Is tax money used? Is anyone profiting from the program? Do colleges lose money? Please don’t make this political. I’d genuinely like to understand without all the talking point bullshit.
In: Economics
The loan forgiveness would only apply to government backed loans. Essentially all that would need to happen is that the government would set the balance remaining to zero. No money would change hands.
The government lent money to students to give to the colleges with the agreement the student will pay back the loan.
The college has already been paid.
Now there is just an agreement with the government that the student will pay back the loan. Since the government owns the debt, they are free to say “You know that money you owe us? We have decited you no longer owe it to us. we are all good, have a nice day!”
>Is anyone profiting from the program?
Without getting into the political discussion of the *efficacy* of this measure, the theory is that the government ultimately profits in the sense of getting additional tax revenue by having a better educated populace.
For example (and we don’t need to debate how realistic this is) an average person with a degree may make more money than if they didn’t have the degree. That income is taxed, so the federal government, and in some states the state government as well, gets more money. The person with the degree may then go spend that money on things they wouldn’t otherwise buy, like a more expensive car or a boat or jewelry or even just more things from the grocery store. Local and state governments earn tax money every time that money changes hands. Furthermore, those businesses selling those products are also employing people that are paying income tax. Finally, citizens may invest money in the stock market etc. and thus pay capital gains tax.
In general, federal programs like this are playing the long game. They are literally investing in the citizens in hopes of getting a return on their investment later in the same way you might invest in a stock in hopes of getting a return on investment.
Almost all student loan debt in the United States is owned by the Department of Education. The federal government can simply say “forget it” and the debt is forgiven. For the small minority of debt owned by private institutions, the government can’t do anything (outside of some narrow circumstances).
>Is tax money used?
In the sense that all of the government’s money is “tax money,” maybe. The government would lose a financial asset, but it would not need to be replaced with a corresponding tax increase. It would just increase the national debt.
>Is anyone profiting from the program?
Yes, anyone who has their loans forgiven would be profiting because they no longer need to pay that money back.
>Do colleges lose money?
No, the colleges were already paid when the loans were first taken.
The tax money was already spent, so in a very technical sense no money changes hands. But this is a foolish way to look at it.
In the original accounting, public money was spent at some point in the past, but the arrangement was revenue-neutral (e.g. the loans would be paid back, so the government wasn’t losing money on the original deal). When the loans are forgiven, the new deal has the government losing money instead. This (in effect) costs money, because the repayment of the money would have funded other government services, and the loss has to be made up by either reduced spending, higher taxes, or debt. There’s no free money hack, for all practical purposes the government is in exactly the same position as if it had written an equivalent-sized check and given it away.
The tax money is used when the loan is first made. Loans are constitutional because there are several acts passed by congress, signed into law by the president that allows them. Student loan forgiveness has been attempted by various presidents for various reasons, typically because of the student being disabled or being defrauded by the university (typically, for-profit universities). Trump gave loan forgiveness to 25k disabled vets. Biden gave forgiveness to 323k permanently disabled people. Biden also attempted to give partial loan forgiveness to approx. 40 million students citing the HEROES act, but that was shot down by the supreme court.
If you simplify the paper trail:
The non-forgiveness version – Taxpayer pays taxes to the government. The government hands this money to the student. The student hands this money to the university. The student earns a degree. The student pays back money to the government. The government does allegedly beneficial things for society with that money.
The forgiveness version – Taxpayer pays taxes to the govt. Govt hands money to student. Students hands money to university. Student earns degree. Govt says that students like this student will have their loan forgiven in part or in full because they are disabled, a vet, performing some critical but low paying job (teaching/nursing types of jobs), or *just because we can*. Govt does not receive money back from this loan. Govt does not have any of this money to spend on allegedly beneficial things for society. The taxpayer effectively receives no benefit from these tax dollars.
Lots of good answers. Something to add. Outside of forgiveness for many of the for profit failing schools, a good number of the current forgiveness programs are for people who have been paying for a long time. To the point where much if not all of the initial capital has been recovered, then some. Personal example, i took out $120,000 in total from undergrad through PhD. Over the course of the 20 years i have been paying it, i have paid 150,000. I still owe 100,000. I have been a faculty member at a public university for 8 years now. I will continue paying 800 a month for the next 2 years, then the government will forgive the 95,000 i still owe
The loans were paid with tax dollars at some point, either directly or to the bank they were guaranteed to. When they are “forgiven” , yes the college got paid, and the bank got paid. The debt is transferred to the tax payer. Everything the government does is pays for by the tax payer. Anyone who tells you different is a liar or an idiot. Source: I work for the federal government, and yes you pay my salary, but do do I because for some reason I pay taxes on my salary which is paid by taxes.
If you lend money to your friend and he doesnt pay you back, you can get the bat or you can forgive and forget. That’s the forgiving. It means you dont go after him about it and you never bring it up ever again.
Most of the student loan forgiveness is for the interest on the loans, not the principle. So if you’ve got 20k in accrued interest on your loan, that goes away. And the interest wasn’t money that the government gave anyone, it’s money they were charging on top of the loan amount.
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