It does nothinng to discourage colleges from continuing to charge inflated tuition rates, admit students who really shouldn’t be there, keep them there instead of flunking them out, and inventing degree programs of questionable value.
If they are selling degrees that are truly producing an income that is too low to repay the loans needed to buy them, the money for those loans should come from the people who sold the overpriced degrees.
Central bank do not own those loans so it doesn’t affect it. If they were to buy those loans and forgive it would be no different than quantitative easing.
We do not do so because of the culturally ingrained idea that debt has to be repaid, the perpetual discontent among future college indebted students who will not benefit from this and the cultural/political refusal to publicly fund affordable college, european style.
There’s an opportunity to rebalance the economy. Part of the reason medical costs are so high in the States is because college fees are so high. Managed properly student loan forgiveness can bring down the cost of services that everyone uses like hospitals and schools. And you’ll be better able to narrow the wealth disparity long term.
How high do I rate the chance of this happening in the States? I give it a non-zero probability.
Immediately, it’s an additional expense to some government ledger somewhere. A few years ago the amount would have been huge, now it’s probably not a huge amount relatively speaking. This applies only to those loans owned by the government, which is most, but not all.
In the long term, it does nothing to reform the cost or spending structure of US universities so we’ll be in the same spot against in not nearly as many years. Only worse, because many will assume they’ll do the same again later.
A more reasonable alternative is to forgive some or all student loan interest. More extreme steps might be to start taxing endowments of universities to cover the costs or reform student lending to make universities have some liability for the loans (which would drastically adjust their offerings and advice to students).
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