Should student debt be forgiven?

Question

The free lunchers are at it again 🙄

nightdrot · Accepted Answer

As a general rule, the forgiveness of student loans is a bad idea that would cause more problems than it solves. Indeed, in effect, it punishes those who chose not to go to college and rewards those who choose to take up studies that have no practical application and thus make it less likely that those studies will conduce to productive employment.

Staring with the latter first, until the Obama Administration had the government take over the entire student loan program, it was that banks made such loans and were given Federal subsidies. In terms of the bureaucracy, this was less than ideal, but it had the effect of limiting loans to those who were taking degrees that would conduce to employment and thus reasonable prospects of repayment.

Once the government took over the program lock stock and barrel, loans soared unrelated to the major, employment or repayment prospects of the borrower. Moreover, with all that money to be had, the proliferation of programs that really offered no practical benefits in employment terms similarly soared.

Think "art history." Think "women's studies." It is not even that such programs do not have intellectual merit. Rather it is that they will not lead to as many jobs at higher salaries as, say for example, an engineer or even a communications major. However, with the government writing the checks, the money was going out in amounts unrelated to the economic value of the major.

Thus student debt has ballooned and graduates did not get the kinds of economic benefits that they thought a college degree would merit. This also, thereby diminishing the value of a college degree in the process.

Thus, if loans are forgiven, you incentivize moral hazard. There becomes no reason not to forgive more debts going forward and thereby cause people to borrow more and colleges to offer more programs unrelated to economic merit. Thus begins an ever downward cycle.

Moreover, this punishes those without a college degree. In effect, they end up subsidizing through their tax dollars those who went to college of their own choice. This widens the income gap as the poor non-college educated end up giving money to the relatively richer college educated.

Thus, to an endless downward spiral to the value of a college education, you incentivize many to go to college when they might not be academically suited to it and you aggravate the wealth gap. All in all, not good outcomes.

About the most that can be said is that it might be best to get government out of the direct loan business and thereby return to the old subsidies model. (Albeit in a populist age that will likely be characterized as subsidizing the banks and thus it is highly unlikely it will ever happen.) Also it would be best if alternatives to college were made available - trades schools and appreticeships, for example. (The irony being that trades, in an age when the economy is shifting to services, have become quite lucrative. Think plumbers, electricians and mechanics.)

Bottom line, best to let each decide whether or not a college education is the best option for them. Then decide what they can handle financially based on their choice of education and course of study, and then let them take responsibility for their choices. It is what just societies do.

IlluminatiExposed0 · Accepted Answer

When debts go bad it's because you lent to the wrong people. Good luck getting money back from broke graduates with no job.

Prettygurl12 · Accepted Answer

I've listened to Dave Ramsey long enough to know people can get out of any amount of debt if they want to. Boggles my mind that people just live in debt.

joeldalton · Answer

Hell no.

Should student debt be forgiven?

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