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 IRS have different tax brackets.
People who finish a college degree are more likely to be employed than people who didn’t, and are more likely to be on higher tax brackets. People with college degree are also less likely to be in welfare programs.
The government gains more money and uses less money when people go to college.
But because tuition was rapidly rising, people were wary of taking student debt and fewer people were willingly to join college.
Government simply decided to step in and forgive college loan debts either directly or indirectly. Government intent is not exactly to forgive student debt but rather signalize to current HS students that college is fine and that they shouldn’t be wary of it. Helping people getting rid of debt is basically a nonintended effect of that policy.
In many examples “predatory lending” is used to describe the student loan payment structure. It is all said the the Federal Government provides 90+% of the loans.
Is the Federal Government a predatory lender? If so, what is this not the topic of conversation?
A bunch of people who agreed to do work for society are no longer on the hook for it, and the rest of us have to fill in the gap. Which is especially interesting during a time where goods and services are already hard to come by for the average person. Compounding the issue is that the people who are being forgiven are already more well-off than the people who will be paying their bills, so it also serves to widen the divide between the rich and the poor, not lessen it.
There are two main ways:
https://www.law.cornell.edu/cfr/text/34/685.209
Public student loan forgiveness, which after 10 years of repayment while employed with a qualified employer (government, 501c3, etc.), your loans are forgiven.
IDR Forgiveness: after 20-25 years of repayment on income driven repayment plans (IDR), loans are forgiven pursuant to the terms of your IDR plan. This doesn’t require any employment by a government agency or not for profit organization.
This isn’t the government just arbitrarily deciding that they want to forgiven debt as others have implied.
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.
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.
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 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.
Latest Answers