Year of Jubilee for Student Loans?

A recent proposal to forgive all student loan debt has over 675,000 online signatures, arguing,

“With the stroke of the President’s pen, millions of Americans would suddenly have hundreds, or in some cases, thousands of extra dollars in their pockets each and every month with which to spend on ailing sectors of the economy.”

Support for this act is widespread across the country. It is supported by both presidential candidates (not surprising, since neither is willing to lose the votes of all college students). It sounds like a great idea! We can stimulate the economy, help out these poor college students who have been taken advantage of, and stop the recession! But consider again the impact a legislation such as this would actually have…

The Student Loan Forgiveness Act itself is based on a fallacy. As a college student myself, I can testify to the considerable presence this fallacy has in the minds of many students. This fallacy is:

“If I go to college, I will get a good job.”

To begin, one must recognize that 1 in 2 college students are jobless or underemployed. Some argue that this is a result of colleges failing to adequately prepare students. Others argue that jobs now require higher degrees. While both of these may or may not be true, it should also be considered that full-time student enrollment increased 45% from 2000-2009. This enormous increase in enrollment will obviously increase competition for jobs after graduation.

Because so many graduates don’t have jobs, there must be a pressing problem in our country – therefore we need to forgive all debt? Not necessarily. College may help prepare someone for life, but it is not a magic wand. There will always be many college students who end up being unemployed. It will have nothing to do with the unfairness of the labor market. It will be because companies doesn’t tolerate laziness. Missing work is different than skipping class, because one has immediate consequences.

College is an investment, which means it carries with it a certain amount of risk. A good job is not guaranteed if you graduate college. It depends on your communication skills, work ethic, critical thinking, reliability, and of  course your major and your grades. If you go to college, you are accepting the financial risk involved when you make decisions.

Forgiving loan debt will only exacerbate the problem. By the offering of forgiveness, these people with student loan debt will be encouraged to teach their children to be risky with their money, because the government will help them out if it gets too hard to pay it back. Not to mention that this bill would add another $1 trillion to the deficit, increasing inflation and forcing tuition prices to rise even faster.

It’s simply passing the problem down to future generations. How can we possibly ask for fiscal responsibility in our government when we beg them to cover all of our financial problems?

The solution is not magically wiping away the consequences of our decisions. It is holding us accountable so that we teach our children that life isn’t easy. We’ll teach them to be smart when they choose whether or not to go to college, where to go, what to major in, and what not to do when they get there. It’ll take hard work to succeed – but since when is that unusual?

Advertisements

12 responses to “Year of Jubilee for Student Loans?

  1. Four thoughts:
    1) Debt forgiveness by definition means harming the party to whom the money is owed. If you loan someone $10,000 and they sign a contract to pay it back, and then do not, either voluntarily or by governmental intervention, then you are out the $10,000. if this were your personal money, how would you feel? Would you be more or less likely to loan money in the future? At higher or lower interest rates – due to the inherent risk of lack of repayment? (Higher interest rates.)

    2) Debt is voluntary. No one forces us to take on financial obligations via debt. Along with the freedom of having access to money comes the responsibility for repayment, by definition.

    3) I have a financial planning background. One of the key things about debt is that the borrower is taking on a guaranteed benefit (the loan for the car/college/ a home) with the obligation from a non-guaranteed income stream in the future to repay it. If people viewed debt this way, they would be more cautious in the amount of debt they took on, since there is no guarantee that there will be adequate income in the future to make repayment easy or affordable.

    4) Finally, while this may sound politically incorrect, the truth is that not everyone should go to college – especially for a four year degree. Our economy needs skilled trades persons such as plumbers, repairmen and repair women in all kinds of fields, from auto repair to air conditioner and heater repair. And ‘needs’ is the operative word. Most people assume persons in these careers earn little money. This is not the case, necessarily. Many persons in fields that do not require a four-year degree earn a lot of money through skilled business planning and growth. This is still a supply/demand economy, and that fact has lot to do with the unemployment rate of college graduates cited by the by the blogger of this site (too many people chasing too few jobs in the same fields.)

    • Just echoing the fourth point above, I’ve been thinking a lot of the same things. God has made people with many different skills and abilities, and it’s foolish of us to assume that college is the only way someone can be successful. Consider Mark Zuckerberg or Bill Gates, two of the “super-rich” technology creators, who both dropped out of college because they decided they wanted to start something else instead.

      I briefly touched upon this (but admittedly, not well enough) when I said that the high unemployment/underemployment rate could be caused by higher enrollments. For an easy example, let’s say there exists a society where there are 10 jobs that need a college degree and 5 that don’t. 10 years ago, let’s say we had 15 people in this society, 10 with a college degree, and 5 without. Now let’s say that, 10 years later, we’ve created a system to help everyone go to college. Now we have 15 people with a college degree and 0 without. The number of jobs doesn’t change, so now there are 5 college-educated people that must take those 5 jobs that don’t require a degree. Therefore, they are now “underemployed” (and in a mountain of debt). In reality, they could have gotten the same job had they not gone to college, while avoiding debt at the same time.

      That’s not to say that a college degree is not valuable – it still makes you much more competitive in the labor market. Additionally, college is valuable for thinking skills and memories that will stay with you for your entire life. But what we should realize from this simple example is that the “underemployment rate” will go up as long as more and more people go to college.

      More people graduating with a degree just increases competition – meaning you’d better make smart choices so that you can compete when you graduate.

  2. Doesn’t wiping out all student loans also seem somewhat unfair? Some people scrimp and save to avoid having to take out a loan, while others jump right in and figure they’ll pay up later and spend their money on other things instead. It feels a little like forgiving everyone’s credit card debt or forgiving everyone’s home mortgage — both would help some who really need it, but would also help most the people who are most overextended help least those who made the tough decisions to avoid the big debts.

    Certainly many with loans have no choice but to have loans, but it seems a more even handed approach would be to offer more federal college aid than to forgive student loans.

    I do agree with Don though, that if the fed just increased college aid, it would likely just increase college costs and not really make a difference. Not an easy problem to solve. I agree that anyone that wants to go to college should be able to — but in many cases that requires advice to parents and commitment from them to start saving many years in advance.

    Tom

    • That’s a great point. Also a reason why I fear “forgiveness” causing a lack of responsibility. If your loans are paid off anyway, what motivation do you have to start working to pay them off now? What stops you from choosing a more expensive college over a cheaper college?

      Read my reply to the above post for some other things to think about. Thanks for the comment!

      -Danny

    • I wish I had read this before leaving my other comment! I think I repeated a little of what you have said. However, perhaps we are just along the same thought process.

  3. Is college more about who we wish to be than what we wish to do in the labor market? More about broadening our experience and knowledge of what it means to be human or more about developing a labor skill? (Reformed Christians have generally emphasized the former, hence just about 100% of Reformed colleges are liberal arts.) Is college a waste if I do not get a job in the area for which I have trained?

    I’m hearing the parties are disagreeing on how to pay for it but have not heard about the bill increasing the debt. Will have to check that out.

    Average debt upon graduating college is $25,000. Those who come from low income families have considerably more. Going to college for some is closer to mortgaging one’s future than promising a bright one. That’s sad.

    Ironically, a side effect of increasing government grants (which loan forgiveness is in effect) is that colleges raise their tuition rates commensurate to the increase in government aid. We need to find a way to make college more accessible to the poor in a way that does not have the ironic effect of making college even more expensive. I’m not sure what that is.

    I do not equate educational loan forgiveness with teaching unnecessary riskiness. Another view could be that it increases opportunity. I’m one who thinks anyone who desires to go to college should be able to; I also think that, presently, we are not even close to being there.

    Hoping to make all our thinking better……..

    Don Huizinga

    • Don –
      Thanks for the comments! They are much appreciated! The reason I equate loan forgiveness with teaching unnecessary riskiness comes also from the economic bailouts. I would argue that companies are much more likely to get into trouble and bad spending habits again, knowing that they truly are “too big to fail” and can count on the government as “insurance” in hard times.

      The biggest problem with the bill (which I should’ve hit more on) is that it creates another “black hole”. What happens next year, when another year of graduates comes out with debt? We pay off their loans after 10 years as well. I see this becoming a slippery slope of effects:
      1. The government absorbs the cost of a student’s loan after the 10/10 (10 years’ payments of 10% of discretionary income).
      2. To fund this extra spending, the government will increase taxes and borrow even more money.
      3. In addition, the government is notorious for not paying what it promises (look at Medicare/Medicaid/Education) because it simply doesn’t have the money.
      4. Because of this, the colleges don’t receive the full tuition amount, and increase prices to compensate.

      Of course that’s all assumptions. But I just worry about the future of our country when we start becoming dependent on the government for our futures.

      As for a solution, there’s not an easy one. Scholarships for high academic performance and financial need are good for helping the poor be able to attend college. I am just worried about blanket forgiveness after seeing the incredible lack of effort some students put into their college experience. There’s an old saying that “You value something more if you’re paying for it.”

      Comments, thoughts? Thanks for replying!

      -Danny

      • Ideally, we would all attend college to deepen our knowledge in our areas of interest. However, college is meant to prepare you for the real world. It’s meant to teach you skills that you can use to serve others, and your family. Who we wish to be or become is (in my opinion) something you must strive for in your private life. College (as Danny says) is an investment. It is something for which students should be good stewards in return for the blessing of attending.

        College should not necessarily be accessible to all. I have a friend who is far below the poverty line. She is putting herself through college with hard work and dedication. She does not ask for handouts. College should be accessible to hard workers and those willing to make the financial commitment if they truly believe they will better their futures financially and perhaps even better society!

        It’s similar to saying that everyone should have access to a luxury gym. Would it probably make your life better? Yes. Would you be healthier? Perhaps. However, such access is a privilege, not a right. So it is with higher education. The standards and quality of learning would diminish if every university was forced to open their doors to hordes of students because the government can subsidize them.

      • Danny,

        As a citizen of Michigan, I’m thankful for the bail out of the auto industry. A huge percentage of that money has already been paid back and more is to come as the gov’t sells its stock in GM. I’m as disappointed as you about the too big to fail thing. Apparently nothing has been done about that.

        I’m willing to pay higher taxes for making college more accessible to more people. I think the smartest investment the government can make is in its young people, its future generations. Let’s stop thinking we have to defend the whole world at our cost. Let’s cease unnecessary invasions. Let’s make drastic cuts in defense spending. Then maybe taxes won’t have to raise as much.

        As far as colleges raising prices goes, there are those who believe that my thinking is bad policy because the more government help we give students the more colleges raise tuition because they know the gov’t will respond with even more help, a viscous circle.

        Don

        • As well as the pricing argument, I just think that the government is not always as good at making college accessible to the right people. I think colleges do an excellent job of providing scholarships for need, and I think there are a considerable amount of wealthy donors and organizations providing scholarships and aid to students. These processes often require interviews, essays, and demonstration of need, rather than blanket handouts.

          Regardless of whether the government should or should not be helping people to go to college, I think it still does a poor job on verifying that the people that receive the money will really make good use of it. There are a lot of students that receive federal loans or scholarships and spend their time in college partying. (or drop out soon)

          I think we should invest in our future generations, but I don’t think forgiving all their loans is a good way to teach them the value of hard work.

  4. I think a better solution would be making college more affordable for all. If that was done the deleterious effects of student loans wouldn’t be so severe.

    The proposal that you link to is a little misleading. It’s true Robert Applebaum initially suggested forgiving all student loans to stimulate the economy. The reasoning is that the banks and auto industry got “bailed out” but not students.

    Anyways the actual legislation H.R. 4170 doesn’t forgive all debt just if a student loan borrower makes payments equal to 10 percent of their discretionary income for a period of 10 years, the balance of their federal student loan debt will be forgiven. Not all loans.

    http://www.emporiagazette.com/news/2012/apr/24/student-loan-forgiveness/

    • You’re correct on the link, that’s my mistake. I’m changing it at the moment – sorry for the misunderstanding. I address the 10/10 issues in the comments below.

      As for “making college more affordable to all”, how does one do that? That’s the point.

      -Danny

Comments are closed.