"Democracy survives until the public realizes it can vote itself money from the public purse in unlimited quantities."
This highlights the need for an independent central bank which is extremely vigilant in fighting inflation. It becomes the last check on government spending. If politicians (and the electorate) learn that more spending (at a time of high inflation) results almost immediately in higher interest rates they might start thinking twice.
I'd go a step further and say it highlights the problem with having a central bank in the first place. If the government has control over the money supply in any way, it will strengthen that control to the point that it is can print money to its heart's content. The Federal Reserve is supposed to be very independent, but... whoops?
Ultimately no institution can truly be independent from the government. That's just a fact of life. But with a long history of independent decision-making and good outcomes, a central bank can become as close as it gets to truly independent. Letting inflation blow past target was a critical error and ups the risk of govt interference into central banking imo.
You may want to look into the history of the Scottish banking system, or the American system pre-Fed, or the Canadian System around that time as well. Larry White had a good couple of papers on those systems, if I recall correctly, though I can't think of the names now.
Long story short, national banks are not a requirement, just a common things governments get up to, like price controls and spying on their own citizens.
Also, I would point out that "letting inflation blow past target" was a symptom of government interference into central banking, not a cause. The Fed hasn't been properly independent since at least Nixon, and arguably before that. Every 21st century decision has been highly politically motivated, and lots of the 20th century decisions are at least debatable. At the very least, controlling inflation demands the Fed stop letting the government borrow so much. That isn't happening, and probably never will.
This all makes my blood boil. If I can look back to the 'root cause', "How does the President have the power to do this?" Is it because the congress has ceded most of it's power to the prez.? My solution to many things political is to have congress take back it's power... not that I see that happening any time soon.
“If and when Republicans find a way to steal (ahem, ‘transfer money’) from blue voters to red voters, objections will be that much easier to laugh off.“
I was surprised to see no mention of the SALT cap here, another recent policy change with disparate impact along political lines. It is different in every other way; rather than benefitting the red base by raiding the public purse, it punished blue state high earners in order to *augment* the public purse. But still, it was another recent policy reform with obvious political valence, and perhaps that’s part of why Democrats feel entitled to “laugh off” critics of partisan redistribution here.
“One possibility is that they will do this by going after higher education.”
Contingent on how they go about it, mightn’t this be a good thing? I was struck by the vehemence of your assertions that college education is broadly a cost, not a benefit, and your characterization of the system as broadly providing a positional good. I agree entirely, which is why I am favorably disposed to certain kinds of taking a wrecking ball to the edifice. In the hypothetical world where you have their ear, what should hypothetical Republican reformers make sure to clear away, and what would you tell them to be careful to leave intact?
I considered mentioning SALT as an example. Decided against it because of too many differences.
Going after higher education can be good or bad depending on implementation, although those who like student debt relief would likely see almost all potential R responses here as quite bad.
It's a good question what the right details would be and I'd want to think harder before answering fully. I'd focus on financial incentives. I worry Republicans would focus on culture war considerations that are non-central to the problem.
I think the really important difference between the SALT deduction removal and the student loan issue is that SALT was a special cut out for a specific group (states/localities and people who live in states/localities with high local taxes) that was removed, while forgiving student loans is a special cut out that is being created. As you say, it was a move that stopped some amount of raiding the public purse, and any move that does that will fall more heavily on some group compared to others due to the raids being pretty specifically targeted to benefit certain groups.
Better policy moves in the direction of fewer special cut outs and benefits, I think. Best policy would be no special cut outs and benefits at all.
There is a large difference between policies passed thru Congress vs unilaterally decided by the Executive Branch.
If you can convince the moderates from purple states of a policy it probably isn't totally off-base. That was the case with SALT. That would NOT be the case with student loans (no way Manchin signs off).
Reading from the UK, I'm mostly bemused by this article. Your arguments are usually very well made and easy to follow, but I found this one to be bogged down in the sort of party political stuff you usually do well to avoid. It is clear that you hate the policy, but this seemed more like a pure polemic than your usual style of cold analysis interspersed with the odd strong opinion.
Take for example PPP. The point being made in the White House tweets is a simple one. Marjorie Taylor Greene had no qualms being on the receiving end of government spending which transferred wealth to Marjorie Taylor Greene. But she opposes a transfer of wealth to graduates. The technicalities of the transfers of wealth don't matter to most people, but the fact both transfers are in the form of forgiven loans helps the political point land better. In truth though, this is just the standard left-wing claim that right-wing parties transfer wealth to the rich at the expense of 'normal people'. Getting bogged down in arguments like 'everyone knew PPP loans were a grant, so the two cannot be equated' seems to me like a case of missing the wood for the trees. I'd be surprised if this section of the discussion changed a single person's opinion.
Similarly, while I think it's not unreasonable to argue this policy is cynically stealing from Republican voters to give money to Democrats, it seems remiss not to mention any alternative interpretation. Perhaps things are different in the US, but in the UK, intergenerational wealth inequality is a significant issue, and young adults today are predicted to be less well off than their parents. The fact that young people take on a mountain of debt in the service of a status game is part of this. In the absence of the sort of majority required to pass transformational legislation, it seems to me that the debt forgiveness policy's main function is to act as a clear signal to younger, educated voters that the Democratic party is standing up for their interests, in the hope of winning power in the future.
I'm quite disappointed that the article doesn't discuss this, or attempt to give any motivation for the policy other than pure bribery. Having said all that, I did still get something from this, as I hadn't heard of Income Sharing Agreements before, and at first glance they seem like a great idea. If you have more thoughts on that I think it would make a very interesting article.
P.S. Sorry if this is overly negative, I still think you're great!
Yeah, on reflection this got bogged down in that stuff more than I would have liked, and you are right to notice this and point it out - would have liked to keep focus on the implications. Yet here keeping that distance was harder than usual.
As far as the PPP thing is concerned, I could have probably made it shorter and explained better, but this is a serious attempt to rewrite history in a way that potentially justifies quite a lot of very big similar things in the future.
I didn't mean to imply that there were no legitimate benefits to the proposal - there certainly are reasons to favor debt forgiveness especially if it was combined with fixing the underlying system (and better yet, with help for those who didn't go to college, presumably). And you could make the case that the Dems can't find a way to pass anything else that serves the same ends so this was the best option, I suppose? Didn't think I had much useful to add there.
I notice that you are calling it 'sending a signal that they are standing up for the interest of young, educated voters, in the hopes of winning power in the future' which here are pretty solidly Democratic voters, and... I notice I don't know how that is different from a bribe? It's a bribe with the promise of additional future bribes? Well, yes. Sure.
Thanks very much for the reply, and I'm glad you took my feedback as intended. I didn't make this point well in my first comment, but the main reason I find your posts of this nature worth reading as an outsider is because of the unique way you approach the topics you write about.
Regarding bribery, the point I was trying to make was that, while there's no doubt redistributing wealth from likely Republican voters to likely Democrats is electorally convenient, in some cases it may also be a good thing. In the case of the political divide between old and young, I think redistribution is a pretty good idea, not least for the demographic reasons you mention in the car seats post. Redistribution in favour of likely Democrats along the divide of education, on the other hand, would be bad. Since this issue cuts across both divides, I didn't think it was obvious a priori whether redistribution could be justified. By describing this case as bribery, it seemed to me that you were implying that Democrats themselves think this policy is at best neutral, and that the only benefit is electoral. If you argued this point I'm pretty sure I could be convinced, but instead the post seemed to start by assuming malevolence and opens in an outraged tone. This led me to update in the direction of ignoring you, as you lot seem to like to put it.
But as I said, I'm from the UK, so I'm sure I'm not the intended audience. People who have a dog in the fight probably found this more useful than I did.
The big difference with PPP loans is that they were *compensation* for the fact that the government enacted significant restrictions on public activity. If the US simply "let it rip" and refused to restrict the public in any shape or form in March 2020, such loans would indeed have been highly inappropriate.
I understand that would be how someone vehemently opposed to governemnt intervention might justify PPP loans, but it certainly wasn't how the UK's equivalent scheme was sold. It wasn't compensation for the effects of government decisions, but a necessary corporate welfare system during an emergency. Regardless, my point was that the message from the White House wasn't simply 'Republicans are hypocrites', but also 'Republicans are happy to help themselves and their cronies, but they don't help you'. By focussing so intently on the former, I thought Mr Mowshowitz missed the latter. And anyone who doesn't think that the tweets were very effective in conveying the second part probably wasn't the intended audience anyway.
Right but the "emergency" was primarily due to government intervention. In 1957 and 1968 we've had pandemics of similar fatality rates and it wasn't an emergency because no one locked down anything.
I'm not disagreeing with that. But the justification at the time (in the UK at least) was that it was emergency support, not compensation for government intervention. Which means the way to defend the loans isn't to make the revisionist claim that they were compensation, but to argue that the support was a good use of public money. And I would agree. But then that means the 'big difference with PPP loans' isn't that they were compensation, but that they were a better use of money than forgiving student debt. I probably agree there too, but there are pros and cons of both, and it isn't obvious to me, living in a country with free higher education, that student debt forgiveness is net-negative, even after reading this post.
Anyway, I didn't mean to get into a long discussion about policies I know nothing about in a country I have no connection to. I was just commenting that I found it much harder than usual to get on board with the argument being made.
PLUS loans don't have a lifetime limit, and the annual limit is just the institutions self-defined "cost of attendance", which includes a (typically generous) estimate of living expenses in addition to tuition and fees.
"This indeed is a great deal for the student who pays nothing and it’s a great deal for the law school which gets 200k more revenue immediately in return for 150k of payments paid out over the following 10 years. Win-win! Except for the taxpayer of course."
I have the impression that loan forgiveness in many cases involves a significant tax hit to the former student. I don't know if this round of loan forgiveness will or won't, but there are cases of large student loans being forgiven and the former student now suddenly has to pay income taxes on $150K or whatever. I don't know all the details, though; I just know it can be a gotcha.
Edited to add: This article describes what I'm talking about. This orthodontist wound up with $1M in student debt, but when it's forgiven, he'll owe the taxes as ordinary income.
I mostly agree but it's not quite that simple since you have an asset (your degree and knowledge and connections) that can't be seized and a huge debt so soon-to-be-rich doctor/lawyer/etc auto-declares bankruptcy on graduation, etc.
That's why bankruptcy is a court proceeding. Also, we used to treat student loans the same and the world didn't end.
But... you are making a good point. Creditors, whoever they are, would have to take a risk on their investment just like everyone else. This would make lending large amounts of money as risky as it should be.
Wouldn't more risk reduce the funds available to students? Would that then drive down tuition? I think it would. That would be a good thing.
Inflation is always and everywhere a monetary phenomenon. Easy money leads to inflation. Make the money harder to get and the amount colleges can charge will decrease.
That's why I said, "Fixed." Small change, large impact, and it's good for everyone overall.
This would only fix the system if the college loses a lot of money if one of their students goes bankrupt. If the college loses nothing it doesn't fix anything.
One simple fix that would eliminate ~90% of the "crushing student loan" anecdotes would be to eliminate the Grad PLUS Loan program, or at least dramatically tighten eligibility to only cover programs where graduates are statistically likely to earn enough to justify the loans.
Almost 100% of the coverage of "the student loan crisis" profiles students who took out large loans to pursue masters programs with low or negative expected value. There is 0 reason for the government to subsidize this, and cutting off Grad PLUS funds would help halt the escalation of the master's degree expectation that has crept across our entire labor market.
My unpopular opinion is that the federal student loan situation for undergraduate was mostly fine. The relatively low annual and lifetime limits combined with the already existing IDR programs made it difficult for anyone to carry a truly problematic burden from federal undergraduate loans alone. Parents could (and did) get themselves in trouble with Parent PLUS loans, but I'm frankly much less sympathetic to that case - we're not talking about 18-year-olds, and those same parents could similarly get themselves in trouble with a loan for an F-150.
Won’t those who have outstanding student loans which don’t qualify for “forgiveness” right now simply stall on paying anything in the reasonable belief that once something like this is put in place, the eligibility criteria will be weakened? Why pay what you owe now if you won’t have to pay if you just wait a while?
Instead of student loans which must be repaid, the educational institution gets a percentage of the student's post-graduation earnings. This would be negotiable and could be replaced in whole or in part by paying normal tuition.
If you think about it, loans have to be repaid anyway, and this way the educational institution has a big incentive to prepare students for the highest paying jobs in their field. The school would also invest in finding jobs for graduates. There would also be a big financial pressure on schools to move away from economically useless degrees.
Poor students would be better off than they are now because the school wouldn't be able to exploit their inexperience by selling them a trash degree. Better off students wouldn't be forced to take high-paying jobs to make enormous student loan payments. The school would get a percentage of income, whatever that turned out to be.
This way the school is taking the risk, not the students or their families. Would colleges become more selective about who they admit? Of course. That would be a good thing! Spending $50- 100k on a degree to get a job which earns $50k a year is not a good return. Most students in that situation would be better off just working for four years and gaining experience and not incurring the debt.
Full disclosure: I got a cheap 4 year degree from a no-name state college and the GI Bill paid for all of it. While the degree has gotten my foot in the door for a few jobs, for the most part it hasn't been necessary. I am very grateful I didn't blow a lot of money on it.
There are soooooo many jobs out there that don't require an expensive degree. Our society gives status to jobs which require more education, even if the pay is bad.
> Make loans available, require 10-20% of gross to be paid towards the loan each year, and after 10 years, the university pays whatever balance is left.
Tying tuition directly to expected income seems like a pretty good way to institute market-responsive price controls.
If the university is responsible for 100% of the payments not made then that helps a lot, but if the university is public and gets public funding how do we know the money isn't fungible? Solve that problem and I'm on board. Also, in general, if you absorb the downside you should also get the upside (e.g. true ISA, rather than a loan for a given amount)
This is far fewer schools than listed in the linked tweet, but I skimmed the report on the one beauty school in the list and learned that the ED found them to have misrepresented the kind of instruction provided, failed to provide instruction required by regulations, and would sometimes fail to provide any instruction at all for weeks at a time.
I wonder if that's typical of the beauty schools on the list.
My curiosity was piqued because if the metric is based on something like post-education success, then you've got a huge confound in the kind of population the school is serving. The people that enroll in beauty schools advertised on television just aren't the best decision-makers, and even when they make all the right decisions, aren't going to be earning all that much as a hair stylist.
Thanks for looking into it. That makes sense - It makes sense to want to refund people whose 'education' at a 'college' was this clearly fraudulent - again, if and only if the school is being otherwise treated as fradulent.
Why can't the solution be to steal back from the educational institutions? From what I understand, higher education in the US is basically a scam. Rather ridiculous one, given that Internet exists. Like, if information was scarce, education costing a lot would make sense. _It's not._
Higher education is mostly signalling. It's saying to employers this person was smart and conscientious enough to get into a selective school and pass the courses. Cadetships offered on the basis of IQ tests (supplemented with online study) would be vastly more efficient for most fields.
"Democracy survives until the public realizes it can vote itself money from the public purse in unlimited quantities."
This highlights the need for an independent central bank which is extremely vigilant in fighting inflation. It becomes the last check on government spending. If politicians (and the electorate) learn that more spending (at a time of high inflation) results almost immediately in higher interest rates they might start thinking twice.
I'd go a step further and say it highlights the problem with having a central bank in the first place. If the government has control over the money supply in any way, it will strengthen that control to the point that it is can print money to its heart's content. The Federal Reserve is supposed to be very independent, but... whoops?
Ultimately no institution can truly be independent from the government. That's just a fact of life. But with a long history of independent decision-making and good outcomes, a central bank can become as close as it gets to truly independent. Letting inflation blow past target was a critical error and ups the risk of govt interference into central banking imo.
You may want to look into the history of the Scottish banking system, or the American system pre-Fed, or the Canadian System around that time as well. Larry White had a good couple of papers on those systems, if I recall correctly, though I can't think of the names now.
Long story short, national banks are not a requirement, just a common things governments get up to, like price controls and spying on their own citizens.
Also, I would point out that "letting inflation blow past target" was a symptom of government interference into central banking, not a cause. The Fed hasn't been properly independent since at least Nixon, and arguably before that. Every 21st century decision has been highly politically motivated, and lots of the 20th century decisions are at least debatable. At the very least, controlling inflation demands the Fed stop letting the government borrow so much. That isn't happening, and probably never will.
This all makes my blood boil. If I can look back to the 'root cause', "How does the President have the power to do this?" Is it because the congress has ceded most of it's power to the prez.? My solution to many things political is to have congress take back it's power... not that I see that happening any time soon.
“If and when Republicans find a way to steal (ahem, ‘transfer money’) from blue voters to red voters, objections will be that much easier to laugh off.“
I was surprised to see no mention of the SALT cap here, another recent policy change with disparate impact along political lines. It is different in every other way; rather than benefitting the red base by raiding the public purse, it punished blue state high earners in order to *augment* the public purse. But still, it was another recent policy reform with obvious political valence, and perhaps that’s part of why Democrats feel entitled to “laugh off” critics of partisan redistribution here.
“One possibility is that they will do this by going after higher education.”
Contingent on how they go about it, mightn’t this be a good thing? I was struck by the vehemence of your assertions that college education is broadly a cost, not a benefit, and your characterization of the system as broadly providing a positional good. I agree entirely, which is why I am favorably disposed to certain kinds of taking a wrecking ball to the edifice. In the hypothetical world where you have their ear, what should hypothetical Republican reformers make sure to clear away, and what would you tell them to be careful to leave intact?
I considered mentioning SALT as an example. Decided against it because of too many differences.
Going after higher education can be good or bad depending on implementation, although those who like student debt relief would likely see almost all potential R responses here as quite bad.
It's a good question what the right details would be and I'd want to think harder before answering fully. I'd focus on financial incentives. I worry Republicans would focus on culture war considerations that are non-central to the problem.
I think the really important difference between the SALT deduction removal and the student loan issue is that SALT was a special cut out for a specific group (states/localities and people who live in states/localities with high local taxes) that was removed, while forgiving student loans is a special cut out that is being created. As you say, it was a move that stopped some amount of raiding the public purse, and any move that does that will fall more heavily on some group compared to others due to the raids being pretty specifically targeted to benefit certain groups.
Better policy moves in the direction of fewer special cut outs and benefits, I think. Best policy would be no special cut outs and benefits at all.
There is a large difference between policies passed thru Congress vs unilaterally decided by the Executive Branch.
If you can convince the moderates from purple states of a policy it probably isn't totally off-base. That was the case with SALT. That would NOT be the case with student loans (no way Manchin signs off).
Reading from the UK, I'm mostly bemused by this article. Your arguments are usually very well made and easy to follow, but I found this one to be bogged down in the sort of party political stuff you usually do well to avoid. It is clear that you hate the policy, but this seemed more like a pure polemic than your usual style of cold analysis interspersed with the odd strong opinion.
Take for example PPP. The point being made in the White House tweets is a simple one. Marjorie Taylor Greene had no qualms being on the receiving end of government spending which transferred wealth to Marjorie Taylor Greene. But she opposes a transfer of wealth to graduates. The technicalities of the transfers of wealth don't matter to most people, but the fact both transfers are in the form of forgiven loans helps the political point land better. In truth though, this is just the standard left-wing claim that right-wing parties transfer wealth to the rich at the expense of 'normal people'. Getting bogged down in arguments like 'everyone knew PPP loans were a grant, so the two cannot be equated' seems to me like a case of missing the wood for the trees. I'd be surprised if this section of the discussion changed a single person's opinion.
Similarly, while I think it's not unreasonable to argue this policy is cynically stealing from Republican voters to give money to Democrats, it seems remiss not to mention any alternative interpretation. Perhaps things are different in the US, but in the UK, intergenerational wealth inequality is a significant issue, and young adults today are predicted to be less well off than their parents. The fact that young people take on a mountain of debt in the service of a status game is part of this. In the absence of the sort of majority required to pass transformational legislation, it seems to me that the debt forgiveness policy's main function is to act as a clear signal to younger, educated voters that the Democratic party is standing up for their interests, in the hope of winning power in the future.
I'm quite disappointed that the article doesn't discuss this, or attempt to give any motivation for the policy other than pure bribery. Having said all that, I did still get something from this, as I hadn't heard of Income Sharing Agreements before, and at first glance they seem like a great idea. If you have more thoughts on that I think it would make a very interesting article.
P.S. Sorry if this is overly negative, I still think you're great!
Yeah, on reflection this got bogged down in that stuff more than I would have liked, and you are right to notice this and point it out - would have liked to keep focus on the implications. Yet here keeping that distance was harder than usual.
As far as the PPP thing is concerned, I could have probably made it shorter and explained better, but this is a serious attempt to rewrite history in a way that potentially justifies quite a lot of very big similar things in the future.
I didn't mean to imply that there were no legitimate benefits to the proposal - there certainly are reasons to favor debt forgiveness especially if it was combined with fixing the underlying system (and better yet, with help for those who didn't go to college, presumably). And you could make the case that the Dems can't find a way to pass anything else that serves the same ends so this was the best option, I suppose? Didn't think I had much useful to add there.
I notice that you are calling it 'sending a signal that they are standing up for the interest of young, educated voters, in the hopes of winning power in the future' which here are pretty solidly Democratic voters, and... I notice I don't know how that is different from a bribe? It's a bribe with the promise of additional future bribes? Well, yes. Sure.
Thanks very much for the reply, and I'm glad you took my feedback as intended. I didn't make this point well in my first comment, but the main reason I find your posts of this nature worth reading as an outsider is because of the unique way you approach the topics you write about.
Regarding bribery, the point I was trying to make was that, while there's no doubt redistributing wealth from likely Republican voters to likely Democrats is electorally convenient, in some cases it may also be a good thing. In the case of the political divide between old and young, I think redistribution is a pretty good idea, not least for the demographic reasons you mention in the car seats post. Redistribution in favour of likely Democrats along the divide of education, on the other hand, would be bad. Since this issue cuts across both divides, I didn't think it was obvious a priori whether redistribution could be justified. By describing this case as bribery, it seemed to me that you were implying that Democrats themselves think this policy is at best neutral, and that the only benefit is electoral. If you argued this point I'm pretty sure I could be convinced, but instead the post seemed to start by assuming malevolence and opens in an outraged tone. This led me to update in the direction of ignoring you, as you lot seem to like to put it.
But as I said, I'm from the UK, so I'm sure I'm not the intended audience. People who have a dog in the fight probably found this more useful than I did.
The big difference with PPP loans is that they were *compensation* for the fact that the government enacted significant restrictions on public activity. If the US simply "let it rip" and refused to restrict the public in any shape or form in March 2020, such loans would indeed have been highly inappropriate.
I understand that would be how someone vehemently opposed to governemnt intervention might justify PPP loans, but it certainly wasn't how the UK's equivalent scheme was sold. It wasn't compensation for the effects of government decisions, but a necessary corporate welfare system during an emergency. Regardless, my point was that the message from the White House wasn't simply 'Republicans are hypocrites', but also 'Republicans are happy to help themselves and their cronies, but they don't help you'. By focussing so intently on the former, I thought Mr Mowshowitz missed the latter. And anyone who doesn't think that the tweets were very effective in conveying the second part probably wasn't the intended audience anyway.
Right but the "emergency" was primarily due to government intervention. In 1957 and 1968 we've had pandemics of similar fatality rates and it wasn't an emergency because no one locked down anything.
I'm not disagreeing with that. But the justification at the time (in the UK at least) was that it was emergency support, not compensation for government intervention. Which means the way to defend the loans isn't to make the revisionist claim that they were compensation, but to argue that the support was a good use of public money. And I would agree. But then that means the 'big difference with PPP loans' isn't that they were compensation, but that they were a better use of money than forgiving student debt. I probably agree there too, but there are pros and cons of both, and it isn't obvious to me, living in a country with free higher education, that student debt forgiveness is net-negative, even after reading this post.
Anyway, I didn't mean to get into a long discussion about policies I know nothing about in a country I have no connection to. I was just commenting that I found it much harder than usual to get on board with the argument being made.
Do the annual+lifetime caps on federal student loans at least limit the magnitude of the damage here?
PLUS loans don't have a lifetime limit, and the annual limit is just the institutions self-defined "cost of attendance", which includes a (typically generous) estimate of living expenses in addition to tuition and fees.
"This indeed is a great deal for the student who pays nothing and it’s a great deal for the law school which gets 200k more revenue immediately in return for 150k of payments paid out over the following 10 years. Win-win! Except for the taxpayer of course."
I have the impression that loan forgiveness in many cases involves a significant tax hit to the former student. I don't know if this round of loan forgiveness will or won't, but there are cases of large student loans being forgiven and the former student now suddenly has to pay income taxes on $150K or whatever. I don't know all the details, though; I just know it can be a gotcha.
Edited to add: This article describes what I'm talking about. This orthodontist wound up with $1M in student debt, but when it's forgiven, he'll owe the taxes as ordinary income.
https://www.wsj.com/articles/mike-meru-has-1-million-in-student-loans-how-did-that-happen-1527252975
Edited again (I need to learn to read ahead): https://www.cnbc.com/select/biden-student-loan-forgiveness-and-taxes/
Looks like no federal tax, but state tax might be due.
Allow student loan debt to be discharged in bankruptcy.
Fixed.
I mostly agree but it's not quite that simple since you have an asset (your degree and knowledge and connections) that can't be seized and a huge debt so soon-to-be-rich doctor/lawyer/etc auto-declares bankruptcy on graduation, etc.
That's why bankruptcy is a court proceeding. Also, we used to treat student loans the same and the world didn't end.
But... you are making a good point. Creditors, whoever they are, would have to take a risk on their investment just like everyone else. This would make lending large amounts of money as risky as it should be.
Wouldn't more risk reduce the funds available to students? Would that then drive down tuition? I think it would. That would be a good thing.
Inflation is always and everywhere a monetary phenomenon. Easy money leads to inflation. Make the money harder to get and the amount colleges can charge will decrease.
That's why I said, "Fixed." Small change, large impact, and it's good for everyone overall.
The democrats would never support a policy that results in less people going to college.
This would only fix the system if the college loses a lot of money if one of their students goes bankrupt. If the college loses nothing it doesn't fix anything.
One simple fix that would eliminate ~90% of the "crushing student loan" anecdotes would be to eliminate the Grad PLUS Loan program, or at least dramatically tighten eligibility to only cover programs where graduates are statistically likely to earn enough to justify the loans.
Almost 100% of the coverage of "the student loan crisis" profiles students who took out large loans to pursue masters programs with low or negative expected value. There is 0 reason for the government to subsidize this, and cutting off Grad PLUS funds would help halt the escalation of the master's degree expectation that has crept across our entire labor market.
My unpopular opinion is that the federal student loan situation for undergraduate was mostly fine. The relatively low annual and lifetime limits combined with the already existing IDR programs made it difficult for anyone to carry a truly problematic burden from federal undergraduate loans alone. Parents could (and did) get themselves in trouble with Parent PLUS loans, but I'm frankly much less sympathetic to that case - we're not talking about 18-year-olds, and those same parents could similarly get themselves in trouble with a loan for an F-150.
Won’t those who have outstanding student loans which don’t qualify for “forgiveness” right now simply stall on paying anything in the reasonable belief that once something like this is put in place, the eligibility criteria will be weakened? Why pay what you owe now if you won’t have to pay if you just wait a while?
My other idea:
Instead of student loans which must be repaid, the educational institution gets a percentage of the student's post-graduation earnings. This would be negotiable and could be replaced in whole or in part by paying normal tuition.
If you think about it, loans have to be repaid anyway, and this way the educational institution has a big incentive to prepare students for the highest paying jobs in their field. The school would also invest in finding jobs for graduates. There would also be a big financial pressure on schools to move away from economically useless degrees.
Poor students would be better off than they are now because the school wouldn't be able to exploit their inexperience by selling them a trash degree. Better off students wouldn't be forced to take high-paying jobs to make enormous student loan payments. The school would get a percentage of income, whatever that turned out to be.
This way the school is taking the risk, not the students or their families. Would colleges become more selective about who they admit? Of course. That would be a good thing! Spending $50- 100k on a degree to get a job which earns $50k a year is not a good return. Most students in that situation would be better off just working for four years and gaining experience and not incurring the debt.
Something to think about!
Full disclosure: I got a cheap 4 year degree from a no-name state college and the GI Bill paid for all of it. While the degree has gotten my foot in the door for a few jobs, for the most part it hasn't been necessary. I am very grateful I didn't blow a lot of money on it.
There are soooooo many jobs out there that don't require an expensive degree. Our society gives status to jobs which require more education, even if the pay is bad.
An MR commenter (https://marginalrevolution.com/marginalrevolution/2022/08/the-student-loan-giveaway-its-much-bigger-than-you-think.html?commentID=160485679) made a suggestion I found very intriguing:
> Make loans available, require 10-20% of gross to be paid towards the loan each year, and after 10 years, the university pays whatever balance is left.
Tying tuition directly to expected income seems like a pretty good way to institute market-responsive price controls.
If the university is responsible for 100% of the payments not made then that helps a lot, but if the university is public and gets public funding how do we know the money isn't fungible? Solve that problem and I'm on board. Also, in general, if you absorb the downside you should also get the upside (e.g. true ISA, rather than a loan for a given amount)
Yes, I think this idea can mesh with the ISA you discussed. (One could also imagine public funding coming with requirements on tuition increases....)
I'm looking at the list of schools for which loans will be forgiven completely and seeing a lot of beauty schools.
This made me wonder what would land a school on this list. I was able to find this: https://studentaid.gov/announcements-events/borrower-defense-update/findings
This is far fewer schools than listed in the linked tweet, but I skimmed the report on the one beauty school in the list and learned that the ED found them to have misrepresented the kind of instruction provided, failed to provide instruction required by regulations, and would sometimes fail to provide any instruction at all for weeks at a time.
I wonder if that's typical of the beauty schools on the list.
My curiosity was piqued because if the metric is based on something like post-education success, then you've got a huge confound in the kind of population the school is serving. The people that enroll in beauty schools advertised on television just aren't the best decision-makers, and even when they make all the right decisions, aren't going to be earning all that much as a hair stylist.
Thanks for looking into it. That makes sense - It makes sense to want to refund people whose 'education' at a 'college' was this clearly fraudulent - again, if and only if the school is being otherwise treated as fradulent.
Why can't the solution be to steal back from the educational institutions? From what I understand, higher education in the US is basically a scam. Rather ridiculous one, given that Internet exists. Like, if information was scarce, education costing a lot would make sense. _It's not._
https://www.conradbastable.com/essays/the-uncharity-of-college-the-big-business-nobody-understands
Higher education is mostly signalling. It's saying to employers this person was smart and conscientious enough to get into a selective school and pass the courses. Cadetships offered on the basis of IQ tests (supplemented with online study) would be vastly more efficient for most fields.