Student Loans

$1.6 trillion of student loan debt is spread among 44 million Americans.  More than even avocado toast or a daily latte, student loans are being blamed for Millennials not being able to afford housing (even though they are the largest home-buying cohort).  Some Presidential hopefuls say they’ve got the answer in just erasing the whole thing.  This is a case of finding a gullible voting bloc and riding them as hard as possible in the hopes of building a warchest to retire on, securing a book deal, and hitting the speaking circuit.  It is a proposal along the lines of the Green New Deal – not so much a serious piece of legislation as it is something to garner mentions in the media.

Cynicism aside, I’d love to see student loans wiped out.  “But isn’t this unfair to people who took out loans and paid them off?”  Maybe, but it doesn’t really resonate for me.  Maybe because I have kids and I want my kids to be better off than I was.  “Kids don’t know the value of hard work.”  I kinda hope not in the sense that I don’t want my kids to be manual laborers.  I hope they do less work and get paid better than I am.  I see it almost like camping.  You should leave the area better than you found it.  You don’t leave the area the same as you found it because you think the next camper should have to do just as much work as you did.  It’s not fair, but life ain’t fair, kid.

There are reasons this just doesn’t work, though.

It Would Be a Monetary Policy Action

Erasing student loan debt would amount to $1.6 trillion in quantitative easing, creating cash out of thin air (or firing up the printing press, dropping it from the helicopter – whatever your preferred metaphor).  Even if it’s paid for by a stock transaction tax over time, it would still effectively pull forward cash that might not exist.  A negative incentive on trading stock would have large and unpredictable repercussions.

It Still Doesn’t Solve the Root Issue

The recent access to easy debt has incetivized higher ed to aggressively seek out the price the market could bear under the new lending regime.  Free money doesn’t change this at all and may exacerbate the issue.

Fair

The crux of the student loan forgiveness argument rests on fairness.  Is it fair to burden young people with so much debt?  Is it fair to take out a loan and never pay it back?  It’s a classic rich vs poor, borrower vs lender confrontation.  You don’t have a heart if you don’t feel even a twinge for the poor person, right?  Student loan forgiveness would really be a subsidy for the rich.  They are more likely to go to college and more likely to be accepted to a private college, collecting a higher loan balance than someone at a state school.  While Joe Sixpack graduates with $30,000 in loans from Directional State U, there’s a Thurston Howell V whose daddy got him into Cornell (ever heard of it?) at full price.  TH5’s gonna get six figures of loans erased that daddy was going to pay off anyway.  Is that fair?

Don’t Worry About It

Check out Josh Brown and Cullen Roche if you need more detail.  I like Cullen’s Australia idea.  Or maybe mandate skin in the game for higher ed – put back part of any unpaid loan on the college?  Total student loan erasure is unrealistic, though.  It would be nice, but it isn’t going to happen.  Of course, if it gets close to passing, there’s always this strategy:

https://twitter.com/AndySwan/status/1143566264931115010

Photo by beltz6