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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 totally disagree with the premise positioned by Justin Wolfer. He creates a debate between totally forgiving student loans and giving the country's neediest the same benefit, but as in cash rather than loan forgiveness. My generation of former students carrying huge debt loads is sad given that our American dream is not a realizable reality given the current economic conditions wrought on the country by the country's richest. However, a sound and fair program for former students with large sums of debt due to their college educations would be this: Do not forgive the loan, but do level the interest rate to zero and stop all collection proceedings on these former students. We will eventually pay these loans, but they should not factor into forcing us into bankruptcy, which can not even erase student loan debt. We will eventually pay these loans off with new jobs in the future or we will pay them off from the inheritances earned from our parents' estates. BUT, I do not propose that these loans should be written off completely...these are our debts and they are currently an economic burden on us given the current economic conditions...relax, the debt is not bad, but the debt should not continue to accumulate interest at any rate other than 0% annually. Is this too much to ask of our government or is this too unfair of our banks or is this too much to ask of our 10% of earners that pay 70% of the taxes? We did not create this economy and it was never taught to any American generation that our lives would not be improved with higher education (BA, BA, MA, MBA, JD, et cetera).
I do not disagree with Mr. Wolfer's assertion that our country's poorest would immediately put any stimulus money forwarded to them into the economy at a faster rate than continuing to give the country's richest citizens more tax breaks or even continuing their current tax breaks.
That's interesting. I would take this man seriously if had actually cared about the students he spoke with such vitriol about. Is this how you feel about your students who can't pay, Justin Wolfers? They should just pound sand because they aren't a nameless group of people giving you your salary? Newsflash, if colleges fail your job is as good as sunk. Forgiving student loans is a sensible solution to a problem caused by YOUR generation not protecting basic rights for those you claim to be "fools".
Justin Wolfers...so he seems to have next to no viability, let alone research to back up his claims. Is he aware of the debt load currently being held is the national average? And corporations might be "people"...so why aren't they doing anything to assist those literally drowning in student loan debt? Oh right: they stole from at least six generations and ARE NOT HUMANS, they are run by groups of people that could care less.
Banks never should have been bailed out. I'm sorry but that's the truth. Humans before banks. A bank cannot speak to you and ask you about your day. A bank cannot give you food when you are starving on the street. But some jerk being called an "economist"(I use that term loosely) can be given more credence? That's hogwash! A real economist can see that the long lasting damage of debt will destroy a country. The people WILL lash out, and sometimes that lashing is not civil as we have been seeing.
Take a look at the Euro. Take a look at the people rioting because they are under heavy debt loads. Want that in the USA? I don't!
Shame on you Marketplace! I expected so much more of your group...next time have a counter argument ready for people like this man. He has been proven wrong more then once on multiple occasions. Justin Wolfers literally has nothing but vitriol for his former students, and his former colleagues via this piece.
It makes no economical sense to continue to lie about the student loan crisis...well unless you're profiting from it Mr.Justin Wolfers.
Patrick Minton,
I agree it greatly depends on the details, but I suspect these lenders made these loans in anticipation that they would have a particular duration. Even if they are paid off early in full, the lenders may be inclined to divert capital elsewhere or demand a higher rate of interest.
Those college loans are turning would-be entrepreneurs into indentured servants! Those loans are forcing students to agree to take jobs with the big companies during their junior year. Our society is not gaining the benefit of the inventions that these computer hatchlings can produce. Forgive the loans – and watch American innovation skyrocket!
"Nobody rides for free" goes the refrain. Loan forgiveness? Free riding on the backs of tax payers? Insulting as can be to those who have already paid off or are paying off their loans, horrifically dangerous as a moral hazard, and yet another burden to taxpayers, many of whom have no interest in bailing out free loaders. No thanks, I'll pass.
Wolfers teaches at U Penn, which is a private school. He recommends giving the money to the "one-in-seven Americans currently living in poverty." Not sure where you see him say anything about giving it to people who don't need it.
James, I believe the method being advocated for isn't forcing the student loan companies to forgive these debts, but to have the government pay them off. It is still a bad idea, IMO, but it wouldn't scare lenders.
I Love listening to Marketplace and I have learned so much. I would truly like you to find an authoritative economist to put forth a different point of view on this very proposal to forgive student loans, because there are many compelling counterarguments. For starters it is no longer true, if it ever was, that student loan debt is a debt belonging to the rich. Student loan holders are working class people with even less werewithall than mortgagees, and yet mortgagees are getting stimulus relief and are allowed to default and declare bankruptcy if things get too rough.
Wolfers is right, but he doesn't go far enough in explaining why. If we forgive a bunch of student loan debt, private lenders are going to be much more hesitant about making student loans in the future, fearing it will happen again, leading to fewer people being able to get a loan and afford a college education. Forgiving student loans is a ridiculous idea.
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