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Biden administration cancels student loans of more than 150,000 borrowers under new plan
(www.nbcnews.com)
this post was submitted on 21 Feb 2024
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Has anyone ever told you why they think it's a bad idea to cancel debt that wasn't just about unfairness that other people get stuff? Because honestly, I hear that argument straw manned on the left way more often than I hear it used on the right, and I feel that those who support this decision and condescend on those who don't haven't actually heard the more legitimate concerns with it.
Simply put, this - in my opinion and most economists - is a horribly irresponsible economic decision that will genuinely cause real problems. If you're interested in hearing why, I'd love to explain my stance from it, as long as you know that it comes from a place of genuine concern for everyone including students with debt
Please do, I'd be happy to hear an opposing statement.
Sure! So for starters, I'm going to guess our working definitions of inflation are a little different. Inflation, in the general sense, refers to an expansion. When you inflate a balloon, it is expanding because the supply of air increases. This expansion can cause a rise (if it's helium), but the rise and the inflation are separate things. Likewise, if the supply of money increases, that would refer to an inflation or expansion of the currency, and the prices would rise in response, because greater supply of something makes it less valuable. They're linked, for sure, but not the same conceptual thing.
I understand if you don't want to accept that into your nomenclature but I do find it's the more workable - and historically consistent, for that matter - definition of the word. Just as long as you understand how I use the word is all :)
So, to the loans. There's a few ways to get a loan, let's say you sign a deal with Sallie Mae. To keep it simple, let's say they have $100,000 to give, so that's the loan you get. Under normal circumstances, you would get your education, and then sometime later pay it back by your own means, after interest has accumulated. So, let's say you pay $180,000 back in total, so $80,000 in interest. Technically, you paid $80,000 for SLM to pay $100,000 on your behalf, and you got you education in the process. SLM makes a big profit, you get educated for cheaper, and the school still gets their tuition fees. This benefits the shareholders of SLM who then have more revenue to participate more in the economy.
These numbers may seem idealistic to you, depending on where you're from, who you sign with, etc... I'll address that in a sec, but they're not real numbers anyway haha. The important part to point out about this process is that the additional $80,000 comes from a private individual - meaning it most likely came from the supply of money that already exists amongst the general public (you worked for it). Same goes for the loaned money in this case, and as it's payed off all that revenue is recirculated in the process
Now let's say, for whatever reason, you don't or can't pay it off at all. So, you're given $100,000 and ten years later they're expecting $180,000 back. If the government decides on SLM's behalf to forgive your loan, then it has effectively taken $180,000 of revenue away from the organization. Not only do I find this wrong personally (I don't think the government should interfere with business like that), and that I'm pretty sure it would be massively illegal, but it would also certainly put that organization out of business if it's done at scale, which means that service disappears for everyone else. But, like I said, I'm certain this isn't how they'd do it, and that's probably why.
What has to happen is for the government to pay it off themselves. Given that America's national debt is still trending up (last i checked anyway), I would say it does not have the spare funds to pay off student's loans. The way America solves that problem these days is the federal reserve generates more money, which means that forgiving $180,000 in debt will directly inflate the currency by $180,000. That's not a lot by itself, but I think Biden's forgiving billions of dollars altogether, which means the supply of American dollars will inflate by billions, which will greatly decrease its value. This, of course, means that the students whose loans were just forgiven will have way less buying power.
This basically means that the entire working class, including those who had their loans forgiven, will have way less buying power, struggle to build savings, and have less means to move themselves up economically. Having such a large portion of the consumer market struggling to get by will hurt businesses, more loans given, more loans forgiven... The only potential winner is a nefarious government who just gained greater control over its population. The reason I say nefarious is because a non-nefarious government would see no advantage here.
TL;DR: forgiving billions of dollars inflates the currency by billions of dollars which totally fucks over the people it was trying to help.
As for what the government can do, is perhaps institute laws that reduce or cap interest on student loans, but I think that already exists (it does where I live anyway). That would help out those who've been exploited by high interest student loans (or prevent it).
But, the best way to solve the student loan crises is a massive cultural shift in how we approach education. I don't think art school should be worth as much as it costs, but people are willing to pay for it so it'll never change. I think a lot of people go to school out of a sort of obligation, or an assumption that it'll lead somewhere good, without considering what a massive investment it is. People don't really see it as an investment, but it is. If you're thinking about going to school, you have to be able to judge whether or not it'll be worth it, just like every other big risky investment. If you're gonna pay that much to go to school, you better have the money and really want to go to school or expect to make returns on the investment.
The NEXT best way to solve it is to have a strong enough economy that those who do get fucked over (generally, not just by loans) or make mistakes can easily recover and make up for it if they try to. That's the only factor the government is actually responsible for, and I would say forgiving loans actively works against it. So, as far as the government is concerned, it should be in its best interest to never forgive loans.
I'm sorry, I know this is a long comment, but there plenty of historical example of good and bad debt relief efforts. We have so much to learn from!
Julius Caesar instituted reforms that reduced interest owed on outstanding debts. He also personally provided relief in extreme cases. Yet, when debt cancellation came up in the senate, he strongly opposed the method. So much so, that he personally took out such a massive loan the he became the most indebted man in Rome, and thus the primary benefactor for such a bill that was meant to help the common folk. Suddenly it wasn't such a popular idea anymore lol. Since he did so much to help Rome economically, I think I'll trust his judgement on that one.
Okay not exactly a debt forgiveness example but it's worth mentioning that the emperor Aurelian literally SOLVED inflation by physically stopping all currency printing operations within reach of the political power base. One of the only times in history that's been achieved.
Diocletian's reign began less than ten years later and was incredibly heavy handed in his economic reforms, including debt cancellation efforts, and also happened to rule over one of the greatest inflationary periods in history. Just ten years later. Granted, that was way more than just the debt cancellation.
King Henry III was fiscally irresponsible and reigned over a time of economic hardship. Many of his Baron's were indebted to Jewish money-lenders, so he just issue the Statute of Jewry and cancelled a ton of debt at the expensive at the cost of economic hardship for the Jewish community.
I could go on but I don't feel like typing this comment anymore lol
Not the original person you replied too, but I don't mind having hard conversations and trying to expand my world view. Now personally, I'm pro-"Student Debt Fixing". From what I can tell, I think setting the interest rate to 0% would be the best fix. I'm not opposed to paying back what I owe, I just don't think the government should be profiting from its citizens. However, I admit I'm not an economist and understand I'm probably misunderstanding something.
Not you make a fair amount points and honestly, I don't want to address them all (I'm tired :( )
I know you mentioned where you're from, interest rates are capped, but I don't believe we have those in an effective form for the U.S. for student loans. Loans provided by the Government have their interest rate set each year by Congress and usually it's around 4-5%, but Congress can set it whatever they'd like. I can't speak for private loans because I don't have private student loans because it's was always a bad offer for my situation.
I don't completely buy your argument that if the government forgives a $180,000 loan that it's money from the Federal Reserve that covers it and thus inflates the economy by $180k. Like if you wanted $100 for food and I gave it to you and I decided to forgive it. I don't consider it paying myself $100 to account for it. I view it more "I gave up the opportunity to make $100". Remind me of that joke about two economist in the forest.
How is the government nefarious for forgiving loans? You claim it's about gaining greater control over the populous. However your own argument is forgiving loans would basically cause inflation to go up. Causing people to buy and save less. Hurting businesses in the process. Possibly causing a recession or even worse a depression. Meaning that the government would be at its weakest because that's usually when taxes are also at their weakest. Historically, governments have their most control when populations are fat and happy. Most civil unrest are in uncertain times, such as recessions and depressions. If anything it's more nefarious for the government to keep the loans and jack up the interest rates where people have no ability to pay it off and can't bankrupt out of it.
While some of school tuition can be attributed to supply and demand. It can mostly be attributed to a change in how much grant money was awarded to student for college by some president in the 70s or 80s. Normally, I find out who it was, but again I'm tired. I think it was Nixon or Reagan, but Adam Ruins Everything has a decent video on it. Basically, since students couldn't bankrupt out of loans and the US govt was the backer for these loans, colleges realized it was basically a free money glitch. So instead of competing on education per dollar, some started going for amenities per dollar. So Gyms, Pools, Various sport fields, other random as shit. Some of things had stupid price tags for maintenance alone and that greatly assisted in helping prices go up. Now why didn't students be smart and choose their college more wisely? I think it's best to remind ourselves of the demographic we're dealing with. Often vain and short term thinkers. Some of them aren't even done developing their brains. Plus I think it's rich to give upset at people for making dumb choices before going to the place that makes them smart enough to realize how dumb they there. It's like getting mad at your car for being broken before you take it to shop to get repaired.
My hands hurt and my eyes yearn for sleep. Good night!
That's because you're not the federal reserve, and no money was added in that transaction. Also, in this example, you are out 100 dollars. Whether you forgive it or not, the money came from you, and now that's money you don't have. Your example is actually 1-to-1 with my first example (where Sallie Mae gets screwed over), but scaled down. If America decides on your behalf that the debt is forgiven, then America is now $100 in debt to you that it has to immediately repay.
Maybe you missed this part of my comment, but that's why i mentioned how important it is that it's billions of dollars. Sallie Mae would never accept that billion of dollars just came out of their pocket without their consent. It has to be regenerated.
So, if you give a friend $100, and the government forgives it without committing an obvious crime against you. then you and your friend now have a total of $200 even tho you started with $100.
It's also partly why I started talking about the historical component. If you study how these things played out in history, this shouldn't surprise you or give any doubt. Generating more currency has been standard practice in so many corrupt governments, and it always leads to further economic trouble. It shouldn't surprise you to find out that if the people who can generate money need to pay billions of dollars they'll just generate it.
I'm sorry, I feel like you need to read my comment again. I think you're missing a lot of what I'm saying. You mentioned you were tired, were you just skimming my comment? Genuinely, not throwing shade.
What you are describing is exactly what I was describing. We are in agreement here, the general populace all lose, private businesses lose, it's bad for the economy, it's bad for the people. So, everybody loses, at least, assuming people have good intentions, right? So, the only people who are potential winners, are those who see advantage in people's misfortune. Does that make sense? I'm saying the only people who find this to be advantageous are those who are nefarious in nature, because to find advantage in people's misfortune is nefarious.
As for control, consider this. If you make $100,000, you get to decide what to do with it. If someone loans you $100,000, you have to play by their rules. Furthermore, if you're so in debt and the economy is weak, you would have to rely on what they're willing to loan you money for to maintain liquidity and stay afloat. The more that the government and public corporations decide what to fund, the more they're controlling you.
This is an interesting way to look at it. The problem I see with it, is that the times that people are most fat and happy, are when they were most free (least controlled). I mean, you're kinda not wrong, but also totally are? I'll try to explain, you're right that a happier population is generally more compliant and effective - but that's not the same thing as control. I repeat: Stability of the nation, effectiveness of the people, and compliance to the state's wishes, are not synonymous with controlling the population.
Let's look at some historical examples again.
I talked about Caesar and Diocletian before, so I'll use their eras as an example again. Caesar lived in a period of time where the people were generally wealthy and well fed, and the senate was both still in power, and highly incentivized to veto legislation that restricts freedoms of the people. Free trade prospered, the people were happy (generally), and the population was growing. Caesar's veterans were loyal followers, that believed in him, his abilities, and his promises almost as much as they feared him. Diocletian, however, ruled over a period of decline in population and economy, and yet the power of the state grew exponentially. His control over the people was massive, in fact, this is one of the first historical examples of wide scale price fixing by the state. People lost so much freedom under Diocletian that historians tend to call it the beginning of Feudalism - plebeian rights began to much more resemble those of medieval peasants.
A more concise example from Rome that illustrates control, is when the early Republic forgave debts if you provided labor to the state. "We paid your debt, now you have to work for us to make it worth it".
Maybe consider what the word totalitarian means to you in more recent history. A state that controls everything within it. What states have been totalitarian in the past? We don't typically correlate "totalitarianism" with a fat, happy, and compliant population, but it's the epitome of "control". Stalin's Soviet State had total control over his population. The most control is total control, and total control is totalitarianism. I don't know about you, but when I think totalitarianism, I think people like Mao, Pol Pot, Hitler, Kim Jung-Il... All of these people exert(ed) maximum control over their people, and it came at the cost of the people every time.
I never suggested I was upset at students who made bad choices. I said we need a cultural shift that discourages young students from seeing it as a default choice. Where did you get that I was upset at them for that? I think it's tragic that society guides them towards such as risky choice - I'm specifically not putting blame on them and suggesting something that has nothing to do with their personal choice. How could you think I was mad at them
This was the last sentence in my first comment, please read it again: "as long as you know that it comes from a place of genuine concern for everyone including students with debt".
I really appreciate the conversation, I appreciate that you took the time to type your thoughts out when sleep was calling you, but I do take issue with unfavorable assumptions like this, especially when I can see it coming a mile away and try really hard to nip it in the bud but it just doesn't seem to work. I appreciate you but please don't ever do that to me anymore.
Anyways, sorry for the long comment again, let me just try and get back to a point of agreement. I'm okay with 0 interest loans for students, but that's also a service that I think is worth paying for. The circumstance I laid out before, where some interest is paid so the loaner can profit, while the student still pays less in total for school, does seem like an ideal case, but I don't see a need for the education department of the state to profit, so maybe state given loans could be 0 interest? For private loans, the best case is for the individual to establish an interest rate and cap that's reasonable for them (this can and does already happen sometimes). But, if you want to treat student like a protected class (probably warranted these days), establishing an interest cap by law for student loans specifically might be a good idea.