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.
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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.
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)
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.
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.
Over decades the US has bailed out banks in the amount that makes the student loan debt trivial. If they can find the money to continuously bailout banks then they could do the same for student loans but choose not to
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.
There are several aspects as to why it is a problem:
1) at this point it would cost an insane amount since U.S.-student debt is higher that credit card debt in the US. So the question is how could you finance it? Do you have the US go more into debt? Do you raise taxes? Do you take the money from another program and if so yes? Do you maybe just declare all loans void (thereby however destabilizing the economy)?
2) Many people have private loans. How do you deal with those? Do you also pay them off? Do you not pay them off? Would it be unfair to only eliminate public loans? Can you justify giving huge amounts of public money to private companies? And so on…
3) There’s not really any “elimination student loan debt” as long as college is so expensive/ isn’t entirely tax payer funded. You’d just get the next generation who’s going into student debt even while you’re Even in countries without tuition for public universities people sometimes still have to take on loans, to pay for living expenses or to even still pay for tuition if people go to private colleges. So they take on debt. So it’s more of a question of managing debt rather then getting rid of it entirely. Do you charge/allow interest on student loans? Do you offer at least tuition free public options? Do you maybe offer tuition free alternatives to universities such as free trade schools? Do you regulate how much universities are allowed to charge or what charges universities are even allowed to have the students pay for? There are many ways to manage student debt from getting as high as it is currently for future generations, if that is what you want to do, and it’s not easy to determine which one is the best way for the U.S., since what works for other countries, where students are mostly burdened way less than U.S. students, may not necessarily work for the U.S.
So it’s a complex issue with many different possible options to manage student debt and much discussion is needed to come to an agreement and how it would work is very unclear bc it depends in the individual solution and there are too many to list them all.
Hope this helps even if it doesn’t fully answer the question.
The dilemma is this: colleges in the US haven’t had to control their costs for the last several decades. Thats why they are so expensive, because they can be.
The government and private banks have been willing to loan huge amounts of money to 18 year olds, because they know for sure they’ll get paid back. Eventually. It doesn’t matter if Johnny takes out $200,000 for an art history degree, he’s got to pay it back at some point. Colleges can charge as much as they want and banks/the government will still hand out those loans.
The problem is that if you waved a magic wand and all the existing debt disappeared, you’ve just kicked the can down the road. College tuition won’t decrease at all. The next batch of students will have the exact same problem.
You’ve got to bring down the cost of tuition first. Keep in mind that colleges have quadrupled the size of their administrations in the last 30 years, and all those people get paid. But it’s not politically popular to fire all those folks.
It’s hard to explain to someone like they’re five. We have a backstory, a current situation, and some implications for the future. Many people borrow money to go to college. In very general terms it is encouraged by society in that it is viewed as an investment in one’s future, and increased earnings potential. It is supported by government in the form of government loans and subsidized loans. 18 year olds with no job, but a lot of hope, aren’t necessarily the best credit risks. The government has made “easy money” available both directly and indirectly to them. Many studies will point to the easy availability of money being a factor in college expenses rising faster than many other expenses, higher than inflation, over many years. On top of that, student loans interest rates aren’t tiny. A car or a house typically require down payments, proof of income, etc plus the item itself is collateral on the loan. Debt for education is different, there’s nothing to repossess or sell if the loan doesn’t get paid. So there’s interest on the loan, and it builds up. Finally, these loans can’t be discharged via bankruptcy. That’s kind of a catch supported by law. Again, what incentive do the banks have to loan money to these young adults who need tens of thousands of dollars for education? Interest, can’t discharge them through bankruptcy. Those are attractive terms for lenders.
So now we have some facts, and a lot of different perspectives and feelings. Everyone has their own story, so trying to see all the data from a given lens can be difficult.
A given “frame of mind” is to borrow the money for school, get a good job, then pay off the student loans.
Again, everyone has their own story. You can find people who
– Did not borrow money for school because they saved for it, joined the military, mom and dad paid for it, they worked through college, they got scholarships, or a combination of these
– Borrowed money for school, have substantial debt and don’t have or say they don’t have an income sufficient to pay the debt. This is true for some folks who finished school and for some who did not.
Some of this debt is to private banks, some of it is to the government.
There was a law passed after 9/11 which says that in the event of an emergency the government can make adjustments to student loans for those affected. The government has done this in various ways including after natural disasters, it has stopped interest, or delayed required payments, and some other things. If the government does not receive payments for student loans, that is money that is missing from the government budget one way or another. Therefore it becomes a direct (or indirect depending on your post of view) government expenditure. Any money the government spends (or does’t get) it has to make up for in taxes, or via immediate debt which ultimately comes back to taxes.
So now we get into a combination of feelings and perspectives.
Some who have student debt say the government should absolve/forgive/cancel some or all of the debt. The basis for their reasoning is often that education should be a free public good anyways, other supporting ideas are that the American dream is in jeopardy because of student debt, that the terms and conditions of the loans are unfair, or that the loans are predatory. The government’s justification in crafting some rather broad student loan forgiveness plans was that the COVID-19 pandemic qualified as a national emergency which affected everyone, so it meets the criteria of the law.
Some who did not borrow money for school say it is inappropriate for the government to forgive student loans. Their reasoning is often two or three fold – it would be a burden on taxpayers, it would teach people that they have no real financial obligations, that other people can carry their burdens, that their own decisions have no consequences, and that such a move broaden a socialist agenda. They may also believe that an eroding sense of personal responsibility is detrimental for society.
Some will also say that without comprehensive reform on college financing, canceling student loans won’t fix the problem.
Folks against student loan forgiveness claim that the law in place was intended for small scale surgical tweaking, especially for those immediately affected by disasters, not for a broad multi billion dollar program. Since the budget has to come from congress, they say that any such broad program cannot be implemented without specific congressional legislation.
I think that about sums it up.
The courts can either discharge the loans, meaning they tell the lendors that the creditors of such loans are not longer contractually obligated to pay them back, therefore caveat emptor. That means a significant loss of revenue for banking institutions, some of which will come out of insurance, the rest just goes up in smoke as it were. But it still means there’s a reduction in the gross money supply since banks then have to loan less to others while charging significantly higher interest rates. It would also cause a few institutions to go belly-up wiping out some of their customers investments, which isn’t great. This overall isn’t a great option since it’s likely to cause recession and reduction in corporate spending.
The federal government can also simply pay off the remaining loan balance by rolling it into the national credit card account, so to speak, i.e. the national debt. Now, when the federal student loans program was created, there were some legal framework to do this written and it was always assumed to be an option, meaning the federal government could guarantee the loans if individuals couldn’t pay them off. But the legal mechanisms haven’t been tested until the last 2 years.
National debt doesn’t work exactly the same economically as an individual debt. Explaining the differences is a bit. Suffice it to say it ends up being paid back by taxpayers both individual and corporate taxes, but the government sets some of the patback terms and can also do things to increase or decrease it’s buying power. However the caveat being that on a national level we are already collectively paying for it in the form of reduction in consumer disposable income, and by employees asking for higher wages, to a lesser extent. That is, higher labor costs and lower revenue.
Now, this isn’t exactly harmless either and it increases the supply of money in effect, which can cause inflation.
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