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Erase student loans?
Justin Wolfers
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Kai Ryssdal: Whatever degree you have on your resume -- associate, bachelor's or more -- they have one thing in common: They don't come cheap.
Student loan debt in this country now exceeds the amount we collectively owe on all our credit cards. Best guesses are it's going to hit $1 trillion by the end of the year. Perhaps not coincidentally, that's one of the things the Occupy Wall Street protesters have been protesting. There's even a petition circulating that asks Uncle Sam to forgive student debt. More than 400,000 people have signed it.
Commentator Justin Wolfers isn't one of them.
Justin Wolfers: There's an argument going around that forgiving the country's student loan debt will stimulate the economy. The basic argument is this, the president signs a bill, and millions of Americans would suddenly have hundreds -- even thousands -- of extra dollars each month. Consumer spending increases and then businesses will start hiring again.
Sounds promising, but here's the thing.
If government money is just to be given away, why on earth would we give it to college grads? They are on average richer than most, and they are suffering the least during the recession.
Plus, if you spend money for stimulus, you want to get a big bang for your buck. But forgiving $50,000 worth of debt is not an ideal. It an expensive way to get these folks to spend the few hundred dollars that currently goes to loan repayment. Much better to give fifty poor people $1,000 each. That money will be spent much more rapidly.
And think about the incentives. If we give one generation a free trip through college, what will happen during the next recession? I reckon the next generation will feel entitled to the same privilege, and they'll lobby to get it. So we'll end up with more spending in the least productive part of our economy -- the lobbying industry.
I know that my arguments won't be convincing to those of you struggling under mountains of debt. They'll say, "Bail us out, not the millionaires, billionaires, and corporations!"
But this isn't the choice we face. Economists talk about opportunity cost. It's a principle that says you should compare your choice with the best alternative. Relieving student loans may be a better idea than more tax cuts for the rich. But is it better than providing stimulus to the one-in-seven Americans currently living in poverty.
My conclusion: Yes, let's stimulate the economy. But let's do so in a way that serves the greater good, rather than just ourselves.
Ryssdal: Justin Wolfers teaches public policy at The University of Pennsylvania's Wharton School of Business. Got a comment? Send it along -- write to us.
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"They are on average richer than most, and they are suffering the least during the recession." Um, no. Currently graduating students face unemployment rates of 11%, higher than the national average of 9%, and it is those students who are protesting, not the grads who've been employed for years and have lots of experience along with their degrees.
Give $1000 to poor people? And how exactly will that stimulate the economy? They will buy basic necessities, the 1 grand will be gone pretty fast, and we're in the same places a country as we are now. Forgive student loans, and you have increased spending on not only necessities but other items -cars, homes, entertainment, etc. This is a legitimate way to stimulate the economy and turn this nation around and save it from the place it's headed without any smart intervention.
I believe the writer of this newsletter arrogantly assumes that folks that got themselves into the mess of scholar mortgage debt can pay off similar to he and others from his time did. Lessons has risen over 500% considering 1999 So until the coed's family used to be ready to get a hold of 500% more then the the family of the pre-2000's to ship the scholar to college, or the 18/19 12 months antique scholar manages to earn 500% extra + residing expenses a yr, they would most likely wish to get a mortgage to attend the institution. Its clear that upper education has turn out to be a luxurious and the http://goo.gl/EKBf2 exorbitant costs make it simplest available for the wealthy or unsafe fools. I along with many others have fallen into this lure, I am repaying slowly however surly this ridiculous prime debt that I stupidly were given myself into 10 years ago when I used to be 18 years old. At least, scholar loan debt should ready to be discharged in a bankruptcy, with that people can freely make decisions on how they deal with the debt and the market can modify again to extra cheap prices/ http://goo.gl/OQegQ borrowing levels.
It's much better to give poor people $1,000 because it will be spent quicker?
I promise you that if you gave me that money I would spend it in a heartbeat, but not on a new flat screen television or the new iPhone. I'd put all that money towards my suffocating student loan debt. In fact I do just that every time I receive stimulus money from the government and with all my tax return refunds.
Two years ago when I was unemployed, on food stamps, living in a room the size of a closet, selling all my personal items to pay rent I tried to reason with the loan companies like mature adults. I told them that I have every intention of paying my debt but at the moment I'm just not financially sound enough to do much beyond paying my rent and feeding myself. In an effort to set up some kind of deferment do to financial hardship the most they could offer me was a grace of ONE MONTH at a cost of $150. So in summation, they still wanted money from me, except now it all goes towards them and none of it goes towards my loan debt, additionally, I must do this again with each consecutive month.
Trying to negotiate a lower monthly payment that would be more realistic to someone who was unemployed proved also to be unhelpful (I was also temping at four temp agencies while looking for full-time employment; I am not one of these free-loading youngsters that most people dismiss my student debt generation to be). The most I could do was agree to setup a plan that had me paying interest exclusively while not touching the principle. This meant that I would be paying a huge amount more in the end, but since I'm not a degenerate who will knowingly go into default it was the only option they gave me. I'm to be punished for actually WANTING to pay off my loans. This is how the system takes advantage of us.
I eventually found a job at an Ivy League school in the financial aid office and am faithfully paying back my loans. However, I feel like my life is stunted because I can't do things that my parents could do at my age like buy a house, or start a family.
Give me $1,000 and it will go towards my loan debt and nothing else. Forgive all or part of my loan debt and that additional income will go a lot further in helping the economy I guarantee you that.
Tuition costs increase at twice the rate of inflation yet children are being brought up in a culture that assures them that a college education is required to be an adult and that loans are a required part of this process; everyone else does it so it's okay. Normalizing it in this way makes it easy to bully an 18 year old (kid) into thinking they're making a sound investment in their future when in reality they are agreeing to a lifetime of predatory debt that will be passe on to their children.
I think the basic point surrounding student loan forgiveness isn't about encouraging freeloading, or anything of that sort. Rather this has to do with the idea that if the government was so willing to bail out banks who made poor investment choices and were completely frivolous with their investor's money, why not stand by the people of the country who are trying to improve their standard of living? Why not stand up for education? The mechanism that so often is used on Marketplace in demonstrating that it improves quality of living. Student loan debt forgiveness, if even a partial forgiveness to the neediest, may put more money into young people's pockets on a monthly basis. In a consumer-based economy, which most are unwilling to look at changing, needs consumers to thrive. Perhaps this is indeed a ridiculous proposal, but any more than bailing out financial institutions or car companies like GM or Chrysler? Bad idea, maybe, but I haven't heard many good ones these days from anyone in D.C.
Now, let's see...
This is a wild wild extrapolation...
First, allow the illegal immigrant kids get free funding from the State... then wipe it all clean for them... and repeat as necessary with a healthy dose of amnesty every 10 years or so!
Doesn't this sounds like the utopia dreamed up? The question is, who would stay behind in the new USA to fund all these freebies? ;-)
I think the author of this article arrogantly assumes that those who got themselves into the mess of student loan debt can repay just like he and others from his time did. Tuition has risen over 500% since 1999 So unless the student's family was able to come up with 500% more then the the family of the pre-2000's to send the student to college, or the 18/19 year old student manages to earn 500% more + living expenses a year, they would most likely need to get a loan to attend the institution. Its clear that higher education has become a luxury and the exorbitant costs make it only available for the rich or risky fools. I along with many others have fallen into this trap, I am repaying slowly but surly this ridiculous high debt that I stupidly got myself into 10 years ago when I was 18 years old. At the least, student loan debt should able to be discharged in a bankruptcy, with that individuals can freely make decisions on how they handle the debt and the market can adjust back to more reasonable costs/borrowing levels.
The United States is at the beginning of a lost decade, millions of the gullible/unfortunate young people will be saddled with ridiculous high debt. Hopefully those in my shoes will be able to dig out of the hole and survive the policies imposed by the corporatists that have taken over this country.
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