Alternatives to Loan Forgiveness

Student loan forgiveness may very well be dead. That would be a good thing because it was always a terrible idea.

Two Federal courts have tossed a monkey wrench into Pres. Joe Biden’s plan to unilaterally cancel up to $20,000 in student debt. The Administration is appealing and it seems likely that the issue will be ultimately decided by the Supreme Court. Given the Court majority’s penchant for empowering the legislative branch it would appear that they are likely to strike down Biden’s move because it violate’s the authority of Congress to hold the purse strings. Biden’s action would cost the government (read: taxpayers) somewhere around a half trillion dollars. His extensions of the moratorium on payments, started under Trump, have already cost us $100 billion and he just extended it again — senselessly — for several more months.

Now, if you said we had $100 billion or $500 billion to spend on programs to help the middle class or the poor, would this be the best way to deploy those resources? Of course not. It happened because Democrats see that their base is now college graduates and so they wanted to pander to them. As a matter of public policy and of simple fairness it makes no sense. In fact, it’s a moral disaster because it undermines the very ideas of personal responsibility and of being good to your word.

But let’s assume that there is a God and so this awful idea will bite the dust. While I dispute the notion that there is any such thing as a student debt crisis, it is true that the cost of college has risen faster than inflation. (Still, the average student loan debt is $28,000 and the average premium for getting a four year degree is $1.2 million over a career. Where some see a crisis I see a good investment.)

To the extent that there’s any real problem to be solved, Biden’s plan didn’t touch it. There’s nothing in his forgiveness plan that addresses the underlying issues and, by the way, what do we do next year when a new batch of graduates hits the street? Will anybody ever have to pay back a loan? And, assuming that the taxpayers will just pick up the tab, won’t that just encourage college administrators to keep running up costs, including their own salaries?

Here are four things we can do that are actually good public policy.

First, dramatically expand Pell Grants. These are means tested so the help is targeted at kids and families that really need it.

Second, allow student debt to be considered when petitioning for bankruptcy. I’ve never understood why this debt is excluded in the first place. The good thing about bankruptcy proceedings is that they are based on the circumstances of the individual, not on a blanket forgiveness for groups.

Third, provide some kind of oversight and some sticks and carrots to get colleges to restrain their costs, especially in areas that are not directly related to instruction and research. There are too many administrators making too much money. There are too many fancy, expensive buildings. We could accomplish this in any number of ways. Maybe treat public universities like public utilities where rates (in this case, tuition and fees) need to be justified before some quasi-judicial body like the PSC is for utilities in Wisconsin.

Fourth, require a simple, standard form to be signed by students and parents before they take out a loan. The form would state the monthly repayment schedule. It would also be good to put students through an exercise where they calculate their likely income based on their choice of major. One thing I keep hearing from people who like debt forgiveness is that students didn’t know what they were getting into. I find that to be a weak argument. You’re taking on a major adult responsibility so it’s your obligation to do that with due diligence. Nonetheless, let’s make due diligence as easy as possible.

These four suggestions would address the underlying problem, help truly needy students and encourage personal responsibility. Taken as a whole this middle way is much better than Biden’s irresponsible and expensive plan. After the Court strikes it down, as I hope they will, maybe we can move on to something that makes more sense.

Published by dave cieslewicz

Madison/Upper Peninsula based writer. Mayor of Madison, WI from 2003 to 2011.

6 thoughts on “Alternatives to Loan Forgiveness

  1. I agree students need to take responsibility to do their own cost/benefit analysis vs applying averages of $28000 and $1.2 million to make their decisions. Loans need to have caps based on expected rate of return and a large portion of any debt relief has to come out of college endowments.

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  2. The reason that student loan debt is generally not dischargeable in bankruptcy proceedings is that new grads are typically bankrupt when they graduate, i.e. they have debt and little to no financial assets. If student loan debt were dischargeable in bankruptcy, they could file for bankruptcy as soon as they graduate and have that debt wiped out.

    From a Brookings report: “Without restrictions to guard against this moral hazard, lawmakers argued that student loans would be ripe for fraud, i.e., too easily discharged in bankruptcy. This could ultimately reduce the availability of educational credit and possibly even destroy student loan programs.”

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  3. You’re so obnoxious on this topic that you can actually make people who agree with you want to take the other side.

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      1. Perhaps obnoxious was the wrong word, I guess It seems to me like you’ve never met a struggling young person. I spent my 20s making sixteen dollars an hour at best and either deferring or doing IBR on my student loans and it was damn hard. I was only able to find temp. agency jobs with no benefits, aside from overly expensive health insurance that I didn’t purchase, until I was 28 years old, then the job paid 15.50 an hour but had benefits and I was able to work overtime and get pay raises so I was finally able to start clawing my way back on my loans. In all this time my balance grew because of the interest so when I was finally able to start making payments at full my balance actually exceeded what I graduated with. The point of this isn’t a sob story or for you to feel bad for me I just want you to see a perspective of someone with the problem you dismiss. I am not arguing for forgiveness, at 35 I’m finally almost done paying off my loans, but I have benefitted greatly from the Trump/Biden interest suspension…in fact that’s why I’m almost done paying them off.

        We are not all living the life as represented by statistics, we are not all young entitled brats working amazing jobs with no kids and just a cat as a pet. I generally agree with you on the merits but I take issue with your cavalier dismissal of a problem a lot of people have.

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      2. I hesitate to mention this, but I was a struggling young person. I badly wanted to go to the UW, but after spending my youth cutting lawns and painting houses and working at McDonald’s my life savings were about $3,300. I ran the numbers and figured I couldn’t get through four years at the UW (my parents weren’t going to help me), so I turned down my acceptance at the UW, lived at home to save money, continued to work part time and rode a bus to UWM. After two years, I transferred and finished at the UW. Now, I hesitate to bring this up because people jump to the conclusion that I’m ignoring how much more expensive a college education is today. I’m not. What I’m saying is that I made hard choices and everybody has to play the hand that gets dealt them. Yes, college is more expensive, but there are ways to manage things (some involving sacrifice) that can get you out of school with a manageable debt. And, as I noted in my blog I don’t think the average debt of $28k is unreasonable for what you get out of it. As for your personal experience, Rome, I understand, but that’s part of my point. I’d forgive your loan, but under Biden’s plan you get lumped in with a kid who in fact did irresponsibly take on more debt than he could handle and didn’t work a part time job and did take a year abroad. I just think it’s wrong to treat people as members of a group (have college debt and make less than $125k) as opposed to looking at the individual circumstances that got them there. It’s a concern that I have not just on this issue but on many others.

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