loans. ANd someone comes and says “hey, I will pay off the first 100k of your loans” then the collages will say: “If I charge 200k, then those people will STILL go to collage, 100k in loans and 100k in US funding!” And the price of schools will continue to go up. There will be no market pressure to keep costs low. This is a HUGE problem. When the government starts paying for a service, the only way to keep the costs from spiraling out of control is to impose const controls. That is a slippery slope. Yeah, maybe we should do it for health care, and education, and housing, and gas and and and… and.. . Countries do this, it leads to everyone being hopelessly poor.
2) It makes voters who save for school or otherwise paid for it very mad. Lots of people can pay for school, or have worked really hard to save and pay for it. Its not very good when everyone gets a free hand out but you.
In the end, this is one of the socialism v capitalism arguments. What things should society pay for and what things should people be required to pay for if its valuble enough for them. Where do you draw the line? How much government regulation do you want? Do you want the government to set the price for all schools? (thats how the state school systems work – you could go there) but many people don’t, they want to go to private schools, but they want the cost fixed by the state schools. Further, people don’t like paying state taxes, so they want the fed to pick it up because the Fed can print money. Tough call.
Further there is an argument that society would be better off if some people didn’t go to collage. There are some majors where there are literally no jobs to be had. Funding people to study these things in great numbers means less productive people. Honestly, I would love to get a PHD in philosophy. Do you want to pay for it for me? Might only take me 8 years. While I am there you could pay my room and board too. Maybe when I am done I will try something else.
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The main financial concern behind canceling student debt is that it can contribute significantly to inflation. Recall that we have recently hit a 40-year high inflation rate, though it has cooled down to more reasonable levels in the last couple of months. If student loans were to be cancelled, the ideal time would be when the economy is slowing down and possibly recessionary – certainly not now.
As for whether someone has to pay, in the literal sense, not really. The loss in revenue from loan payments to the government (from Federal student debt) or private companies (from subsidizing the cancelation of debt) can be offset by budgetary cuts, or simply absorbed into the national debt. In the case of the latter, you may think of this as letting future economic growth “pay” for the loans.
In a looser interpretation of “someone having to pay”, another concern is that it may contribute to already rising tuition costs. If the student loans were cancelled today, future students may consider the possibility that their loans would also get cancelled, and thus be willing to take on more debt than they otherwise would have. This results in a decreased sensitivity to tuition rates, and possibly drives prices up higher.
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