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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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I hope that everyone remembers the story of "The Grasshopper and The Ants"
There are so many school options out there, yet still so many kids think they need to go out-of-state and spend 6 years to get a degree offered locally. Why do I have to pay for their decisions?
Everybody thinks they're entitled to the newest cell phones, big screen TV's, fancy cars, and great houses. Well guess what folks, our parents made do with what they had. Prices go up because so many of you are allowed to buy expensive items and then you never pay the bills, forcing all of us to bail you out.
I'm tire of this. I've done the right things. I went to a state school. Worked my way up while watching my co-workers party. Raised kids while my wife stayed home in a smaller house. Drove American cars for 10 years or more. And now I have to bail you out.
I have no problem requiring that student loans be repaid in full no matter what. The only loan forgiveness comes from your death or permanent disability. In fact, I believe that financial grants for students should be completely eliminated and replaced with loans. Students need to meet stricter academic requirements such as attendance and 3.0 GPA to continue getting their loans. All applicants should also provide co-signers to the loan. But for any of this to happen, there have to be some major changes in the way these loans are handled. They should be fee and interest free. Payments should be indexed to salary and deducted directly from your paycheck no matter where you work. No loan holder should have to pay more than 20 years on a loan; after that any remaining balance is automatically forgiven. There should not be loan forgiveness in case of bankruptcy, but a five year hiatus on payments during bankruptcy. As long as the government backs any part of these loans, lending institutions should also be required to offer student loans on these terms in exchange for the privilege of doing any business in the US, and these financial institutions should not be able to sell these loans off, except under a very narrow set of circumstances, and then only to a like sized and located instution. Schools (public or private) who accept monies from student loans should be required to graduate a minimum of 70% of their students, be required to help place all students in the field the students major in, be required to spend at least 60% of tuition directly on the education of students, and publically publish all the data concerning their graduation rates, how the school spends their money, and where (or in what field) every graduated student works.
After graduating in 1989 owing $40,000, I'm now over $90,000 in debt. Just because you have a degree does not mean you have a better job making more money. A $33,000./year job means I'll never be able to pay it all back. These loans should be dismissed in bankruptcy court like any other debt.
The education industry has made associates and bachelor's degrees required for many jobs now. Why? Because they get guaranteed money from the federal government for enrollment. Why should taxpayers foot the bill TWICE? How far back are we going to "forgive" student loan debt? The trend continues - issuing degrees to people that will end up with no job on graduation.
I think student loans should be handled just like any other loan and be able to be forgiven through bankruptcy. If my kids do well financially, I expect them to pay back any loans they have. If they can't find a decent job, I don't want them living as an indentured servant to some banker. Maybe we should offer a way to work off some of the debt - teaching in an underpriviliged school system or some sort of Americorps. Not that I think states should deliberately underfund their school systems and layoff qualified teachers, knowing the feds will send them a bunch of college grads on the cheap.
Jewell,
I hear your statement about everyone not needing to go to college a lot, and it's probably true from a skills and education point of view, but our whole system is set up so to get any kind of a good job you need college, grads get preference in hiring and promotions. If you want this to be workable the system has to change, otherwise the young people of today will have to go back to school to get the caliber of job necessary to have a family and support what ever will replace pensions and social security.
I have a simple thing to ask. Parents, unless your paying for your child's education, do not raise your child with the expectation that going to college is required. Putting your child in college without most (if not all) of your financial support will land them in mounds of debt and a lifestyle of living paycheck to paycheck. Twenty years ago college was a much cheaper place and the average american worker could make ends meet. Today college tuition has skyrocketed since and wages for american workers are the same they were thirty years ago, all while the cost of food, gas, healthcare and shelter has skyrocketed. We should forgive college debt, then we follow much of Europe's path and invest in college educations for our children's future. We are the 99%.
I don't think Mr. Wolfers is necessarily wrong in his thinking, however, I do think he's totally out of touch with the realities of today's college student. He makes the statement that college students are better off, and have better job prospects than others. The recent recession pushed millions of Americans into school that might not have gone in the past. Many of these people are older, and not necessarily the over-privileged teenagers the writers are used to seeing. In addition, with the rising costs of education, many of the entry-level jobs simply don't pay enough to erase the mountains of debt students have upon graduation. For-profit schools (degree mills) have also thrown a huge wrench in this whole system.
That said, I don't think we need a bailout of student loans. this is an amazingly expensive proposition that would have little effect on the economy. Instead, perhaps reform of the student loan system (including allowing forgiveness under bankruptcy).
this guy teaches public policy at Wharton? Great. He's shaping the mind of the next generation of greedy CEOs. We don't ask ALL of our debt be forgiven and I am not sure where the idea that college grads make more came from - not in this economy. How about lowering the interest rates that companies like Sallie Mae impose? "Consolidating" those rates is a joke. How about forgiving just the interest and we can pay the actual amount we borrowed? Or is that too "greedy"? The CEO of student loan giant Sallie Mae makes about $5M a YEAR. Off of us.
check out Bureaucracy for Breakfast on Tumblr for more on this issue. Sounds like Mr Wolfers has never actually dealt with student loans himself
Justin makes the point that students in the next recession will expect a bailout, shouldn't students of today expect the support that students of the last generation? My tax dollars went to paying for students for the last 30 years but now my children are in school and society has decided not to participate. Forgive the loans, let the students take jobs that pay little, like teacher or social worker, but benefit society rather than be forced to take the best salary.
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