Student Debt “Forgiveness”

Student Debt “Forgiveness”

Prediction: Some day between now and the November elections, you will hear that President Biden has “cancelled” or, even more benevolently, “forgiven” the debts of student-loan borrowers.

“I forgive you for borrowing money that you haven’t paid back,” that must imply. “So, no need to pay. Have a nice day—and, remember this when you vote!!!”

Given the cynical tone above, you likely can tell already our initial thoughts about the forgiveness of student debt.*

*In full disclosure, this blogger and his wife had parents who saved money to pay for us to go to college. In 1983, your humble blogger did briefly obtain a student loan to attend law school, but he simply repaid the loan thanks to his wife working long hours at a job sufficient to cover that tuition plus married-student-housing rent and all other expenses. Like other people, we then worked hard and saved money so our children would not need student loans. We do get it that most families are unable to do the same.

Principled Analysis

Right now, the situation is that federal student loan repayment obligations have been suspended since March of 2020, supposedly due to covid. The original moratorium, which came into effect under President Trump, has been extended six times by Trump and Biden combined. With 40 million borrowers owing a cumulative $1.6 trillion in student debt, this is costing the U.S. government some $5 billion a month in interest. The “temporary debt relief” currently is set to expire in August.

Politicians, primarily Democrats, also have been proposing since before the 2020 elections either the complete elimination of all repayment obligations or reducing the amounts that must be repaid. The most aggressive proposal currently on the table is that the first $50,000 of each student borrower’s debt be written off.*

*As you will see in our concluding section, Principle Based Politics hesitates to say that these loans themselves will be forgiven, cancelled, or even eliminated. What really would happen is that the repayment obligation would be transferred from the student borrower to another group of individuals, as we will explain below.

President Biden has most recently said that $50,000 apiece is too much, so he is considering $10,000 as the maximum amount to be absorbed by the federal government. Even that lower number, however, is estimated to cost a total of $400 billion. Perhaps due to the high price tag, the possibility of somehow restricting the debt write-off to persons with low and middle incomes also has been suggested.

What is a principled way to approach these proposals?

First, limited government, protecting the vulnerable, and free enterprise are the governing principles we have identified as central to the issue of whether the U.S. Treasury should get involved at all in loans for undergrad and graduate students. Education and Student Loans: Applying Principles (July 9, 2021). The same principles apply to the question of whether the government should eliminate the obligation to repay those loans.

In our view, limited government means the feds should do only what is absolutely necessary to advance national objectives that cannot be attained any other way. Assuming both that helping our economy and that financial aid for education will assist the disadvantaged and our nation a whole, our post last year supported the idea of federal grants to needy students and loans only to those truly incapable of attaining higher education without them.

We do not see how widespread annulment of repayment obligations would further those same principles. We also do not see how the leadership principles of integrity, service, or dignity toward others are honored by politicians making such proposals, which seem conspicuously most common in election years. So-called forgiveness of loans encourages bad decision making by borrowers, and providing handouts as a remedy exacerbates the problem.

Who Really Pays

The point also has been made by others that student loans will not actually be cancelled or forgiven even if the political ideas come to fruition. In truth, what will happen is that the person who signed the loan—and benefitted from it—would be relieved of the obligation to pay it back. The loans, however, will be repaid, but by another party.

That other party is the U.S. taxpayers, to whom the obligation is effectively transferred without their consent. Unforgivable.

Written by Quentin R. Wittrock, founder of Principle Based Politics. 

Look for his posts each week, as this blog will explore and promote the idea of principle in politics, both as to individual elected leaders and our federal government as an institution.

1 Comment
  • Ted Hermanson
    Posted at 15:47h, 08 June Reply

    Strongly agree, Quentin. I appreciate your insights and principle based explanation on a topic that has been debated by many stakeholders in this situation.

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