Forgive Student Loans? Worst Idea Ever.

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There’s an argument going around right now that forgiving the country’s student loan debt would have a stimulative effect on the economy. This online petition by Signon.org, an offshoot of Moveon.org, has nearly 300,000 signatures. Its basic argument is this:

Forgiving the student loan debt of all Americans will have an immediate stimulative effect on our economy. 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. As consumer spending increases, businesses will begin to hire, jobs will be created and a new era of innovation, entrepreneurship and prosperity will be ushered in for all.

The idea is also being touted by Michigan Democratic Congressman, Rep. Hansen Clarke:

So we asked Freakonomics contributor Justin Wolfers what he thought of the idea. His response is as follows:

Let’s look at this through five separate lenses:

  1. Distribution: If we are going to give money away, why on earth would we give it to college grads? This is the one group who we know typically have high incomes, and who have enjoyed income growth over the past four decades.  The group who has been hurt over the past few decades is high school dropouts.
  2. Macroeconomics: This is the worst macro policy I’ve ever heard of. If you want stimulus, you get more bang-for-your-buck if you give extra dollars to folks who are most likely to spend each dollar. Imagine what would happen if you forgave $50,000 in debt. How much of that would get spent in the next month or year? Probably just a couple of grand (if that). Much of it would go into the bank. But give $1,000 to each of 50 poor people, and nearly all of it will get spent, yielding a larger stimulus. Moreover, it’s not likely that college grads are the ones who are liquidity-constrained. Most of ‘em could spend more if they wanted to; after all, they are the folks who could get a credit card or a car loan fairly easily. It’s the hand-to-mouth consumers—those who can’t get easy access to credit—who are most likely to raise their spending if they get the extra dollars.
  3. Education Policy: Perhaps folks think that forgiving educational loans will lead more people to get an education. No, it won’t. This is a proposal to forgive the debt of folks who already have an education. Want to increase access to education? Make loans more widely available, or subsidize those who are yet to choose whether to go to school. But this proposal is just a lump-sum transfer that won’t increase education attainment. So why transfer to these folks?
  4. Political Economy: This is a bunch of kids who don’t want to pay their loans back. And worse: Do this once, and what will happen in the next recession? More lobbying for free money, rather than doing something socially constructive.  Moreover, if these guys succeed, others will try, too. And we’ll just get more spending in the least socially productive part of our economy—the lobbying industry.
  5. Politics: Notice the political rhetoric?  Give free money to us, rather than “corporations, millionaires and billionaires.”  Opportunity cost is one of the key principles of economics. And that principle says to compare your choice with the next best alternative.  Instead, they’re comparing it with the worst alternative.  So my question for the proponents: Why give money to college grads rather than the 15% of the population in poverty?

Conclusion: Worst. Idea. Ever.

And I bet that the proponents can’t find a single economist to support this idiotic idea.

[HT: Diana Huynh]

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  1. Caleb b says:

    Between my wife and I, we have $200k in loans. Yes, we earn a higher income than my friends with just a HS diploma, but after paying $1600 a month in loan repayment, we’re about the same. Bc of the debt, we’re not planning on buying a house or having kids anytime soon. Obviously I want the loans wiped out, but I think Wolfers might be underestimating how much of the money would get spent if this were to pass.

    Well-loved. Like or Dislike: Thumb up 271 Thumb down 211
    • Richard says:

      So you 200K in loans and you pay 1.6K per month. This is supposed to be economic stimulus, so we’re really only concerned about the short term effect. Let’s say 24 months. That comes out to 38.4K. That means the government has spent $5.20 for every extra dollar you MAY spend over the next 24 months. There are better ways for the government to spend money.

      Well-loved. Like or Dislike: Thumb up 188 Thumb down 78
      • caleb b says:

        Oh, I agree. There are certainly better things to spend it on.

        My point is that most graduates have taken on a lot of debt. And just like the housing market is dragging down spending, so are student loans.

        I mention this later, but for-profit colleges have enrollment of more than 600,000. 90% of those students are taking out the max in federal loans for a worthless degree. This is not sustainable.

        Well-loved. Like or Dislike: Thumb up 166 Thumb down 25
      • Nate says:

        But people have to be held accountable for the debts they owe. If degrees are so worthless, why drop $200k on one? It’s the consumer’s own fault! Constant freebies and wealth transfers from the government is what’s unsustainable in the long run.

        Well-loved. Like or Dislike: Thumb up 144 Thumb down 128
      • caleb b says:

        My wife racked up $150k on a law degree (state school with residency)
        I have $50k in an undergrad in business (state school with non-resident)
        We will pay it back, eventually.

        Wolfers said that student loan people wouldn’t spend much of the money. I think he underestimates how much student loans are out there. I also think he doesn’t understand the massive influx of for-profit college students. This is a huge bubble that will burst.

        Society will have a LOT more poor people because of these for-profit colleges and the “let them eat cake” attitude is not going to fly forever.

        Well-loved. Like or Dislike: Thumb up 131 Thumb down 36
      • cwebb619 says:

        I think this economist misses the point, there is a whole generation of people (in their late 20′s and early 30′s) with established careers and families trying to pay off student loans they received in their teens and early 20′s. That is the population that will benefit the most. I would take the extra money from our loan payments and spend it immediately (or save it). Tuition is extremely high and college grads have this huge debt hanging over their heads. It will take decades (if ever) to pay off my wife and I student loans, one grueling month at a time.

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      • Nick says:

        Apparently not. The big banks got bailed out. Educated youth is more valuable than greedy corporations.

        Well-loved. Like or Dislike: Thumb up 129 Thumb down 42
      • Jon says:

        Schools inflate the cost of the degree sometimes by outright lying about employment outcomes. Some law schools have recently been sued for this practice of publishing deceptive employment statistics- 15 more will soon have lawsuits filed against them.

        The higher education industry has the entire weight of the post-WWII American mythos that more education is always the answer, no matter the cost. It is also extremely easy to get college loans since they are backed by the federal government. Obama and the Democrats are more to blame for this since they are always shouting the “more education is the answer” mantra without demanding that administrators control cost.

        The whole thing is arguably a fraud on the taxpayers.

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      • jfbow says:

        Hidden due to low comment rating. Click here to see.

        Disliked! Like or Dislike: Thumb up 63 Thumb down 70
      • goober says:

        yeah, except this would have the opposite effect. Forgive people loans TO the banks. Denying banks of billions….(trillions?)

        Hot debate. What do you think? Thumb up 19 Thumb down 16
      • B.E. says:

        It doesn’t work that way. The government can’t deny banks the money, the loan forgiveness would simply mean the government would pay back the loans instead of the students. It’s actually somewhat beneficial for the banks, since they’d be guaranteed 100% repayment, instead of taking the risk that some students might default. Also, it means passing on the costs of the student loans from the students to everyone else.

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      • heavy says:

        Better things to spend it on, like what? like the several trillion dollars in TARP funds spent to bail out banks and big business that took all that money and turned it directly into million dollar bonuses for all their highest level execs? Or perhaps you are referring to the two or three different wars we are involved in that have seen the deaths of hundreds of thousands of innocent civilians? Maybe your talking about the war on drugs and how mexican cartels are misleading federal agents to take out their competition? Maybe you are referring to the CIA now using their resources inside our own nation? There are at least 274 American servicemen who died in the middle east who’s bodies now inhabit the lovely and serene landfills of Virginia. Glad to see the government cut corners to save aren’t you? Education as an loss is better than almost anything else the government can waste money on, other than universal health care, which should be an embarrassment to our nation, not it’s pride and joy. Next time you see a starving child in your community, ask them how they are going to survive without any type of education.

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    • wes says:

      The difference is, once your loans are paid off, your net income will go up 1600 a month, your HS diploma friend’s will not. Also, I bet your job security is slightly better than his.

      Hot debate. What do you think? Thumb up 14 Thumb down 10
      • Kyle R says:

        Sure 20-30 years from now, I’ll have an extra $1600 a month. OR if I want to make payments of about 20% of my paycheck (assuming I make $200K+/year), I can pay everything back in only 10 years! Woot!

        Thumb up 7 Thumb down 4
      • Jai says:

        WHY NOT, isnt education is an investment? i dont think that someone with a diploma and a doctor degree should just make the same?
        ORR
        Should I tell future kids not to go to college because you are better off staying home and eating off of others tax cuts…
        Is someone have to argue ..how come someone who barely have high school education have federal jobs and they are making more than an average american(DEF no students loans with BETTER BENEFITS and RETIREMENT).. one perfect example is a post office employee, how does a standardized test qualifies you to make as just someone who spent half of their lives in school AND now they are stuck in paying off their debt. LIVING probably miserable life.
        I am not saying to wipe out students loans, I think the idea should help students to pay them off quicker and affordable by lowering certain percentage of what they owe and by lowering interest rates.
        People would be surprised that someone whose out of college for 20 + years and still paying student loans. How is this person going to help their children to pay their college tuition.

        Thumb up 2 Thumb down 0
  2. Mike says:

    Usually I like Justin Wolfers, but his comments reveal that he is horribly uninformed.

    1) It is faulty to assume that everyone bearing student loans is a graduate. Many take on loans and still do not graduate.

    2) There is a very large number of students who are not employed in their field of study because no jobs are available. They are working the same jobs as the “poor”, but in addition to their living expenses, they are paying an extra several hundred dollars per month in loan repayments.

    3) Today’s young bear the burden of supporting the old. They are currently expected to pay for someone else’s retirement and their own education costs (which has increased nearly 5-fold over the past few decades) before they can put a cent toward purchasing a house or saving for their own retirement. I have a feeling that we will continue to see a depressed housing market largely because student loans are killing the kind of income stream necessary to make housing affordable.

    The best argument against it is that removing future obligations to pay does little to increase short-term spending. As we saw with the last round of stimulus, it’s only effective if it takes effect quickly.

    Well-loved. Like or Dislike: Thumb up 357 Thumb down 112
    • Cory says:

      Mike – your counterargument seems to be summed up as “yes, but there are a few people who don’t fit this stereotype.” Well, of course not everyone is the same. But if you’re going to apply a rule to everyone – in this case, all former students get their debt forgiven – then you need to look at the average student and the average situation. That’s why Justin’s comments are spot-on and all of the rebuttals focus on individual situations and individual stories.

      Are there poor former-students? Sure. But there are also who racked up huge loans to pay for spring break, classes they didn’t attend, fifth (and sixth) years that could have been avoided, and luxuries that weren’t needed. If you’re going to have a blanket rule of foregiveness, you basically just stuck the taxpayer with the tab for someone’s vacations, iPods, and weekend parties to help someone else who may be the victim of circumstances.

      I agree that our generation is screwed in that we have to pay for 3 generations – the baby boomers (Social Security), ourselves (401(k)s), and our children (529s). But the answer isn’t to shift student loan expenses to the government – which will only charge our generation more in taxes to defray the cost of this transfer.

      Well-loved. Like or Dislike: Thumb up 120 Thumb down 80
      • Mike says:

        My counter-argument is that the original analysis didn’t demonstrate a solid understanding of the student loan landscape, which makes the analysis not very useful. I’m not necessarily for student loan forgiveness, but I think the arguments against it weren’t very good.

        As for paying for spring break, iPods, etc., we pay for other people’s crap all the time. Economic “stimulus” policies seems to favor blanket subsidies to the middle/upper-middle class. Buying a Prius? Have $7,500. Remember cash for clunkers? Cash to those *upgrading* their cars (i.e., already had one). How about the housing “stimulus”? We gave cash to people who were already committed to buying a house.

        And if one is concerned that college students spent too much money on wasteful things, why would giving them more cash suddenly raise the concern that they are going to save it? If you agree that they’re willing to spend lots of money they don’t have, I’d think you’d agree that they’d be willing to spend lots of money they *do* have.

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      • MBD says:

        So, your argument comes down to: we’ve had bad policy before, we should do it again?

        Well-loved. Like or Dislike: Thumb up 45 Thumb down 40
      • vwv says:

        The first Boomers began voting in 1964. Since then they have consistently granted themselves increasingly lavish benefits while at the same time cutting their own taxes. We will be paying for it for a long time.

        What they did was wrong.

        Proposing that we forgive student loan debt strikes me as Baby Boomerish. We are better than that.

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      • T says:

        Look, this guy’s assumptions are completely flawed. Many, if not most, of those who are asking for student loan forgiveness are people like me who have a law degree (trust me there are many lawyers in this movement, including its founder) and MBAs – I have both degrees – both absolutely useless degrees. The legal market has been flooded for ages. I have over $160,000 in student loans, am in my mid 40′s (and no, again, the author’s assumption is wrong – this movement is not just about recent grads or people in their 20′s and 30′s), and will NEVER be able to pay back my student loans in my lifetime on what I make. My student loans will either get discharged when I die or discharged at the end of the 20 year Income Based Payment Plan I’m on (well, I would be on except I had to defer). My condo is now worth 30% of what I paid for it (oh wait, it’s not really my condo anymore because I had to file bankruptcy and surrendered it in bankruptcy)! I am quite simply not going to be able to pay back these student loans in my life time – now, if bankruptcy protection had not been eliminated for student loans (it was available when I took out the loans!), then I would have had those loans discharged in BK. So, basically, we either want BK protection restored to student loans or we want the debt forgiven. I think the fairer thing would be to restore BK protection to student loans and allow those of us who have already filed to amend our filings to add these loans to our discharge. The point, however is, these loans are never going to be repaid anyway – we just don’t make enough to pay them back, never have, and unfortunately, looks (for a long time now) like we will never be able to pay them back – so better to face the facts now. I know of many people who are so fed up with this that they are pretty much planning on leaving the country and never coming back.

        Well-loved. Like or Dislike: Thumb up 48 Thumb down 23
    • Tina says:

      I totally agree with you–I am a college graduate and a “poor person” I am more than willing to work full time, just can’t find a job. I have been working two part time jobs but I am still not making very much. NO health care, NO kids, NO car payment, NO mortgage. My disabled mother was foreclosed on and is living in my living room. I support her in addition to myself. I am not some whiny college graduate that wants my loans forgiven because I want to have my cake and eat it too, I just want the opportunity to MOVE ON WITH MY LIFE and so far that has not been possible. The truth is, if the banks have been bailed out and that didn’t improve anyone’s life, why not forgive a % of loans to those who qualify and at least make it a little easier on a few poor and struggling college grads?

      Well-loved. Like or Dislike: Thumb up 70 Thumb down 18
      • Vince says:

        If you are struggling to make your student loan payments, I encourage you to research Income Based Repayment plan. Please visit http://www.ibrinfo.org for more information.

        IBR was setup to assist low-income college graduates. Student Loan borrowers must qualify by meeting restrictive income requirements and IBR only covers federal student loans, but it can greatly reduce your monthly student loan payments. Added benefits include the non-capitalization of student loan interest and a maximum of a 25-year repayment period, which allows for the discharge of the remaining unpaid principal & interest after 300 consecutive payments.

        It is not loan forgiveness, but it provides an opportunity for many low-income college graduates to lessen their student loan burden.

        I hope this helps and good luck.

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    • Justina says:

      Absulutely, I could not have stated this better. THANK YOU.
      Not impressed with Wolfers at this point.

      Well-loved. Like or Dislike: Thumb up 9 Thumb down 4
  3. lns says:

    Would a more palatable approach be a program of more targetted loan forgiveness for those entering various public service fields?

    A handful of such programs currently exist, such as forgiving a certain level of loan repayment if a physician chooses to work in a primary care field and/or in a rural area for a specified number of years. While on a dollar for dollar comparison channeling financial relief to the poorest strata in society makes both good social and financial sense, indebtedness does shift the economic realities of many highly trained professionals (MDs, PhDs, JDs) etc to a narrower range of options: that is, greater need to enter arenas in the private sector which may be highly lucrative, but do not provide the social benefit of other more poorly-paying, socially minded positions.

    Even a modicum of loan forgiveness could serve a strong financial incentive to many threshold cases where the prospect of 6-figures of debt has forced a shift in professional trajectory. Would such a more nuanced initiative lead to more support for such a political movement?

    Well-loved. Like or Dislike: Thumb up 75 Thumb down 23
    • Peter says:

      While I sympathize with your argument you sound a bit out of touch. You seem to be largely overestimating the liquidity of those saddled with loan debt. In my middle and upper-middle class suburb we have college graduates living with their parents and unskilled labor workers (union backed of course) in their own homes with families, and with more liquidity. Loan borrowers won’t spend the money? I’m not so sure, they have other debt they need to pay, apartments they want to move in to and businesses they want to start (since no one will hire them).

      One last point – many college grads are part of the 15% of the population in poverty. Or maybe they’re not taken into account, but a college grad earning 10-20k a year or less seems to count, to me.

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      • James says:

        > One last point – many college grads are part of the 15% of the population in poverty.

        And if money is instead spent on the 15% of the population in poverty, such college grads would of course not be excluded from such spending. Of course, money would also go to people in poverty without the benefit of the college education. Or, instead of spending $50K helping people in poverty without college debt, we could help forgive my student loans. I make $150K/year. Sounds like a plan.

        The reason to look at group statistics rather than anecdotes about the worst-off members of the group is that there’s nothing stopping you from fashioning a less arbitrary program then blanket student loan forgiveness.

        Faced with a choice where the only options are blanket loan forgiveness or tax cuts for billionaires, maybe this would be a good idea. However, we aren’t (are any high-income tax cuts even being seriously discussed at this time?), and this is a terrible, terrible idea.

        Well-loved. Like or Dislike: Thumb up 28 Thumb down 15
      • pawnman says:

        > One last point – many college grads are part of the 15% of the population in poverty.

        I wouldn’t say many. The unemployment rate for people with a 4-year degree is about 4%, or less than half the national average.

        Well-loved. Like or Dislike: Thumb up 17 Thumb down 9
      • Joshua Eaton says:

        The U3 unemployment rate is 4.2%, but it doesn’t count discouraged workers and the underemployed. So, the college graduate with $40K in debt who’s working a part-time or minimum-wage job because she cannot find anything better isn’t counted in the official unemployment numbers. You’d need to look at the U6 for people with a four-year degree to get an accurate number. (And, even then, you’d need to look at the U6 for those who graduated in, say, the last 5 years, since the ROI of a college degree has declines dramatically in recent years and those who graduated before this decline will make the U6 look artificially low.)

        Well-loved. Like or Dislike: Thumb up 14 Thumb down 1
    • pawnman says:

      Based on the analysis, a more palatable program would be mailing a $1,000 check to people living paycheck to paycheck.

      Thumb up 6 Thumb down 7
  4. tucker says:

    A better idea would probably be providing temporary subsidies to prevent state universities from raising their tuitions this year. Well that or letting the government hire more people into Americorps/peace corps/public service that includes like a 10-20% loan writedown per year of service.

    Well-loved. Like or Dislike: Thumb up 45 Thumb down 15
    • Hayley says:

      Tucker,as a recent grad and a current Americorps member, Americorps definitely does not need more money. The money for education they give you at the end of one year is almost as much as you make in the same year (aka less than 15k total for the whole year including the education award)…so really requiring a college degree for most of the Americorps positions (VISTA, anyway), really only hurts because we are making LESS than the poverty level but REQUIRED to have a college degree.
      Anyway, my point is I don’t think that’s where the government should put any money they may use to help the situation.

      Well-loved. Like or Dislike: Thumb up 8 Thumb down 1
      • Nina says:

        Hayley that’s only VISTA, and not totally accurate. I did NCCC and worked with many State/National folks. Degrees were not required. I also worked with VISTA a few years later and did not have a degree. NCCC folks also get something like $150 every two weeks, since room and board are paid for.

        Thumb up 0 Thumb down 0
  5. BL1Y says:

    A good compromise position would be to make all student loan payments tax deductible.

    If you rent an office to open up an accounting firm, you get to deduct the rent as a business expense. Why don’t you also get to deduct the money spent on your accounting degree?

    Well-loved. Like or Dislike: Thumb up 194 Thumb down 13
    • Trev says:

      I support this idea. It also follows the precedent than borrowing to invest will yield a tax deduction on the interest. If education is to be viewed as an investment (and it is) then this tax deduction on interest should apply to student loans.

      It promotes responsibility in repaying the loans and recognition that education is an investment that requires planning and cash flow management.

      Well-loved. Like or Dislike: Thumb up 37 Thumb down 6
      • Irena says:

        We should reevaluate our notion of education. In 2011 it became means to survive rather then a luxury, a right rather then a service. The same as health and healthcare services.
        I understand that it’s hard to brake that wall, but if you think that firefighters’ services once required special insurance, you’ll get the idea.
        It seems to me that our house is on fire now.

        Well-loved. Like or Dislike: Thumb up 24 Thumb down 12
    • Kyle says:

      You do get to deduct the money you spent on your accounting degree; education expenses are tax-deductable. Unfortunately you only get to deduct it the year you incur the expense, not years down the line.

      You also get to deduct the interest on your student loans. Are you suggesting that you should get to deduct the cost of your education twice just because you had to take out loans to pay for it? If they approve that program I’m going back to school tomorrow.

      Well-loved. Like or Dislike: Thumb up 30 Thumb down 18
      • caleb b says:

        “You also get to deduct the interest on your student loans. ”

        Not if you can’t itemize. Which you probably can’t without a mortgage…which you probably can’t get with all that student loan debt.

        Well-loved. Like or Dislike: Thumb up 67 Thumb down 11
      • JB says:

        And you can only deduct up to $2500 if your modified adjusted gross income (MAGI) is less than $75,000.

        Well-loved. Like or Dislike: Thumb up 23 Thumb down 1
      • Nate says:

        it doesn’t matter if you itemize or not, you can still deduct student loan interest.

        Well-loved. Like or Dislike: Thumb up 20 Thumb down 4
      • Nathan says:

        That’s not totally accurate. You get to deduct the interest on your student loans up to $2500/year. I pay (or would pay, if I weren’t relatively poor and therefore paying on an Income Based Repayment plan) $500 in interest on my federal student loans every month. That’s $6,000 per year in interest alone. I’d be with you, if we could deduct the entirety of my interest payments, but we can’t.

        Well-loved. Like or Dislike: Thumb up 35 Thumb down 1
      • Neil (SM) says:

        As you said, you currently get to deduct the interest. BL1Y was suggesting that we be allowed to deduct the principal as well. If you took out $40,000 in loans to pay for college, that would be another $40,000 in deductions.

        Thumb up 5 Thumb down 2
    • That Guy says:

      Spot on with this assessment.

      Kyle, while student loan interest can be deducted, there are pretty severe limits. One can only deduct student loan interest up to $2,500 a year (in practice, that is very little). Moreover, there is a phase-out depending on how much money one make.

      While I agree that student loan repayments should not be tax deductible, student loan interest should certainly be tax deductible, in full.

      Well-loved. Like or Dislike: Thumb up 31 Thumb down 3
  6. Bryan says:

    “How much of that would get spent in the next month or year? Probably just a couple of grand (if that). Much of it would go into the bank. But give $1,000 to each of 50 poor people, and nearly all of it will get spent, yielding a larger stimulus”

    I’m going to be incredibly stereotypical here, but if you give me (a college grad) a loan break I am going to finish remodeling my basement, fix our guest bedroom, possibly get a new car, and go on vacation. Oh, and buy a gas powered leaf blower! Then the rest goes to retirement accounts. I have no idea what the multiplier is here.

    The poor will buy groceries, clothes, and lottery tickets (there’s the stereotype). Then possibly be less inclined to look for a job having just been given a handout (also a stereotype). Is the multiplier going to be greater in this case?

    Do you have research links supporting your claims?

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    • Steve says:

      This brings up a good point. With all due respect to Bryan and the fact that it could help the economy, I don’t want my tax money to help him get a new car, basement, or vacation (and I am a college rad). A lot of college grads have expectations of a certain style of living that tax money shouldn’t subsidize.

      Well-loved. Like or Dislike: Thumb up 74 Thumb down 24
      • Bryan says:

        Agreed. I don’t think your taxes should finance my vacation. I just think the analysis in the original article is off.

        I took out student loans knowing the risks and payback options.

        If you’re looking for a stimulus this isn’t the “Worst idea ever” but I’m sure the economy needs something more concrete.

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      • Enter your name... says:

        So if I oppose this, Bryan will get more exercise raking the leaves, thus marginally reducing the risk of his health problems and therefore my share of the nation’s health care expenses, *and* I’ll get to keep the current level of quiet in the neighborhood.

        If I support this, yet another noisy gas-powered leaf-blower will take up residence in my neighborhood.

        Sorry, Bryan, but keeping you in debt seems to be in my best interest.

        Well-loved. Like or Dislike: Thumb up 30 Thumb down 7
      • Bryan says:

        I love it!

        But what if I spend the time saved blowing leaves teaching the neighborhood kids how to mulitply or researching carbon fuel alternatives?

        Thumb up 6 Thumb down 3
      • Kyle says:

        The kids always figure out how to multiply on their own, and we have enough of a teen pregnancy problem without 20 & 30 year olds running around teaching them how.

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  7. Jen says:

    Well, I’m not going to tell you you’re wrong, but I am going to tell you that I live “hand to mouth,” can’t get a credit card to save my life, and pay more than $550 a month to Sallie Mae ($400 of which is just monthly interest). Just because my parents were middle class when these loans were given 10 years ago doesn’t mean that we are middle class now.

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    • JG says:

      Or allow people to refinance at a current interest rate and reduce their payments similar to a mortgage. I went to B-school during the credit crunch and will pay 6.75% until my loan balance is zero.

      If I could refi at a lower rate a large portion of the savings would be spent elsewhere.

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  8. Tom Budd says:

    You’re not looking at the bigger picture. It’s not about giving out free money. It’s about stopping the abuse of student loans by lenders. It’s also not about giving money to college grads. It’s about providing help to those who have been struggling for years to pay back a loan hit by huge interest rates and fees. The abuse is vast and extreme with no protections in place for the student. This is what needs to change. It is exactly what happened with home mortgages. You should do a bit more research on the issue before you make the ignorant comments you made above.

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    • Ray says:

      The article was concerning the stimulative effect of forgiving student loans. Whether or not forgiving student loans would ‘stop the abuse of student loans by lenders’ is not a factor.

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    • This Guy says:

      You are making certain assumptions with your comment. There is no real discussion as to how the loan forgiveness would occur. Student loans are actually held by private corporations. The loans are backed by the government. There are a couple ways forgiveness could operate:

      1. The government could tell the loan holders that they must forgive all of the debt immediately. Of course, this is not a viable option, and almost certainly unconstitutional.

      2. The government pays off all of the student loans (with all of that money it doesn’t have).

      Only one of the options is viable. What’s the end result? The schools got paid. The loan originators/lenders got paid. The US Gov’t is on the hook for another trillion dollars. That action does nothing to stop lenders. Lenders getting paid 100% + interest and fees. That’s only going to encourage them!

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      • Neil (SM) says:

        Many student loans come from the federal direct student loan program — the money is lent directly by the US Dept of Education.

        However, I’m not sure what percentage of student loans that accounts for. I know my wife’s and my student loans were mainly private federally-backed loans like you stated. Only a small percentage of that was from Direct Loans. My guess is they only account for a small portion of overall loans as well.

        So perhaps those could be forgiven outright (it’s still a stupid idea, just thinking hypothetically along with you), but I doubt that would account for much.

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      • Enter your name... says:

        The subsidized federal loans aren’t the “abusive” student loans. The problem loans are the ones issued by private groups to students too inexperienced to read the paperwork and understand what they were getting into, and, frequently, too immature to make good choices about their spending. The terms of these loans are not really very different from credit cards for people with poor credit histories.

        I can’t tell you how many people I’ve talked to with these loans who admitted later that they chose these high-rate student loans to finance lifestyle choices: a dorm room on campus rather than living for free at home, a weekly trip to a pricey pizza parlor, new clothes, the spring break trip with the rich kids, a fancy cell phone, etc. Somehow, calling it a “student loan” rather than “idiotic consumer debt so I can keep up with the Joneses” made it all seem reasonable. The “student debt” they’re paying off really has nothing to do with tuition and books. It’s all about living up to the Hollywood idea of the college student’s lifestyle.

        The solution for these loans is to ban private student loans entirely. However, doing that would mean telling a large number of students that they have to drop out of school (or at least transfer to a much, much cheaper school). It would be an incredibly unpopular decision.

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      • Vicki says:

        My combined undergrad/graduate $50,000 in student loan debt (paid-off now after ten years of slavery) was for tuition, books, lab fees, all sorts of fees, etc…. Yes, I didn’t live at home with my parents for free, but I did go to an out-of-state school (in New Mexico) where out of state tuition was less than half the in-state tuition (in Illinois) would have been if I had stayed in the same state as my parents.

        Also, living with your parents isn’t always the best option, let alone a good option. It wasn’t an option in my family—I was breaking the rules of the family by going to college at all! For many working class teenagers, 16 means that when you’re not at school, you’re working a job and turning over your paycheck to help support the family. Staying in such a situation is detrimental to studies…and if you have 6 younger brothers and sisters at home like I did, studying is impossible. You’re either asleep, working for a paycheck, or working at home.

        I did not go on Spring Break ever, I couldn’t afford it. The only people I went to college with who ever could afford to go on Spring Break were from upper middle class families and didn’t get student loans—their parents paid for everything; including spring break and all the nice things that you listed. I worked at that fancy pizza parlor for minimum wage to pay for rent, food, clothing, etc…without those student loans I, and most of my peers, would never have been able to go to college.

        I don’t think a dorm room (a place to live) and the occasional slice of pizza is keeping up with the Jones’s. I think you need to take a step back and reconsider how you expect your fellow man to live on this earth; especially if you think living in a dorm or eating pizza as luxuries. The Hollywood idea of the college student’s lifestyle is not that—it’s much more costly, a lot nicer, and is dependent upon rich parents who provide everything for you. What you can get in student loans will never pay for much beyond your tuition, fees, labs, books, etc…there were even some semesters where my loans didn’t cover all the lab fees.

        Where I do agree with you is in the banning of private student loans entirely. They came about after I was no longer a student (Mine were a combination of Perkins and Stafford loans and did not come from banks, but instead were issued through the New Educational Assistance Foundation as I was taking these loans out in New Mexico). They were definitely part of a government program, and did not mimic credit cards in their terms.

        I believe that the government should view education as an investment in the future of society. When the baby boomers graduated high school and went to University, there was very little cost for the student and they didn’t need to take on herculean amounts of debt, just to earn a degree so that they qualify for work that will let them be middle class. Ever since that generation phased out of University, government at the Federal and State level have been investing less and less in education, switching more of the costs each year to the students–which is why the prices keep going up by catastrophic percentages. Put the focus back on investing for our future, and if loans are needed, make sure students can get federal loans, like the ones I was able to get.

        In the meantime, we as a society have failed the recent generations of students, leaving them with huge amounts of debt. The only just way to address this is to forgive the loans, and work to ensure that no other students ever get put into this sort of position again.

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      • Jamie says:

        “Unconstitutional.” It’s a word spoken with such deference by the conservative crusaders, as if we didn’t have provisions wherein a majority of the people can change such things.

        But it’s not necessary anyway. The government could just repay the loans with money that it created for the purpose; for instance, the Treasury Secretary could order the minting of fifteen platinum coins each with a $1 trillion face value, deposit these at the Federal Reserve, eliminate the entire national debt, and transfer the new surplus to pay off the private student loans.

        It sounds silly, but it is also entirely true. It really is all that easy, because the money doesn’t matter. National debt is denominated in national currency, and it’s up to the government of a nation to manage that currency. No one is promised repayment in comparable value, nor can any foreign creditor threaten the U.S. with collection by force. It’s all silly.

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    • pawnman says:

      How does this encourage lenders to stop charging outlandish interest rates? They now have a 100% chance of getting paid, from the government, instead of risking default by some student who got a BS in philosophy and is now under-qualified to get a job at McDonald’s.

      Maybe I’m cynical…I got through all four years of college without any student loans. It can be done. I have little sympathy for people who don’t read the terms, who sign on for loans they can’t afford, and now they want ME (the taxpayer) to bail them out of a bad situation. Ditto for the folks who bought McMansions because they thought their investments would only keep getting better.

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      • Cerron says:

        You bailed the banks out it was you the taxpayer and you don’t seem to mad about it but you are mad about forgiving student loan debts that makes no sense to me!

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      • Mandy says:

        Many college grads started working on their degrees before the economy plunged and were therefore working to meet requirements for well-paid positions that are no longer available. Once you’ve already put the time, money, and effort into starting a program, it seems like you might as well finish so what you’ve already done isn’t wasted.

        When I graduated high school around ten years ago most students were simply expected to go to college and told time and again how it was the only way they would make a decent living. In the town I live in the factory workers make more than most college grads, who have to move away to find jobs in their field. Those that stay are required to return for even more schooling. While I was fortunate enough to not take loans for my undergraduate schooling due to scholarships and my parents paying for four years, I did have to take loans for graduate school. Even when my husband and I were both working (both college graduates), we were making less than 50,000/yr between the two of us and combined we have 60,000 in student loans. We live with one of our parents and are still just scraping by, especially with the recent addition of twins to the family. We are both around 30-35.

        I am not saying that the loans should definitely be forgiven, but I think that many people have the wrong idea about the situations college graduates are in and how they got there.

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    • Amanda says:

      Thank you!!! People think that all of these young kids just want to irresponsibly erase their debt. I graduated from college six years ago and have never been able to consistently pay on my loans. My degree is bogus because, come to find out, the school I attended wasn’t accredited. So, now I am working in a coffee shop, which I absolutely love doing, my fiancee is working in assembly, which he loves…and we are struggling to raise our daughter who is almost two. We work our rear-ends off day-after-day and can never get ahead. Meanwhile, Sallie Mae is calling me multiple times per day, as if magically I will be able to pay them hundreds of dollars 12 hours after I just told them that every penny of my money is budgeted and if I pay them I will lose my house. THEY DON’T CARE!! These huge institutions only care if they get their money. They have no idea what I am going through. I am not irresponsible and just not paying because I don’t feel like it. I have used up all of my forbearance. And what these knuckleheads above don’t seem to get, interest based payment options are only possible on government loans. 75% of my $50,000 in student loan debt is private loans. They cannot offer me any options at all. It is horribly frustrating. While I was paying on my loans last year, I chose making the payments over my car payment…and guess what, my car was repossessed. And then about 2 months later, I wasn’t able to make my loan payments anymore. So now, because of my repossession and being delinquent on my loans and other debt incurred because of that crappy school, my credit is destroyed to the point of no return. I will never be able to get a loan on a car or on a house and I don’t really see what I can do to fix it at this point… Do you near-sighted folks above want me to resort to prostitution?!?!?! I see no other option…and that is something I would NEVER resort to! If I could just include my loans (at least the private ones) in a bankruptcy, I would run, not walk to my nearest bankruptcy attorney and get the process started so that I could have, and give my beautiful daughter some sort of future. I hate that so many people abused this option and right to make it impossible for someone like me who really needs the option. The stress of all of this is going to make me die at a young age, I fear…

      Thank you!!

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      • Tim says:

        Hidden due to low comment rating. Click here to see.

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      • Jamie says:

        People like Tim are the weakest participants in the conversation. They pose questions they think are rhetorical, as if the answers were obvious, but they are clueless about economics — specifically, that any economic system is indeed a series of choices, trade-offs, and value judgments.

        Tim thinks he’s being really clever, but he’s just showing how ignorant he is of the nature of the economy, a construct that we built and not some sort of celestial blueprint for reality. Indeed, we could change it all; we could “just give free money to everybody who wants more money in their budget,” or abrogate the current monetary system entirely. That’s all possible.

        Tim doesn’t know that; he doesn’t believe it. Thus, when he says that he “wants” these things, he actually DOESN’T want them; he isn’t lobbying for what he calls “grocery forgiveness” (food given away so people can eat? what a crazy idea! Just because there’s more food in the world than anyone can eat, why would we NOT want to devote our time to wage-slavery so we can buy food?). Tim is touting the status quo, simultaneously acknowledging that his own life is a function of wage slavery but too unimaginative to realize it could be any other way.

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