Two Quick (but Important) Points about Student Loan Forgiveness
A lot has been written already about the ongoing student debt crisis, and the various solutions proposed to alleviate it. I’m not going to waste time rehashing any of these arguments because it’s unnecessary. However, I have noticed throughout this ongoing dialog the absence of a couple of salient and convincing reasons that have led me to support student loan forgiveness (despite the fact that I personally would not benefit from this policy at the moment).
The debate has largely been framed from a conservative perspective (like every political debate in America), where the conversation quickly becomes about the deservedness of individual recipients of debt relief, rather than an interrogation of the circumstances which led to the existence of a student debt crisis in the first place. In other words, should “student debt” be a thing that exists or should it not be a thing that exists is the actual salient question that supersedes any discussion of “worthiness”.
To a conservative, however, there is no crisis whatsoever, only individual debtors who all individually signed bad contracts and should be forced to deal with their consequences (I previously wrote of a similar mindset concerning the opposition to a safe injection site in Philadelphia). A truly hateful and short sided perspective, if you ask me.
In order to recognize student loan debt truly as a crisis that requires immediate and swift action, it must be examined from a macro perspective, only then can the similarity of all of the individual cases be understood as they properly should.
There is no reason why the government should be extracting 5–9% interest on student loans.
I’m honestly kind of perplexed as to why this isn’t talked about more often in terms of the whole debate about the costs of higher ed, especially when we begin to interrogate stories of people who are specifically saddled with debt because of accumulating interest that they can never get in front of. The government is making this worse unnecessarily!
The way it’s generally understood is that the interest rate on a loan can be is a measure (or rather the result of) the lender’s confidence in the borrower’s ability to repay. You have a history of repaying loans on time, then you get a lower rate, and vice versa, because a person with a shaky history cannot be trusted they are punished with a higher rate (let’s ignore for the moment if this makes sense). Now, in reality, the reason why interest rates are what they are is also frankly, because banks want to make money, and the interest represents the profit made off of the loan.
The thing is, though, that when it comes to student loans offered by the federal government, none of these conditions are met. First of all, the government, despite what conservatives would prefer, is not a business and should not be run like one. As such, the government should not be making a profit off of the hopes and dreams of young people who committed the unforgivable sin of not being born into a wealthy enough family to avoid having to take out a loan for school.
In addition, it’s also true that unlike with a private bank, there is ZERO RISK involved in the government lending out money for student loans (or any other purpose) because the federal government is the currency issuer. It simply cannot run out of money. If all of the borrowers on a private bank’s balance sheet renege on their loans, the bank might be in trouble because it might not be able to meet its own obligations, but this cannot happen to the federal government. The government takes no risk regardless of the creditworthiness of the student borrower, and therefore it does not make sense that it should punish them by keeping interest rates as high as they are. The maximum interest rate for a federally backed student loan should be 0%.
All the government is actually doing by forcing student borrows to accept 5–9% interest rates is dampening their future incomes thereby lowering economic activity (because more of their future income must go toward servicing the loan and not purchasing some other good or service), while simultaneously making it more likely that they will default. It simply makes no sense and only serves to exacerbate the overall student debt crisis.
The cost of higher education has ballooned in recent decades.
This seems to be one fact that eludes the droves of middle-aged and older conservative pundits (read: paid propagandists) who love to boast about how back in their day they paid their way through college and either didn’t have to take out any loans or didn’t get themselves trapped in debt long term. Now, putting aside the reality that many of these people are grossly mischaracterizing their own financial history, it’s just stupid for anyone to pretend that it hasn’t become exponentially more difficult to “pay your way through school” because the cost of college has increased well beyond inflation or the wages available to someone looking for work while in school. Different sources provide different stats but the trend is clear, no matter how it’s being calculated. Here is a Forbes article (not exactly a socialist rag) that describes how the costs of higher ed have increased over the past decades.
It might even be fair to understand the rapid increase in the cost of higher ed as a direct result of the federal student loan system itself. The willingness of the federal government to loan generous amounts to pretty much any 18 year old who can manage to get accepted somewhere allows the colleges in return to endlessly increase the cost of tuition year over year. If for some reason, the government were suddenly unable or unwilling to fork over the amounts they have, a crisis would ensue that would force the universities to reckon with the fact that they are asking people to pay exorbitant prices that most families simply cannot afford.
This is especially disturbing when we consider that there was a time before the neoliberal turn when the federal government (as well as many state/local governments) were quite generous in funding universities. Over time, as part of an overall reactionary turn toward austerity (as well as a general trend toward the financialization of every aspect of our lives), that money became increasingly scarce, while the federal loan program expanded to fill its place. Instead of simply funding universities as a public service, the federal government now provides the money as tuition payments, and dumps the debt obligation on unsuspecting teenagers. A bizarre practice, to say the least.
The myth of the student paying their way through college has essentially become the new pull yourself up by your bootstraps, another example of America’s preoccupation with individual consequences for individual actions, never being able to historicize anything or consider the implications of broader trends.
To me, the case for complete and total student loan forgiveness could not be more clear and obvious, especially given that it could be accomplished through executive order alone. The major question that remains to be answered is not should the existing debt be forgiven, but rather what policy changes are required to prevent new debt from accumulating come next semester.