I’m really not trying to start a debate, I just want to understand why there is a dilemma, and how exactly it would work if passed.
In: 4
there is one quirk that exists specifically for student debt in the US that doesnt exist for other kinds of debt: it cannot be discharged by bankruptcy procedures.
allowing this debt to be eliminated would start with removing this restriction to allow the debtors to restructure it in a more manageable form/liquidate it. As these loans are also governement backed the creditor that would lose money would primarly be the state.
there is resistence for this because, doing it this way means future student loans have to be much more discrminatory as to who actually needs them(which in turn placespressure on colleges as a whole ot lower tuition rate…this would be a good thing, if college wasnt such a massive business certain groups want ot protect)
The US is in an interesting position in that much of the Student loan debt is owned by the Government rather than private banks.
So the Government could forgive a student loan they own by just cancelling it. “you don’t have to pay us back, and we’ll take it off the books”
Technically the Government would lose money equal to the value of the loan, which in turn would be passed down to the taxpayer.
But not really, Government finance is such that forgiving the loans would actually generate more income in the long run.
That person now student debt free could buy a house, a car, raise a family, etc and paying taxes all along the way.
The overall economic benefits would greatly outweigh the downsides.
The problem though is that they haven’t addressed the core problem of Colleges + Universities being too expensive to begin with. So if they start discharging Student loans it will probably become that much more difficult to get one in the first place.
US student loan debt is held by a combination of the government itself and private banks. What would most likely happen is the government loans would just go away and the government budget would eat the loss, while they would pay the banks a reduced rate.
The dilemma is two-fold: the case is in the Supreme Court right now to decide if the President has the legal right to use the government’s money to pay for the loans while also cutting it off at a certain income level. I don’t know enough about the law to say which side I should be on, but that’s why it hasn’t happened yet. The political argument against it is basically “Why should I have to pay for other people’s college degrees?” I won’t say what side I’m on, but there are valid reasons on both sides.
Student debt made prices in uni grow gradually, until now they are huge. You can’t run the system without massive amounts of money.
Which means that stopping this, right now, is very hard. You’d have to mandate a wind down, but do it too fast and you got massive disruptions.
Student loans are almost always backed a government bank (or a government + public bank) like Fannie Mae or Freddie Mac. The government can set some rules to have loans forgiven (or partially forgiven), such as an amount that has already been repaid (many student loans have paid in more than their principal but the fees and interest extend the loans).
The “dilemma” is that many politicians would rather spend money elsewhere than on helping students. Frequently they prefer to spend money by cutting taxes on certain people and businesses.