It Is Time To Start Forgiving Student Loans – And Here Is What It Will Cost

Yves here. Reader Bob Hertz sent his proposal for a multi-pronged student debt forgiveness program. One of his motivations was his belief that forgiving all loans isn’t affordable. The Federal government in fact does not need to raise taxes to fund this expenditure, but you’d need to give a harder look to see how much inflation it might generate.

However, there are other reasons to favor a more targeted plan. One is perceived fairness. A surprising number of our readers objected to the Sanders student debt forgiveness proposal because they had dutifully repaid their student loan. A few were offended on general principle.

By contrast, a more tailored program with a smaller price tag should alienate fewer people and thus have greater odds of getting done.

A second issue is that cancelling all student debt plus implementing single payer is a lot of spending and would elicit knee-jerk opposition. Again, even with big ideas and big aims, it behooves officials to look like they are careful stewards of public funds.

However, I am leery of Bob’ enthusiasm for STEM degrees. We’ve posted on why the STEM shortage is a myth. Moreover, for at least the last decade, Slashdot has run a post every so often from a new computer science graduate about the lack of entry-level jobs, and older hands  confirm that this is the case.

By Bob Hertz, Editor, New Laws for America

Overview

For the past thirty years, we have been demanding that students pay for college out of their future wages.
I prefer that we pay for college out of current taxes on corporations and wealthier individuals.
I propose that we move away from user fees, and toward public provision to


Relieve the worst economic suffering caused by student debt; and
 Replace student debt as our primary college funding vehicle.
A quick summary of the main elements and costs:
1. Cancelling all loans for persons over age 65…………..$5 billion a year
2. Cancelling loans from predatory for-profit colleges…..$3 billion a year
3. No income taxes on forgiven debt…………………………$10 billion a year
4. No loan payments due from borrowers who earn less than $40,000 a year….$18 billion a year
4. Easier standards for discharging student loans in bankruptcy……$5 billion a year
5. Expand Pell Grants to $10,000 a year, and for far more Americans…..$55 billion a year
6. Additional federal funding for Community Colleges and vocational schools…..$12 billion a year
Extending the Social Security tax to all incomes is one way to pay these costs. This would be much more reliable revenue than the untested new taxes proposed by Sens. Warren and Sanders.

Relieve Student Debt Suffering

Solution #1

Forgive all student debt for borrowers and co-signers over age 65.

There are approximately two  million persons over age 65 who still carry student debt. Either they  owe money on their own loans, or they owe money in support of a child’s loans.

The total amount owed is approximately $90 billion.

Nearly 40 percent of federal student loan borrowers age 65 and older are in default.  By contrast, 29 percent of federal student loan borrowers age 50 to 64 are in default, and 17 percent of federal student loan borrowers age 49 and under are in default. These are all horrible statistics, but they are worst for the oldest debtors.)

Over 114,000  seniors have had their Social Security benefits offset because of unpaid student loans. Social Security benefits may be  their only source of regular retirement income. This means that benefit offsets may impose serious financial hardship.

The principle  behind our forgiveness for seniors is simple:  “Enough is enough”.

People deserve a financially untroubled retirement.

Most  debtors over age 65 have been paying on these loans for a long time. Their incomes are not going up. Often they cannot even cover the interest on their student loans. They have likely been hit with extra fees, capitalized interest, and unconscionable collection costs.

Many of their debts come from ‘Parent Plus loans’, which are a form of grotesque financial  cruelty. These loans have higher interest rates and even a 4% origination fee.

Since students generally have no financial assets, lenders want access to the parents’ money. This certainly does ‘bring families together,’  but in a destructive cycle of intergenerational debt.

The Parent Plus loans must end immediately. If  the current limit of $57,000 in undergraduate federal loans (over 4 years) is not enough for a student – then that student is in the wrong college.

Forgiveness for seniors will not be complicated. The over-65 debtor can request forgiveness with proof of age, and their loan can be cancelled.

For any private loans that are forgiven, the government will have to compensate the lenders.

Seniors’ loan forgiveness could be spread out over several years. In the first year, loans could be forgiven for borrowers over 75; then in the next year, for those between 70 and 75, and so on.

Alternatively we can start forgiving any loan to seniors whose current income is  less than $20,000 a year, and move up quickly from there.

The federally-originated loans can just be cancelled, and no more payments would be due.  The government had no difficulty in purchasing thousands of mortgage loans in 2008.

Skeptics may point out that when loans are written off, the federal government   “loses” an asset on its balance sheet.

So what?

Student loans are a precarious asset at best due to the large rate of delinquencies. If 40% of loans will ultimately go bad, this asset has limited value.

As Kevin Williamson (no liberal) notes:

If we just gave the universities money, that would show up on the books as an expenditure; whereas lending it to students allows us to pretend that we have created an asset, when all we have actually created is a great deal of debt and horses—t

In fact, government loans are a toxic asset, to the extent they create impoverishment of our own citizens.

A bank in Oklahoma in 1932 might have owned a lot of farmland, due to foreclosures…..but their community was being ruined. Owning bad loans does not make a nation prosperous.

In the long run, debt forgiveness could make the nation better off. The greater spending of ex-debtors will  eventually produce more tax revenue than the loans ever did.

Alexander Hamilton paid off Continental Congress war bonds at one cent on the dollar. Perhaps half of the white people who came to the USA were escaping their debts and indenture in Europe.

n the words of James Galbraith:

Public budget deficits, despite their bad reputation, are much better than private loans. Deficits put money in private pockets. Private households get more cash. They own that cash free and clear, and they can spend it as they like. If they wish, they can also convert it into interest-earning government bonds or they can repay their debts. This is called an increase in “net financial wealth.” Ordinary people benefit, but there is nothing in it for banks.Bankers don’t like budget deficits because they compete with bank loans as a source of growth. When a bank makes a loan, cash balances in private hands also go up. But now the cash is not owned free and clear. There is a contractual obligation to pay interest and to repay principal. If the enterprise defaults, there may be an asset left over–a house or factory or company–that will then become the property of the bank. It’s easy to see why bankers love private credit but hate public deficits.

 Solution #2

Forgive all debts for students who have been defrauded by for-profit colleges

There are approximately 157,000 “Borrower Defense” fraud complaints in process at the Department of Education.

These  borrowers have declared — under penalty of perjury — that their schools misled them by using false job placement rates, lies about credit transfer, or other unrealized promises  that had a financial impact on the student.  However, Under Betty DeVos the Department of Education has been delaying action on these complaints. Even when claims are approved,  only a portion of the loans is typically forgiven.

We should move the other way!  It is time to approve the complaints rapidly, in full.

The average forgiveness on the approved claims has been $14,100.

Even if this average goes up to $25,000, approving the current claims plus 100,000 more would cost about $6 billion.

The federal government has been deeply complicit in the misery that for- profit schools have caused.   The Department of Education has normally chosen to protect predatory businesses, at extraordinary expense to students. Top officials at the Department have been stockholders in Sallie Mae and other profiteers .As Bob Shireman documents, the government has released one study after another – over decades — revealing massive wrongdoing in the industry…..but Washington is very slow in closing down the worst offenders.

Just one example, from Toby Merrill:

The Department of Education litigated for two years to avoid suspending collections and notifying former students of Wilfred Academy that they were eligible for debt relief despite the agency’s findings that, as a result of pervasive fraud throughout the company, all applications for discharge it received should be granted.

David Halperin’s account in Republic Report should be read in full detail…………

Trump Secretary of Education Betsy DeVos owns the ongoing, awful meltdown of the chains of career colleges — the Art Institutes, Argosy University, and South University — formerly operated by for-profit Education Management Corporation. Yet now, as campuses across the country have devolved into chaos, faculty and staff have lost their jobs, and students are left, short-term, lacking money for necessities like rent, and long-term with their futures in doubt, the DeVos Department is doing little to assist students. The Department isn’t even providing students with basic information.

DeVos’s conduct, and that of her subordinates, notably Acting Under Secretary Diane Auer Jones, a former for-profit college lobbyist, constitute dereliction of duty and malfeasance, and a complete disgrace.

Prior to Trump and DeVos coming to power, EDMC, many of whose programs offered quality instruction, Jeffrey Leeds, and Todd Nelson— into a predatory operation that deceived, coerced, overcharged, and under-educated students, while taking billions in taxpayer dollars. Ultimately, federal and state law enforcement went after EDMC, resulting in a settlement that did not come close to making students whole or adequately penalizing the company and its executives, but at least created concreteaccountability mechanisms.

Everything DeVos, Jones, and their team have done have made the situation worse. They have worked to dump the various Obama-era regulations aimed at curbing predatory college operations and protecting students. They re-instated ACICS, the country’s worst college accreditor, which had turned a blind eye to bad behavior at for-profit schools, including some EDMC schools. They approved a wave of bogus conversions of for-profit colleges to non-profit status, and tentatively approved the conversion to non-profit of the EDMC schools after they were acquired by a new non-profit group, Dream Center Education Holdings (DCEH).

The number of Borrower Defense claims will grow rapidly, and it should.   Richard Fossey   notes that:

Such claims are nothing compared to the fraud committed by the for profit college sector, the exploitation by student loan debt collectors and the venality of college presidents making million dollar salaries while students are forced to borrow more and more money.>

The Obama administration did a decent job in closing down some of the worst for-profit schools…..but that is not enough.

Extra effort must be made to guarantee affected students that at least some of their credits will be accepted, and that students will not be charged additional tuition and fees to start over again.  There must be a federal agreement on better transfer opportunities.

Unwinding the venal for-profit industry will not be done overnight and it will not be cheap. By the time these schools get into financial trouble, there is  usually no money left for students or taxpayers. The crooks at Argosy University had actually  siezed federal aid money that was intended for students.  It has been a huge legal struggle just to cancel the high-interest loans made to desperate students by the colleges themselves. All taxpayers truly owe a form of reparations here.

Solution #3

All debt forgiveness must be income-tax free.

When loans to seniors are forgiven, and when predatory loans from non-profits are forgiven, there should be no income taxes due. Also, anyone who completes income-based repayment in the future should not be taxed.

James Brooks proposes that loan forgiveness could be classified as scholarships, which are excluded under the tax code. The purpose of loan forgiveness is  similar to the purpose of a need-based scholarship,

Picture a graduate student with a loan balance today of $100,000. If they go on income-based repayment, their loan may still grow because their payments may not even cover the interest. Compound interest is lethal!

Twenty years from now, their loan balance might be $200,000. Can the government really collect $60,000 or more in income taxes when the loan is forgiven? The issues of affordability,  bankruptcy  and forgiveness will return all over again.

Long-term,  this tax forgiveness could  reach $200 billion, but that would be over a multi-year period. The cost in any one year’s federal budget should be manageable.

Whatever action we take, it must be universal for all debtors. The ‘Public Service Loan Forgiveness Act’ should never have been limited to just public employees! (Especially when government employees already have more job security, more health benefits, and better pensions than private sector workers.)

For now, all existing applications for the Public Service Forgiveness program must be approved immediately. Debtors of all kinds would not need to navigate all the current barriers — regarding the right kind of loan, the right forms filed with the right servicer, and the shifting rules  of the Department of Education for approved forgiveness.

The borrower would just submit 120 cancelled checks  – made to any payment plan – and proof of covered employment. The arcane rules about direct loans vs. FFEL loans ,covered repayment plans, et al. would disappear. Servicers would be deservedly left out of the picture.

Solution #4

 No student loan payments will be due  — and no interest will accrue — until the borrower’s income exceeds $40,000.

This is not a deferred payment; the payment amount is $0.

Loan balances would not increase while a person was in school.

If a  lower-income student drops out and never earns $40,000 a year, they owe nothing. Such loans are just mistakes. This  has been done successfully in Australia. Julian Castro has proposed a similar reform for the USA.

The borrower will have to take the initiative here. They can submit their prior year’s tax return, and that could give them a  grace period from payments or interest accruals.

(This need not be done on a real-time, income adjusted basis, which has been a dubious feature of the Affordable Care Act. If your income goes up or down during the current year, you are still stuck with last year’s assessment status. We can live with a certain imprecision.)

The government will have to give up its loan interest during these deferrals –about $18 billion in interest would not accrue each year.

(Note: Private lenders cannot be forced to go along with this deferral…..which is just one more reason to avoid private loans.)

We must  shed the goal of the government “breaking even” or even making money on student loans. This has constantly  led to higher interest rates, aggressive collections, and debtor’s misery all around.

It is not wrong if student loans come to have a ‘net cost’ to taxpayers. In fact,  we should assume that much of the loaned money is just “gone”.

When it comes to student loans, the Department of Education still acts like a private sector lender: its officials worry about preserving their  ‘bottom line.’ They think they performing a valuable service when they crush forgiveness plans and fight every bankruptcy filing.Sadly, this stinginess has had the endorsement of Congress, which wants student loans to stay ‘budget-neutral’ whenever possible. No one seems to notice that borrowers are taxpayers too.

This is wrong and must change!  Student loans should not be counted on as  a significant source of revenue for the government.  Today’s federal government collects over $3.5 trillion a year in all taxes. If the Department of Education shows a  large deficit, we can raise taxes on wealthy persons.  The goal of reducing the federal debt is not a bad thing in itself – but for heaven’s sakes, let’s not try and meet this goal by beating up on bankrupt ex-students. Right now there is an actual debate on whether loans can be forgiven to disabled veterans….how pathetic and stingy can you get?

When the Corinthian schools went under, a large percentage of their students had household incomes under $10,000. These students should not have been getting any loans  of any kind in the first place. The way to help them is not loans, and never has been. The key is to expand Pell Grants, as discussed below.

Solution #5

Allow student loans to be discharged in bankruptcy

We all know that mis-managed bars. restaurants, and casinos can declare bankruptcy. Huge airlines can declare bankruptcy  (mainly to destroy their unions and shed their pension plans) ;  Donald Trump has declared several times.

Gamblers can declare bankruptcy; credit card abusers can declare bankruptcy; VA mortgage holders can declare bankruptcy; virtually all small businesses can declare bankruptcy.  The worst non-profit colleges (c.f. Corinthian) can declare bankruptcy, though only after the owners have cashed out massively. American businesses value the bankruptcy laws for their own purposes. They understand that debt forgiveness does not mean the collapse of economic civilization.

We would not be “coddling” ex-students, if we give them the same bankruptcy standards as all other borrowers.

This is not to deny that some borrowers have made huge mistakes. They did not keep track of all their loans; often they  kept taking loans to get an advanced degree  in a dormant field…..which (they prayed) would lead to higher incomes.

The question is, how long are we going to make them (and their parents) suffer for bad bets? The rest of their lives?  Lenders don’t care; they never have. But public policy should care.

.Bankruptcy is a recognition that both borrowers and lenders have made a mistake.

Bankruptcy gives some satisfaction to both “sides’ in the student loan crisis. Desperate borrowers get relief, but they also may lose assets, and undergo  some degree of humiliation. This should keep the general public from feeling dangerously resentful.

The following  steps are the beginning of bankruptcy reform:

  1. Loan holders will not fight a borrower’s requests for discharge, any more than Visa or Master Card sends out an attorney to every single bankruptcy hearing today. In other words, the Department of Education stays out of this. The government should not be squeezing every last dollar out of student borrowers, and certainly not taking bankruptcy cases to appellate courts. (Richard Fossey)
  2. The court should just accept simple documented proof from borrowers that they cannot repay their loans on a reasonable ten-year schedule, and still have a basic standard of living. In fact if the borrower earns less than 200% of the poverty line, bankruptcy would be granted without challenge.
  3. The court need no longer require a ‘certainty of hopelessness’ from the borrower. This would no longer be an adversary proceeding. The borrower need not prove permanent illness or disability.
  4. Student loan bankruptcy would not be permitted for five to ten years after graduation.
  5. An attorney would only be needed for counseling, and also to file the correct bankruptcy forms. The cost  should  be no more than $1500-$2000. There would be no lengthy, adversarial hearings.

Here is a how a sample calculation will work in court:

  1. Assume The debtor has income of $40,000 and two children. (Each state has income limits governing who can file for Chapter 7 bankruptcy.)
  2. The standard formula might state that this person can devote no more than $300 a month to debt service.
  3. If $300 a month is not enough to make minimum payments on credit cards and student loans, then bankruptcy is permitted and the student loans can be cancelled. (Note: The bankruptcy judge can alternatively “cram down” the student loans – i.e. by demanding that smaller loans be repaid if the income is there, but still cancelling  the unpayable debts.)
  4. Again, this will not be a lengthy inquisition. The debtor need not prove that their situation will never improve……

It is hard to predict how many student loans can be discharged in this manner. Dr. Robert Lawless estimated that $2.8 billion in loans would be cancelled, but that was using 2012 numbers. For now, if 200,000 debtors went this route in a year, and the average cancelled debt was $50,000, the nominal cost to lenders in that year would be $10 billion. Private lenders will complain, even if the federal government gives them some  compensation. (Bankers really want their future flow of interest.)

Of course this will make future loans harder to get – which is on balance a good thing.

Replace Student Debt 

Repair #1

Increase Pell Grants to $10,000, and make them available to any family whose household income is under $80,000.

This will benefit at least 9 million students. The federal expense would be $90 billion in total, less the $35 billion we pay out in Pell Grants today…..in other words, $55 billion more spending each year.

 However –

As Pell Grant spending goes up, new federal loans must simultaneously go  down.

The government has been spending well over $100 billion a year on new federal loans and loan guarantees.

New loans must be vastly reduced. Loan limits will be lower –(see Repair No. 3, below) — and loans will virtually disappear in for-profit colleges.

The Pell Grant is a voucher, as was the GI Bill in the 1940’s and 1950’s. When we give vouchers to parents for elementary education, even right-wingers applaud.

The Pell Grants must be available to any student –even those who are in default — plus any students whose earlier loans have been forgiven.

(Note: Some Pell Grants can include  child care benefits and housing credits for adult students. This is what the GI bill covered for millions of veterans with new families.)

This is a large change in policy, but one that is overdue. Congress has been shifting public funding away from grants for thirty years, in order to increase student loans and loan industry subsidies.Even the Democrats proposed cutting Pell Grants in 2014. We are so ‘out of it’ –  a small grants program called TEACH collapsed when many awards converted to loans becaiuse the correct paperwork was not submitted each year.

Like so many Republican schemes, this is partly from libertarian ideology, but also  a desire to reward  cronies in the lending and debt-collecting businesses. (No one ever got rich servicing Pell Grants.)  Taxes were reduced on well-off Americans, but debts were increased on the non-wealthy young to make up the difference. A public responsibility (i.e. higher education) was converted into private burdens.

Fortunately, we already have a means for financing future Pell Grants. It is called the progressive income tax. Students’ tuitions should be funded with grants. No grants would ever be repaid. People would simply pay their taxes.

We  should pay for college education by taxing individuals and corporations now — rather than have students pay all the costs out of future wages. This will be unpopular among anti-tax conservatives, but again it is overdue.

Repair #2

Provide more federal funds to community colleges and vocational schools.

One example would be full funding for the America’s College Promise (ACP) Act:

This  law would provide $61 billion over the next decade to make two years of community college free, so students  can earn the first half of a bachelor’s degree or an associate degree at no cost.

Giving more money to community colleges will help replace the for-profit colleges.

As for vocational schools – their current federal funding for vocational schools is well-intended, but pathetically small at present.  Here is a recent legislative proposal:

  • ESSA Title IV-A Student Support and Academic Enrichment Grants– Increase of $70 million, to $1.17 billion. This program can provide funding to CTE programs, particularly in the areas of college and career guidance services, education technology and STEM education.
  • Apprenticeship Opportunities– $160 million, an increase of $15 million.
  • Adult Education – State grant program increase of $25 million.

Support for vocational schools should be ten or twenty times this amount. These schools have no dormitories, no sports teams, no meal plans, and no professors earning $150,000 to teach one class and do research,

Meanwhile : The graduates of vocational schools reliably find jobs inmachining, auto repair, heating ventilation, computer repair and electrical installation.  In fact, due to partnerships between corporations and schools. there are over 500,000 apprentices who have decent jobs while still in school.

Vocational schools have no dormitories, no sports teams, no professors on paid sabbaticals, etc. The message to conventional colleges might be “If it costs you more than $10,000 per year to educate a student, your costs are bloated.”

Repair #3

Establish loan limits     

In 2009, the U.S. graduated 38,000 students with bachelor’s degrees in computer and information science, and 2,500 with bachelor’s degrees in microbiology.

However, we also graduated 89,000 students in the visual and performing arts, psychology, and journalism.

Many of  the  saddest student loan stories involve degrees in counseling or liberal arts. Time after time, one reads of students who borrowed over $100,000, in order to get a social worker job or an art therapy job that pays $28,000 a year.

The workers who clean hotel rooms in Las Vegas make more than $28,000 a year, thanks to a strong union. The workers at McDonald’s in Germany make $36,000 a year, again due to unions.

Americans would not be so desperate for college credits, if they could earn a living wage in all occupations. Instead, Americans look to college as an insurance policy against low wages, unemployment, and downward mobility.

Unfortunately, we have to start denying federal loans for careers that do not reliably produce high earnings. No one would be barred from studying social work – and they could take out non-guaranteed private loans, if a lender is foolish enough to offer one —but they could not borrow federal money to do so.

If an industry actually needs new employees – whether it is plumbing, welding, or computer science – let the industry provide  money for grants and apprenticeships. For example, Audi is paying tuition for young mechanics, in order to create a steady pipeline for their workforce. IBM is going directly to high schools in Louisiana to train programmers.

This is in stark contrast to  fields that have a tremendous oversupply of candidates already. For-profit colleges are not the only exploiters……what about PhD programs that recruit and retain graduate students, use them as teaching assistants, but leave them virtually unemployable? This is the opposite of a public good.

If an industry has no real demand for new workers, then without loans there will be very few new students, other than wealthy kids who can study anything they want.   How bad is that?

(Actually, we need more schools like the new  Lambda programming colleges; Instead of tuition, students can pay for their education once they receive a job with a $50,000 annual salary. Once students snag a job that meets the salary minimum, graduates pay back 17 percent of their salary over a period of two years (with the maximum payment capped at $30,000). If you don’t find a job, or meet this income level, you don’t have to pay a cent. And if you lose your job, or your monthly pay dips below $4,166.66, you can pause the repayment for that month.)

We must shed the notion that every student should get huge loans to  ‘follow their dreams’ in an over-crowded field,  or to attend the over-priced ‘college of their dreams’ on borrowed money.

Is this paternalism? Of course, and not a moment too soon. Letting millions of debtors learn harsh lessons is extremely wasteful. Anyone who can read history knows that debt is dangerous. Look at the wreckage that has been wrought by guaranteed loans for any course of study, and at any age. People in their 50’s should not be getting student loans at all.

(Note: Loans do have to be phased out over a few years. Abruptly ending all federal loans would leave millions of students scrambling for funds,  and could quickly ruin too many schools. Anyone in their third or fourth year of study in any field would still be able to get loans – but after that, the spigot stops,  especially in liberal arts.)

It is true that the richest colleges already offer enough aid so that loans are unnecessary. Over twenty five major schools do not let their students use loans at all.

Of course not all students can get into Brown, Dartmouth, Harvard, Northwestern, or MIT .  In our future, those who still want  college and cannot get loans can receive a Pell Grant and go to vocational schools – where they will often get better jobs anyways,  and  they should have no debt if they live at home.

If workers do need further education,  grants are a far better way to help them.  When a German or a Danish worker is laid off due to “globalization,’ first of all their union negotiates a respectable severance package. Their health insurance is uninterrupted. They may receive a family allowance, a housing allowance, even a utilities allowance  plus free vocational-school tuition as needed. Government aid does not just go to the poor, or to college students. Working people are never left out.

Even with fewer loans, remember, public support for education is not going away. Government already spend over $100 billion a year on merit scholarships, financial aid, community colleges and public universities. No one is proposing that this aid should be reduced.

Let’s add to those numbers through more grants, without the disaster of more student loans.

Five years from now, the government should be making no student loans at all. Students who only go to college for vocational training can take their $10,000 annual Pell Grant anywhere. Medical schools should be funded directly by the taxpayers as a vital industry. Scientific and engineering schools can be funded by their industries. The areas that need new workers will subsidize new students.

For-profit schools will largely disappear. Four year liberal arts schools without endowments may have to shrink, and serve only wealthy students. Some schools will adopt video streaming, free textbooks, and online platforms to lower their tuition to the $10,000 range.

Meanwhile. the next page contains estimates of what loan forgiveness will cost to the taxpayers.

Budget Estimates

PART ONE:   Reduced Federal revenue

  1. Forgiving all loans over age 65……..$5 billion per year, ongoing
  2. Forgiving student loans from fraudulent for-profit colleges……….$3 billion per year, ongoing
  3. Forgiving any income taxes due on cancelled debts……..$10 billion a year, ongoing
  4. No payments due when borrowers earn less than $40,000 a year…….$18 biliion a year, ongoing

 

Note: all the above are ‘static costs’  –they do not reflect  the new tax revenue that will come in when debtors can  now buy houses, etc. after loan forgiveness. I do not have the skill to make this estimate.)

PART TWO – New Federal spending

  1. Pay off private lenders whohave made Parent Plus Loans…………$10 billion, one time
  2. Pay off fraud claims against for-profit colleges…….$6 billion, one time
  3. Pay off private lenders after bankruptcy discharges……..$5 billion a year, ongoing
  4. Expand Pell Grants…………..$55 billion a year, ongoing
  5. Expand support for Vocational School and Community Colleges………….$12 billion a year, ongoing

We  do not want this spending just added to the deficit. One new source of revenue would be lifting the cap on  Social Security contributions (currently there is no tax on any income over $$132,900.  Taxing all income at 12.45% would produce approximately $200 billion a year.

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54 comments

  1. Bottom Gun

    At the risk of going off topic: This is an interesting proposal with worthy points. But I’m wary of any proposal for USG that demands a modicum of skill in implementation. Like many readers (I suspect), I have good friends who are well-heeled yet honest human beings. The obvious objection is, “I’m OK with being taxed more in theory, but not if half the money is just going to go to bureaucratic incompetence and ratfuckery.”

    The context of our conversations is that I spent 3 years as a senior official at USG financial agencies (in the OIG offices, no less — analogous to corporate internal audit) where I saw a breathtaking amount of incompetence and outright corruption in the OIG offices themselves (!). They have a hell of a point, as both of us know.

    More complex implementation will only mean bigger rice bowls for the bureaucrats unless we think carefully and upfront about how to use this occasion to rip out waste, streamline (or eliminate) processes, or impose what the Navy calls “good order and discipline” in the USG. Particularly given my own experience attempting to serve my country, if you can fire a federal bureaucrat and put the salary toward student debt relief for damn near anyone, I’m all for it. And I bet many, many people will feel the same way.

    Reply
    1. Ford Prefect

      Department of Education can’t even forgive loans if directed to by Congress: https://www.npr.org/2019/07/11/739860400/broken-promises-teachers-sue-u-s-over-student-loans-that-werent-forgiven

      My wife is one of the 99% who had their forgiveness request denied because she had the wrong type of Federal student loan. She teaches in an inner city school and had made the requisite 10 years of payment. But the Federal student loan had the wrong loan program name (I have no idea what the difference between the different Federal student loans are).

      Reply
      1. Bob Hertz

        The Department of Education sees its duty as defending the federal government from loan defaults.
        The Department sees itself as fighting for the taxpayer, against lazy students who want to get out of their loans.

        I do not have the whole story, but it appears that Obama could not dislodge this philosophy. The minuite he left in 2017, the Department reverted to hostility against debtors.

        Reply
    2. Shiloh01

      How about this one from the U.S. Department of Treasury:

      Dear Citizen, as in every citizen, not just those with “official student loan debt”..

      Here is a check for $200,000, hot off the presses. The rules are you must apply it in this order:
      Payment in full on student loans, starting with those involving government subsidies / guarantees
      Payment on mortgages, starting with those involving government subsidies / guarantees
      Payment on any other debt, such as car loans and credit cards
      The rest – do with it what you will !!!

      That day forward:
      No involvement of government in student debt
      No involvement of government in mortgages
      No involvement of government in any TBTF bailouts

      What to watch:
      Tuition prices marked to market, meaning affordable
      Houses and cars marked to market.etc.

      Reply
      1. Adam Eran

        OK, this is sort of like Steve Keen’s alternative to a debt jubilee. But the idea that government needn’t be involved in student debt, housing debt, or bank debt is a non-starter. Our currency *is* debt. Debt is the stuff of our economy. Banks are licensed to issue debt by the government.

        Yes, yes, I know conventional economics practically gives itself whiplash ignoring this fact (and that land is not capital)…but that’s why Keen wrote Debunking Economics: The Naked Emperor Dethroned. Not an easy read, but an essential one

        Reply
  2. taunger

    Did not read it all, partly because some baselines seem off. Hertz states Pslf limited to public employees, which in statute it is not; it includes 501(c)3 (although not all. Thanks technocrats).
    Second, a comparison of current loan payments for under $40k earners would be very useful. IIRC, earning 45k out of law school (that’s right!) I was paying about $125/mo on $180k worth of loans. It was hardly the worst expense in a very expensive region.

    Reply
  3. Carla

    Interesting ideas. I agree with Yves’ reservations, however, and would add one of my own: IMHO, to suggest “funding” student loan forgiveness with Social Security funds is to ditch the loan forgiveness program’s prospects before they ever see the light of day. Of course the cap on income subject to Social Security tax should be lifted — to strengthen, expand and improve Social Security. To suggest using that funding stream for any other purpose is, in my view, simply political suicide.

    Reply
    1. marym

      Agree on the Social Security funding.

      Sanders (and co-sponsors Gillibrand, Merkley, Booker, and Harris) have a bill that lifts the Social Security cap on wages and self-employment income above $250K (so there’s a progressive element in the tax structure) to expand Social Security benefits (including restoring student benefits).

      Reply
      1. Carla

        I don’t see why the cap isn’t removed entirely. People earning from minimum wage up to $132,900.00 a year can afford the Social Security tax on every dollar of income, but those making $150,000, $175,000, $225,000, etc., cannot? It doesn’t wash.

        Reply
  4. Kurtismayfield

    Just to reiterate that the STEM degree shortage is a myth.. the average Lab Tech salary in Boston MA is 41k a year, and the median is smaller if you look at the data. This is for someone with 2-4 year STEM degree. Anecdotal evidence: For a comparison point, my salary as a Lab Tech back in 2003 with 5 years experience was 43k. In real terms salaries have gone down, not up. I know of many old colleagues who left research because their salaries were decreasing and they could not live on it, especially when trying to support a family. Would this be happening if there was a shortage?

    Reply
    1. Grumpy Engineer

      Last week there was link to a PayScale study that looked at “college regret”: https://www.payscale.com/data/biggest-college-regrets

      STEM graduate seemed to have fewer regrets than people in other fields (with the interesting exception of teachers), but it’s worth noting that there still a great many people with STEM degrees who regretted their college education and a great many people with non-STEM degrees who did not. IMO, the whole “STEM vs. non-STEM” argument is the wrong argument to have.

      Instead, we should be much finer-grained, looking instead at how well individual academic departments (within individual colleges, sometimes within individual universities) serve their students. Because there are some liberal arts programs out there that are highly cost-effective and provide a good education that serves their students well later in life. And there are some STEM programs out there that provide a crappy education at much too high a cost. Lumping everything into a “STEM vs. non-STEM” argument oversimplifies the situation.

      Reply
    2. JeffC

      Indeed, the idea that a STEM degree is magic (in the US) is a myth. I know three recent Computer Science grads from solid state-university programs, and none were able to land an entry-level position within a year of graduation. It’s not like 50 years ago when a STEM grad would have a job lined up before graduation. Now young people are competing with cheap contractors from Bangalore. Plenty of jobs for super experts with super experience. No jobs for beginners, local ones anyway.

      Reply
  5. Michael

    Bankruptcy is the right way to go. Other forms of forgiveness will require private lenders and servicers of even publicly guaranteed debt to be paid their larded-up interest and fees at 100%. Bankruptcy gives them what they deserve: nothing for the fees and, depending upon how the law is written, little or nothing for the rest.

    However, there is no reason not to create a new chapter of bankruptcy solely focused on student loans. It needn’t affect other creditors. In fact, it could be entirely excluded from credit reports. It could also be used to, say, make a student loan borrower ineligible for more student loans for a long period of time.

    BTW – I repaid my student loans including an enormous amount of extra interest and fees. My loans were a lot larger than baby boomers but also a lot smaller than students who came later. Also, when I took out my first student loan they were eligible for discharge in bankruptcy then the rules were changed. So it’s not like changing the rules for student loans after-the-fact is new or should prove controversial.

    Reply
    1. Oh

      Forgiving student loans is the right thing to do but the banksters and colleges that benefited need to take a hit too. And how about these educational institutions that charge high fees just because they can get money from grants and loans? Loan forgiveness needs to tackle the colleges who’ve charged the exhorbitant fees. Why do they get to keep the money? Why are most of these “non profit” colleges constructing more buildings instead of lowering the fees.

      Reply
      1. Carla

        “Why are most of these “non profit” colleges constructing more buildings instead of lowering the fees.”

        To me, it smacks of money-laundering…

        Reply
      2. Grumpy Engineer

        That’s where “Repair #3: Establish loan limits” comes in. Bob Hertz makes an error in emphasizing STEM vs. other degrees, but he’s absolutely correct in noting that we do students a terrible disservice when we lend them more money than they can reasonably repay. Blindly lending to any student (or parent) with a pulse for any sort of crappy academic program out there has been one of the federal government’s most grievous errors, and it’s ruined the financial lives of literally millions of people.

        If we establishing lending standards that looked at the caliber of student (i.e., class rank and SAT scores) and at the quality of program being considered (i.e., which academic department in which college in which university) and limited the sizes of the loans according to the student’s likely ability to repay (based on statistical evidence coming from prior students of similar caliber in similar programs), we could greatly reduce the damage. It we restored bankrupty protection on top of that, it would largely bring student lending back to a sane state.

        Also, it’s worth noting that properly-executed loan limits wouldn’t rise any faster than people’s income, which means that money-grubbing colleges and universities would have to raise their tuition rates at a similarly slow pace or risk having empty seats.

        Reply
        1. Bob Hertz

          Good points, thanks for comments.

          Limiting loans in this fashion would cause quite a few departments in quite a few schools to close up in 6 months.

          Not that this is undeserved!

          Reply
      3. Jim

        “Forgiving student loans is the right thing to do but the banksters and colleges that benefited need to take a hit too.”

        Why not let lenders take the ENTIRE hit by allowing bankruptcy? The Constitution has not been re-written; it STILL says, black letter, all debts are dischargeable in BK. They may not have known anything about student loans back in the 1780s but they knew about enslavement by debt. Why have we RETURNED to allowing it, after working in the 1860s and 1960s onwards to get rid of racial – based slavery?

        Heck, maybe slavery, in one form or another, is something humanity as a species really likes after all, and we desperately need it in one form or another… ???

        Reply
    2. Greg Taylor

      The bankruptcy system processes about one million filings annually. The student loan problem is far larger than it could handle. Gearing it up would take years. Attorney, trustee and court fees often cost several thousand dollars. Student loan debtors need quicker cheaper solutions.

      Forgiving all interest and fees while requiring only the repayment of the original principal might appear more “fair” to those who’ve objected to outright cancellation.

      Reply
      1. Bob Hertz

        Attorney fees and court costs will shrink dramatically if the special standard of ‘permanent undue hardship’ is removed.

        If they cannot make loan payments (and other debt payments) and still have a minimal standard of living, then they are bankrupt. Once the forms are done with an attorney’s help, the court case can be over in a half an hour.

        Reply
  6. Bill Carson

    I presume that student loan principal is created “out of thin air” when a loan is funded, just like mortgages, is that correct? If so, the federal government has been funding college education to the tune of the total amount of loan generated each year without this disbursement showing up on the government’s budget, is that also correct?

    My biggest reservation is that they need to tackle the public funding of higher education first, or else they will be running in circles.

    Also, can we please stop it with the means-testing?

    Reply
    1. Carla

      “My biggest reservation is that they need to tackle the public funding of higher education first, or else they will be running in circles.”

      This is an excellent point.

      And I agree re: means-testing!

      Reply
  7. William Hunter Duncan

    I’ve heard, in the past 25 years, the number of people teaching at colleges increased by 50%, while the number of administrators has increased 287%.

    I know at least one administrator who took time off to have a baby, then she was going to go back but she got pregnant again, and she expects to go back after…might I submit, her job was not very necessary to begin with, that she is not missed and can go back whenever she feels like it? (I don’t feel too bad about using her as an example, as she is a child of extreme wealth, and I suspect she thinks she deserves it.)

    Maybe if we can start by acknowledging that the system itself has become like predatory racketeering, maybe we can start with a more serious conversation about forgiveness. As for Progressive plans to make college free, maybe people might take that a bit more seriously if all that new tax money wasn’t going to float a boat load of unnecessary Admin (while impoverishing adjunct professors.)

    Reply
    1. rd

      Student loans made this possible by providing a ginormous funding source. Student loans are similar to the subprime mortgages where the easy money artificially created demand that drove prices up.

      In Canada, there are very few student loan issues. The universities are effectively public institutions with state-school level pricing. There isn’t the cultural necessity to go to the “right “school – in fact many of the university students in Canada never even visited their university before they registered for classes.

      Much of the student debt problem is due to the class system and lack of upward mobility in the US where people believe they need to go the right (and expensive) school in order to advance in society. Also, university has replaced high school as the entry level requirement for many jobs even though the job does not actually require a university education.

      I think the total amount of government-guaranteed student debt that should be allowed would be limited to four years of state-school tuition – still a substantial amount, but its not $100k+. State school tuition should be pro-rated to typical entry level jobs in those fields. So engineering tuition would be more than liberal arts and social work.

      The recent scandal of wealthy people bribing people at schools to get their kids into brand-name schools is a litmus test of how broken the entire college culture is in the US. Similar to “high school were the best years of my life”, if you can’t imagine life without attending one prestigious university, then its a pretty sad life.

      Reply
      1. run75441

        To your point somewhat . . .

        “African American students who earned a bachelor’s degree had a default rate nearly four times higher than their similarly situated white peers.10 Students who are veterans, parents, first-generation college students, or are low income are also likely to face higher risk of default.” Brookings

        Reply
    2. Grumpy Engineer

      You said, “people might take that a bit more seriously if all that new tax money wasn’t going to float a boat load of unnecessary admin“.

      I suspect you’re correct. Many colleges and universities are (rightly) considered to be wasteful operations that are much more expensive than necessary, and many people will object to federal dollars being used to sustain the waste and often exorbitant administrative salaries. If we laid off half the administrators to get back to the administrator-to-faculty ratio we saw in years past and moved the rest to the GS payscale, I suspect people would view it more favorably.

      Reply
  8. philnc

    No. No. No. No. In 1976 when I was in my sophomore year of college, tuition at my SUNY college was $650 a semester. Tuition at nearby CUNY campuses was… nada (until Jerry Ford told NY to “drop dead”). Even with the additional expense of housing, car insurance, auto repairs (we _all_ had 10 year-old clunkers then), etc., you could still make it on a minimum wage job (OK, maybe two). Because of that my undergrad education, like many in my cohort, was debt-free. My first loan (NDSL) was for grad school, where the $2,000 a semester covered tuition and fees. Still manageable, and paid off within 10 years after graduation. Fast forward 40 years and things had changed dramatically. Graduates in the last 20 years have had to bear the burden of exploding tuition and cost of living while the kinds of wages available to students have stayed flat, if not regressed due to inflation. Let’s call the reaction of some on the issue of “perceived fairness” what it is: selfish and short-sighted. What, just because we all suffered the generations that follow do? Why? To “build character”? And I’m with Bill Carson on the means testing b.s., just another layer of bureaucracy whose aim is to deny a benefit to as many people as possible. We don’t means test Social Security or Medicare, or public High School for that matter. Why _should_ we means test college? “I got mine” is no longer a defensible position, any more than the Hamptons will be in a very short time if things continue as they are.

    Reply
  9. Vic

    Just so I don’t immediately get pigeonholed as an old codger, let me start by saying that I think community college should be free, and that it is just and humane to forgive student debt at age 65. As to the rest, I still need to be convinced.

    I went to college around 1980. I borrowed the maximum of $2,500 a year from a government loan program with a fixed 3% interest rate (about $8,000 in today’s dollars). I went to a reasonably-priced school, lived at home for two years after college to build up my savings, and paid off my $10,000 total borrowing in about 10 years at about $150 a month. That monthly payment was never a huge imposition, nor did it cramp my lifestyle or life choices. My success is a result of personal restraint in terms of my borrowing, and tuition restraint by colleges at the time.

    To me, debt forgiveness does not solve any of the underlying issues of the student debt crisis. First, Americans continue to demonstrate that they will sign any stack of papers, no matter how thick, in exchange for a check. Second, college tuitions rise to meet available borrowing capacity. Until we better understand – and address – why students and parents are willing to borrow $25,000+ a year to go to a second-tier college, and why college tuition “needs” to be so high, we’ll be re-visiting this crisis ten years from now.

    Reply
    1. juliania

      “…First, Americans continue to demonstrate that they will sign any stack of papers, no matter how thick, in exchange for a check…”

      Sorry, coggeriness is showing its ugly face. Nice you would forgive the students after they’d been on the street, sleeping in graveyards for safety till the age of 65.

      I went to college in the early ’60s, and I paid off my student loan ($2000 without interest tacked on) as soon as I could, no problem — so why on earth can’t my son or daughter or somebody else’s son or daughter do the same? Oh – what the heck – maybe we don’t have the Camelot we did when I was young. Too bad! It’s that ‘sign any stack of papers in exchange for a check’ syndrome! To the graveyards with them; they belong there!

      I mean you no harm, codger, but that you are.

      Reply
      1. juliania

        And it’s not a sign of being old, that codgeriness (sorry I didn’t get my first attempt at that spelled correctly during my first run). I have children in different age groups – the earlier ones did as did Vic, managed to pay off quite steep loans as he/she did – and they have been puzzled at their younger siblings inability to do the same. The world changed quite rapidly and unexpectedly. My younger kids followed the same route, or tried to. The playing field had changed drastically, just as it did for mortgages. All of a sudden…quicksand!

        [Apologies if this, my second attempt at posting] gets duplicated eventually ]

        Reply
      2. Bob Hertz

        The essence of bankruptcy laws is that signing mistakes are forgiven, however painfully. The people who open restaurants at a location where 5 restaurants have failed are just as foolish, but bankruptcy laws forgive them too.

        Reply
  10. rc

    The government should implement some version of the Chicago Plan–100% reserve banking. This would allow for a one-time non-inflationary approx. $18 trillion in purchasing power for the government. It would allow for the retirement of student loans and publicly held Federal Debt. It would also allow for future productive investment in infrastructure and education. There are all kinds of benefits to this approach. Read the “Chicago Plan Revisited” if you want to evaluate it.

    https://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

    The government can reduce reserve requirements over time if it wanted to expand money and credit through the banking system, but that is unnecessary.

    The U.S. should have it as a strategic priority to invest in human capital across the spectrum to include high quality pre-school for all children and higher educational attainment to include apprenticeships, technical school, colleges and advanced education. Debt should never be attached to this investment since it reduces flexibility in the economy.

    These reforms should be thought of in a national security context. China is at war with the United States across all domains. We need to improve our strength across all domains. This is why eliminating all of these massively inefficient (plus immoral and criminal) rackets need to be a priority. We cannot afford to have our elite enslaving and killing our own people through debt slavery and government capture.

    I am calling for a new type of war footing grounded in today’s reality of the CCP’s efforts to enforce tiangxi–their belief (Xi’s China Dream) that they have Heaven’s Mandate.

    All wars are moral conflicts and we need to occupy the best ground.

    Reply
  11. Ed

    Why are we acting as if writing loans off the books of the federal government has a cost? It’s just bad debt expense, blowing a hole in their balance sheet. No new appropriations are involved.

    Reply
    1. Bob Hertz

      The federal government has kept student loans off-budget, by pretending that the loans are an asset.

      Writing off the loans is admitting that the loans will not be repaid, i.e. there is no asset. This does not bother me but it will bother Congress.

      The federal government takes in perhaps $125 billion a year in loan repayments. The amount is schedule to grow. Plus, income taxes are due when debts are forgiven.

      It is not hard for the government to find a less painful way of collecting $125 billion a year. But it does take thinking and confronting the rich, which Congress does not like to do.

      Reply
  12. eg

    Seriously — you should do literally anything to put an end to this ongoing and increasing indentureship of the young.

    All of the bleating about “fairness” and “bureacrats” and the rest are a series of unhelpful distractions.

    Just get the damned thing done already!

    Reply
  13. TG

    An interesting post, but I would suggest something much simpler. Let’s just go back to what (mostly) worked before.

    1. Reinstate the old bankruptcy laws, and make sure they cover student debt. The old bankruptcy laws were not exactly fun, they were I think hard enough to discourage ‘moral hazard,’ and avoid problems of perceived fairness, but they weren’t the debtors prison we have now. Just let them declare bankruptcy.

    2. Eliminate guaranteed profits for banks making student loans. The essence of capitalism is that people and institutions who make bad investments should lose money. If a bank was not guaranteed to get bailed out at taxpayer expense for loaning $200,000 to a mediocre student majoring in underwater basket weaving at the University of East Posthole, they might not make those loans. Which would not be a bad thing.

    3. Tighten up the labor market. Stop flooding the nation with cheap-labor third-world refugees. In a tight labor market, even blue collar workers will make a decent income. The pressure for everyone to go to college will be reduced. Companies will go back to providing in-house training at their own expense, instead of requiring expensive training at the employee’s expense. And with a smaller college population, the state funding of education will go back to being a larger part of expenses.

    The big problem with any sort of reform is that the colleges have now baked in massive overhead costs – administration staffing levels and salaries are out of control, buildings that are marble palaces, etc. The transition to a more efficient and sustainable cost structure for colleges is, I think, going to be the hardest thing.

    And on a final note: we can afford trillions of dollars in pointless endless wars, deficits don’t matter. We can afford to subsidize (directly and indirectly) Wall Street to the tune of tens of trillions of dollars, deficits don’t matter. We can let medicare get ripped off by big Pharma, deficits don’t matter. Help private citizens who have been screwed by a rapacious student loan industry? What are you, a communist?

    Reply
  14. Susan the other`

    This sounds reasonable to me. Expanding the SS tax to all income levels isn’t a bad idea. If the above tally is 107 billion during the first year, after the debts are forgiven that amount will go down quickly. The losses to banking are mostly government-guaranteed, so the banks aren’t hurt. Nobody gets dinged. Combined with a JG program and single payer medicare we could get our country back on its feet pretty quickly. And serendipity: private finance would have to trim its sails. That would tend to keep things in balance going forward. Not to address this inequity (these inequities) just perpetuates it.

    Reply
  15. shinola

    Why should people who paid off their student loans be resentful if college was publicly funded as K-12 is now? Which attitude is really more prevalent?

    a) “I suffered to do this, so everyone else should too” – in perpetuity.
    or
    b) “Thank gawd no one else is going to have to suffer like we did back in the day?”

    If it’s really a) then wouldn’t most of us still be plowing the back 40 behind a mule, milking cows & churning butter by hand?

    Reply
    1. run75441

      shinola:

      You do not make watches do you?

      To answer a. It is the old I walked up hill both ways going to and coming from college attitude so you can do the same.

      It is a and they seem to forget indenturing students to a life time of debt impacts the economy also. We lose in productivity and taxes. Lets say perchance, Repubs and Libers succeed in ending SS. How is the gov going to collect on student loans to their grave.

      The reality is, we all lose in the end when someone can not be as productive as they should be because of Biden imposed regulations on bankruptcy since 1978.

      As the legislative debate intensified, Biden was appointed to serve as one of three of the Senate Democrats’ representatives in a conference committee to meld the House and Senate versions of the legislation. The National Consumer Law Center sent a letter to Biden and other Senate negotiators asking them to prevent the final bill from including what the group called an “unwise and unjust” crackdown on student debtors, congressional records reviewed by IBT show.

      But the legislation produced by Biden and his fellow conferees ended up including the provisions exempting government-sponsored educational loans from traditional bankruptcy protections for at least five years after a student graduates. In announcing the final deal, the sponsor of the bankruptcy legislation, Sen. Dennis Deconcini, D-Ariz., specifically thanked Biden in a floor speech for his “lengthy and time exhausting work” on the measure.

      Reply
  16. MichaelSF

    It seems like things are in such a mess that a program that makes a clean sweep, wiping everything off the tally board, would save a lot of time and money vs trying to “unwind” this part and that part and come up with rules and regulations for every little variance.

    Gordian knot time, followed by cleaning out the Augean stables. Then (pretty please) come up with an actual workable and equitable PLAN for the future.

    Reply
  17. George Phillies

    Forgiving the loans should not be inflationary. All that money already is in the economy, paying administrator salaries, so its inflationary effect has already been seen. Inflation is quite low. Sucking all that money back out of the conomy may, however, be deflationary.

    Reply
      1. FreshOH

        todde – ‘loans paid back, just by someone else’.
        bear with some vernacular, this isn’t GAAP.

        Now assume that 50 American citizens have invested with a fund to purchase t-bills. The fund totals $40,000.
        The Treasury writes up 4x 10,000; 5yr t-bill notes (interest set by Federal Reserve float) and this amount is loaned out to Student A over 4 years at 10,000 per year (interest + Federal Reserve set rates). For simplicity lets say the interest per year changes as follows for the student.

        First year 10,000 is borrowed at 7%
        Second year 10,000 is borrowed at 8%
        Third year 10,000 is borrowed at 6%
        Fourth year 10,000 is borrowed at 9.5%

        Treasury taxes citizens up front for the $40,000 + interest to be paid in 5 years.

        Student A goes seeking job, only to find the market doesn’t provide.
        Is constantly encouraged to go back to school for Master’s degree.

        So, while seeking employment that ‘works with’ school schedule.

        Student A borrows privately $15,000 at 11.5% for the first year of Masters.
        The Federal Reserve funds $10,000 to private bank to create the loan for Student A.
        The private bank utilizes $5,000 from earned interest on a variety of Home Mortgages.

        In the fifth year the t-bill fund is repaid from taxes.
        In the sixth year a financial crisis hits, the private bank requires $90,000 to remain solvent.
        The Federal Reserve funds $90,000 to the private bank.

        But really: How did the Federal Reserve $100,000 get funded?

        Reply
        1. Todde

          From the future earnings of the student

          Which is what an unsecured loan is.

          But when it gets paid back as oppossed to forgiven, the money will still disappear.

          Reply
  18. JEHR

    All sounds so good but when corruption becomes endemic in every single aspect of life, how can anyone be convinced to do the right thing and not the profitable thing? The whole facade needs to be brought down and rebuilt with no profit attached to any of it.

    Reply
  19. Matthew

    The categories for debt forgiveness are arbitrary.

    Why 45k and not 50k or 100k? As some have pointed out, 45k goes a lot further in some areas than others.

    Why only for profit predatory schools? Pretty much every college is predatory on some level. When i was in my second year of law school, the man who later became the president of the University told a group of us that the percentage of graduates employed after 9 months statistic included any job, including unskilled jobs like Starbucks baristas, not just law jobs. The entire industry is corrupt.

    Why should someone get forgiveness because of their age?

    And for the people who shout down debt forgiveness because they paid their loans back already, the only reason you would support a plan like this is because it makes you feel better to help people foolish enough to go to for profit college, the elderly, and the poor. To the rest of us who suffer, you say: depart ye in peace, be ye warm and filled.

    Reply
  20. HarrisonBergeron

    This is going to be long and I tend to write run on sentences. I owe $240k in student loans from undergrad and grad business school. I work on a contract for the dept if Ed collection contractor for defaulted loans. This system is incredibly unjust up and down the line. The author of this post seems to have a serious blind spot as to how cliffs in benefit structures impact behavior. For example using 40k as some arbitrary cutoff for forgiveness just ensures that people don’t start businesses or take promotions. Why would you take a salaried promotion when the benefit is chewed up by loan payments. The federal take over of the loan program by the Obama admin was clearly a back door fiscal stimulus. A dean at my B-school admitted as much. In 2011 I had an unpaid internship with a guy who held a JD and went back to school to avoid paying his loans and roll the dice again. The horror stories of families living in shelters trying to get their loans out of default so that their earned income tax credit wouldn’t be seized would make many people cry. This system has morphed into indentured servitude; full stop. A new bankruptcy section or full forgiveness are the only options. This is a country eating its seed corn and the sooner these loans are fixed the sooner we can fix other problems. The oldest borrower I’ve seen in default was born in 1921, the highest loan was over $400k, I’ve talked to the married mother of 3 kids who’s AGI was 19k
    And her EITC was sent to the dept of Ed in the amount of $5k. This is destroying families and individuals but mostly impacts the poor. Savvy professional class people find a way to defer or extend without paying. Lawyers or Chiropractors who own their practice and default can’t be garnished and their income is too high to withhold their refund. I’m afraid the next step will get what they do with IRS debt or back child support: they suspend your passport. Please read that again. If I find out that is coming I’m gone. And millions of others will leave too. Any government that locks its citizens into the borders in such a way is serious about entering the death spiral of a totalitarian state.

    Reply
    1. juliania

      Thank you, Harrison Bergeron. Indeed, this mostly impacts the poor. And the saddest part of it is, very often they blame themselves. Especially if they are young and couldn’t make it on that unrealistic attempt at college. That attempt! They tried. Sure, they failed, and now they are being punished.

      Now.

      It’s hard for savvy professional class people to understand. But this is like Vietnam, when the poor were sent off to be killed or mutilated in a senseless war, while others were thrilling to Buzz Aldren’s trip around the moon. This is like living in Gaza while on the other side of concrete massifs life is so much better. Only, this time it is happening to poor young folk (and not so young any more) in their own country. And so many of them are losing hope. Never mind passports — they could not care about passports. They don’t even know the right people to blame.

      So yes, do all the other important things to fix the problem. But help the truly needy right now!

      Reply
    2. inode_buddha

      Navient? Yeah I owe them too. Maybe if the govt had done anything to protect the job market over the last 40 years the situation regarding loan payment wouldn’t be so dire. As it is, why the hell would I take out yet another loan to further my career in STEM when I’ll end up having to compete with some guy in India for 25 cents an hour?

      Reply
  21. David in Santa Cruz

    With all due respect for the serious effort here, why all the complexity?

    I attended the University of California during the 1970’s. My bachelor’s degree there was tuition-free, with about $1200 a year in “fees” plus living expenses and books. If I had gone to a private such as Stanford or a religious like Saint Mary’s or Santa Clara, I would have had to pay full freight. Since I wasn’t interested in attending the Bohemian Grove or mass at St. Peter’s, UC was a good deal.

    My youngest child just graduated from a private liberal arts college. They offered her a guaranteed “merit package” of about $27K per year in tuition and fees, plus expenses. This “package” intentionally undercut the University of California, which offered her $32K per year in tuition and fees, plus expenses. Additionally, the private guaranteed access to the required classes needed to graduate in 4 years; due to over-crowding UC only graduates 50% of its students in 4 years, further escalating their costs. The public university would have cost substantially more than the private! This is insane.

    All debt from public universities must be forgiven and refunded with interest to those who already repaid. Ending the expenditure of trillions of dollars on the futile overseas deployment of the American military should easily cover the costs. As for those who chose to fork-out for the privates, oh well. Unfair? American elites, always complaining

    Reply
  22. rjs

    where did this idea come from, anyway? i graduated high school in 1965 and had never heard of a student loan or going into debt to go to college…maybe the most expensive schools were out of reach for some of us then, but everyone seemed to manage…

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  23. The Rev Kev

    ‘A surprising number of our readers objected to the Sanders student debt forgiveness proposal because they had dutifully repaid their student loan.’

    Thinking on this idea, I see how the US Army is offering people $40,000 to join the infantry in order to meet its 2019 recruitment goal. So, should all present US infantrymen also receive a $40,000 bonus because they joined before the bonus came into effect? It is the same idea here at work and you can’t have it both ways.

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  24. Paul P

    We have a $20 trillion economy and a $4 trillion federal budget.
    We can wipe out student debt with a snap of our economic fingers.
    We can do this in the same way we fund F-35s, obsolete navy ships, never ending wars and tax cuts for the 1%. We can also tap the trillions of untaxed dollars parked offshore.

    If the discussion gets wonky, technical, and detailed, the public will miss the point that a one-sided class war is being waged and they are losing.

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