An Idea for Student Debt Relief (2 Viewers)

[Mina]

Unlike most liberals, I don't like the idea of generalized elimination of student debt.

Partly that's because I dislike the idea of a net transfer of wealth to people like young doctors and lawyers who will end up making a killing in their lifetimes.

Partly it's that I don't like the injustice of it in a situation where you compare someone who spent years making sacrifices to pay down what she owes, and a peer who lived the high life while making only minimum payments and taking every deferment opportunity, and now they're both put in the same situation.

But mostly it's because I worry about the unintended consequences -- for example, if lenders worry about debts being wiped out again, they'll charge much higher rates to account for that risk, making education even less affordable. Similarly, if people implicitly factor in the chance of having debt wiped out, they'll be willing to take on more of it, which puts upward pressure on college costs.

So, here's my pet idea, in lieu of that:

The government agrees to pay off however much student debt you'd like them to pay off, but in exchange you get a PERMANENT increase in all your tax rates of 0.1 point (income, estate, and capital gains), for each $1,000 of debt the government assumes.

So, say you graduate with $50,000 in student debt at 10yrs/5% terms, but you can only find work paying $30,000 per year. And so that $6,364 per year in loan payments is just killing you. You can wipe it all out, and in exchange your tax rates go up 5 points. Based on a $12,550 standard deduction, you would have been on the hook for $1,895 in taxes, but after the increase you'd be on the hook for $2,270. So, year one, you're relieved of $6,364 in payments, in exchange for $375 in extra taxes. Great deal. And even across a lifetime of earning, you are likely to come out ahead with that deal, unless you wind up making a lot more money down the road. So, you'd probably be smart to take the deal.

Now say that, instead, you're a freshly minted lawyer with a job offer from a big firm to earn $200,000. Well, now, if you take that same offer to wipe out $50k in debt for a permanent 5 point hike in tax rates, then year one you get the same $6,364 off your loan liability, but it's in exchange for a year one increase in taxes of $14,169. So, right out of the gate, it's a garbage deal, and you won't take it. You'll just pay what you owe.

Where it gets a bit tougher is in the middle. Like same deal, but your job pays $60k/year. Taking the deal helps you out in the early years: $6,365/year of debt payment relief in exchange for $3,498 more in taxes. But ten years down the road, that loan would be going away, anyway, whereas that tax increase persists. So, if you're really hurting right now, maybe it's worth paying more in the long haul in exchange for relief when you really need it. But if you're honest with yourself, you may admit the current pain isn't really that bad, so just bite bullet, tighten your belt, and pay what you owe.

You can tweak this idea by adjusting what dollar amounts equate with what tax change. Like if it's 0.1 point of hike for every $2,000, instead of every $1,000, it's friendlier to debtors..... it still wouldn't be attractive the lawyer in the second example, but will look like a better deal for the guy making $60k in the third.

The advantage of this system is that it gives people an incentive to be honest with the government, and themselves, about future earning prospects. If you're genuinely desperate, you'll jump at this, but if you know you're just temporarily strapped and will soon have plenty of money, you won't offload that debt onto the taxpayer when you know it'll mean higher taxes on a lifetime of high earnings. And it preserve the incentive to keep school costs low, since you pay at least some of it in some form, regardless.

 

[reflechissez]

It's not clear that tuition for medical and law school would be included in the debt relief.

 

[Schism]

Here's another idea: A Life Lesson in Making Poor Decisions.

Some decisions cost money and will take a while to pay off. Choose wisely in the future.

You don't have to worry about doctors and lawyers, it's the people who ****ed off for 4 years and got a degree in some stupid liberal arts subject that has zero marketable job openings and pays zilch. They're "experts" in being broke and unemployed, and they're too self-important to go out and get a job that involves labor.

Pay your debts.

 

[aociswundumho]

But mostly it's because I worry about the unintended consequences -- for example, if lenders worry about debts being wiped out again, they'll charge much higher rates to account for that risk, making education even less affordable. Similarly, if people implicitly factor in the chance of having debt wiped out, they'll be willing to take on more of it, which puts upward pressure on college costs.

The lenders will be paid, because the debt will not be cancelled. The idea is to transfer the debt to other people who didn't borrow the money, i.e. the taxpayer.

So, here's my pet idea, in lieu of that:

The government agrees to pay off however much student debt you'd like them to pay off, but in exchange you get a PERMANENT increase in all your tax rates of 0.1 point (income, estate, and capital gains), for each $1,000 of debt the government assumes.

So, say you graduate with $50,000 in student debt at 10yrs/5% terms, but you can only find work paying $30,000 per year. And so that $6,364 per year in loan payments is just killing you. You can wipe it all out, and in exchange your tax rates go up 5 points. Based on a $12,550 standard deduction, you would have been on the hook for $1,895 in taxes, but after the increase you'd be on the hook for $2,270. So, year one, you're relieved of $6,364 in payments, in exchange for $375 in extra taxes. Great deal. And even across a lifetime of earning, you are likely to come out ahead with that deal, unless you wind up making a lot more money down the road. So, you'd probably be smart to take the deal.

Now say that, instead, you're a freshly minted lawyer with a job offer from a big firm to earn $200,000. Well, now, if you take that same offer to wipe out $50k in debt for a permanent 5 point hike in tax rates, then year one you get the same $6,364 off your loan liability, but it's in exchange for a year one increase in taxes of $14,169. So, right out of the gate, it's a garbage deal, and you won't take it. You'll just pay what you owe.

Where it gets a bit tougher is in the middle. Like same deal, but your job pays $60k/year. Taking the deal helps you out in the early years: $6,365/year of debt payment relief in exchange for $3,498 more in taxes. But ten years down the road, that loan would be going away, anyway, whereas that tax increase persists. So, if you're really hurting right now, maybe it's worth paying more in the long haul in exchange for relief when you really need it. But if you're honest with yourself, you may admit the current pain isn't really that bad, so just bite bullet, tighten your belt, and pay what you owe.

You can tweak this idea by adjusting what dollar amounts equate with what tax change. Like if it's 0.1 point of hike for every $2,000, instead of every $1,000, it's friendlier to debtors..... it still wouldn't be attractive the lawyer in the second example, but will look like a better deal for the guy making $60k in the third.

The advantage of this system is that it gives people an incentive to be honest with the government, and themselves, about future earning prospects. If you're genuinely desperate, you'll jump at this, but if you know you're just temporarily strapped and will soon have plenty of money, you won't offload that debt onto the taxpayer when you know it'll mean higher taxes on a lifetime of high earnings. And it preserve the incentive to keep school costs low, since you pay at least some of it in some form, regardless.

Here's a better idea - stop giving people federal loans, and then colleges will only be able to charge what people are willing to pay.

 

[AliHajiSheik]

The premise of desperate people willing to pay higher tax rates is exchange for loan debt is akin to loansharking, except government sanctioned. There is no regard to the needs to society of any of these graduates, or the professional 20-year students.

Better to give tax breaks to employers to help employees pay off student loan debt. Let's reduce the bloated overhead of colleges and universities that is a major factor that causes tuition rates to be so high.

 

[phoenix2020]

FWIW I rather like the idea of tying tax rate to debt relief. Rather than it being permanent it would be nice to see it expire or roll off once the government as recouped the initial relief in the form of tax revenues. I don't consider it government loansharking any more than federal loans for anything could be considered loansharking. It's just an alternative repayment plan... but one that could be structurally setup to (a) not penalize the poor or low income and (b) not provide unfair or inequitable relief to the wealthy.

Needs more thought (on my part) but my initial take is that I'd consider it.

 

[AZRWinger]

Considering over half the Federal income tax filers pay no tax the scheme simply provides another incentive for them not to work if they have student loans. Who makes up the difference if the debtor cannot cover the loan under these generous terms? Why the taxpayer of course.

 

[jaeger19]

I say stop federal loans. Frankly those loans push up the price of colleges and they are a huge benefit to the companies that administer them.
Instead heavily subsidize public colleges and universities so that the cost is free or very very low.

 

[reflechissez]

I say stop federal loans. Frankly those loans push up the price of colleges and they are a huge benefit to the companies that administer them.
Instead heavily subsidize public colleges and universities so that the cost is free or very very low.

It used to like that until the republicans cut it out of the budget and opted for tax cuts for the rich.

 

[Felis Leo]

Unlike most liberals, I don't like the idea of generalized elimination of student debt.

Partly that's because I dislike the idea of a net transfer of wealth to people like young doctors and lawyers who will end up making a killing in their lifetimes.

Partly it's that I don't like the injustice of it in a situation where you compare someone who spent years making sacrifices to pay down what she owes, and a peer who lived the high life while making only minimum payments and taking every deferment opportunity, and now they're both put in the same situation.

But mostly it's because I worry about the unintended consequences -- for example, if lenders worry about debts being wiped out again, they'll charge much higher rates to account for that risk, making education even less affordable. Similarly, if people implicitly factor in the chance of having debt wiped out, they'll be willing to take on more of it, which puts upward pressure on college costs.

So, here's my pet idea, in lieu of that:

The government agrees to pay off however much student debt you'd like them to pay off, but in exchange you get a PERMANENT increase in all your tax rates of 0.1 point (income, estate, and capital gains), for each $1,000 of debt the government assumes.

[shortened for character limitation]

It is an interesting thought, Mina, but it seems rather regressive and ends up putting the greatest tax burden upon the poor and middle class. As you pointed out, truly desperate people will rush to get relief from their creditors, but it will be the poorest student borrowers who do so. This is a very complicated way of dealing with something that the government had a very good solution before 2005 which could be re-implemented with possibly bipartisan legislation. That is: We could make it so that student loans are once against dischargeable in Chapter 13 Bankruptcy. The 2005 bankruptcy code made it so that student loans, whether private or publicly-backed were rendered non-dischargeable in bankruptcy.

That way, people who are truly in difficult financial straights are able to seek relief from their creditors, including student loan lenders, and be required to pay their disposable monthly income for three to five years. At the end of their Chapter 13 plan, if seen to successful completion, they are granted their discharge eliminating the remaining portion of their debts. What is more, the Chapter 13 Trustee can order that the debtors be audited annually, biannually or quarterly to see whether their disposable monthly income has increased in order for them to pay more on their debts. So a recent graduate from Medical School or Law School might soon find themselves having to pay back their entire student loans after just a couple years under the watchful eye of the United States Justice Department.

At the end of the three to five years, their creditors have been paid some measure of their debts, and truly needy student borrowers would have received their relief and can move on with their lives with a fresh start freed of their burdensome debts.

 

[Felis Leo]

Here's another idea: A Life Lesson in Making Poor Decisions.

Some decisions cost money and will take a while to pay off. Choose wisely in the future.

You don't have to worry about doctors and lawyers, it's the people who ****ed off for 4 years and got a degree in some stupid liberal arts subject that has zero marketable job openings and pays zilch. They're "experts" in being broke and unemployed, and they're too self-important to go out and get a job that involves labor.

Pay your debts.

Nah. Let them file for bankruptcy and pay back some of it over five years and get rid of the rest.

If enough banks get burned with student loans, they won't hand over their money to people pursuing functionally worthless degrees, and schools will have to stop hiking up their prices for fine art degrees.

 

[Integrityrespec]

Here's another idea: A Life Lesson in Making Poor Decisions.

Some decisions cost money and will take a while to pay off. Choose wisely in the future.

You don't have to worry about doctors and lawyers, it's the people who ****ed off for 4 years and got a degree in some stupid liberal arts subject that has zero marketable job openings and pays zilch. They're "experts" in being broke and unemployed, and they're too self-important to go out and get a job that involves labor.

Pay your debts.

Party! An advanced degree at many high priced universities with a career path to making 50 thousands.

 

[Felis Leo]

Considering over half the Federal income tax filers pay no tax the scheme simply provides another incentive for them not to work if they have student loans. Who makes up the difference if the debtor cannot cover the loan under these generous terms? Why the taxpayer of course.

I disagree, AZRWinger. It's not a bunch of poorly-informed 18 year-olds faults that the government lent them our money which they could never reasonably pay back, or that these supposedly public institutions started over-charging for worthless degrees. We should not have elected politicians who gave away the taxpayer's money to kids who knew nothing better than being propagandized to (by the government oftentimes) that a college degree was key to success and then blame the kids and keep them indebted to the government.

We don't do it for government-backed mortgages. You can file bankruptcy on those and leave the taxpayer holding the bill. We don't do it for Social Security overpayments. You can file for bankruptcy on that and leave the taxpayers holding the bill. Hell, we don't do even do it for income taxes if they are over three years old. You can file bankruptcy and get rid of your personal income taxes, leaving other taxpayers to make up for the deficit. Yet private and government-backed student loans are supposed to be sacred and non-dischargeable in bankruptcy. It makes no sense.

 

[Captain Adverse]

I disagree, AZRWinger. It's not a bunch of poorly-informed 18 year-olds faults that the government lent them our money which they could never reasonably pay back, or that these supposedly public institutions started over-charging for worthless degrees. We should not have elected politicians who gave away the taxpayer's money to kids who knew nothing better than being propagandized to (by the government oftentimes) that a college degree was key to success and then blame the kids and keep them indebted to the government.

We don't do it for government-backed mortgages. You can file bankruptcy on those and leave the taxpayer holding the bill. We don't do it for Social Security overpayments. You can file for bankruptcy on that and leave the taxpayers holding the bill. Hell, we don't do even do it for income taxes if they are over three years old. You can file bankruptcy and get rid of your personal income taxes, leaving other taxpayers to make up for the deficit. Yet private and government-backed student loans are supposed to be sacred and non-dischargeable in bankruptcy. It makes no sense.

IMO it makes more sense to get rid of the program altogether.

Replace it with one-of scholarships, but only for STEM and perhaps Education and Vocational Training courses.

No more "underwater basket weaving" useless degrees just to get a "checkmark" for some low to middle management job at Walmart or Amazon, or to be an SJW gatekeeper on Social Media.

 

[Mina]

It is an interesting thought, Mina, but it seems rather regressive and ends up putting the greatest tax burden upon the poor and middle class.

I see it the opposite way. The "pay back" will be minimal-to-non-existent for the poor, since many of them effectively pay no federal income tax at all. Even when they get to the point where they're earning enough to exceed standard deductions, etc., so that the surtax they've agreed to will actually hit them, it ends up being a very low effective tax rate.

As an example, take two people, one earning $200k/year and one earning $20k per year, both single and with only the standard $12,950 deduction, each having agreed to write off enough debt for a 2-point surtax. Well then, the guy making $200k pays $3,741 in extra taxes, year one, while the guy making $20k pays $141 in extra taxes. They each got precisely the same benefit from the government, in terms of the dollar figure of debt the government assumed for them, but the rich guy is paying almost 27 times as much for that boon. I think that is, definitionally, highly progressive. If that was the trade-off for $20k in debt relief, the poor guy is likely NEVER to pay the government back fully for that benefit, since even accounting for decent income growth, it would take DECADES for him to pay $20k in extra taxes (by which time the time value of money calculation would say he's still much better off). Meanwhile, the rich guy will have paid more taxes than he got in benefit, even after accounting for the time value of money, within six or seven years, and then would wind up paying far more over the balance of his career.

Sure, because of that, the rich people will be less likely to opt into the program in the first place, but that just means they won't get any benefit at all from it, while poorer people will... which makes it a progressive policy (as opposed to blanket debt forgiveness, which will disproportionate benefit richer people, who are more likely to have gone to fancy colleges).

My problem with relying on Chapter 13 is it's too easy to game. People can come out of school with an extravagant income on the horizon but no assets and lots of debt at the moment, then basically turn to the courts to help them stiff their creditors. Then they get the benefit of all that investment in future earning, without having to pay the price for it. Rather than working ten years to pay back what they owe, before they can start getting rich, they get 3-to-5 years of constrained circumstances, and then can start piling up the dough, while their creditors are left holding the bag. And, of course, the creditors will respond by offering less favorable terms on loans in the future, in order to account for the risk of being stiffed in bankruptcy. And that will raise education costs for future students.

The benefit of my plan is that people have an incentive to be honest about their future prospects. If you're truly in dire financial straits, with little hope of getting above water, you'll take the deal, even knowing that at some point in the distant future that choice may limit your ability to get quite as rich. If, on the other hand, you're merely temporarily inconvenienced by debt, and you know you've got plenty of money coming your way soon, you won't look to stiff your creditors or burden the taxpayers with the cost of your education decisions.

 

[Stealers Wheel]

Unlike most liberals, I don't like the idea of generalized elimination of student debt.

Partly that's because I dislike the idea of a net transfer of wealth to people like young doctors and lawyers who will end up making a killing in their lifetimes.

Partly it's that I don't like the injustice of it in a situation where you compare someone who spent years making sacrifices to pay down what she owes, and a peer who lived the high life while making only minimum payments and taking every deferment opportunity, and now they're both put in the same situation.

But mostly it's because I worry about the unintended consequences -- for example, if lenders worry about debts being wiped out again, they'll charge much higher rates to account for that risk, making education even less affordable. Similarly, if people implicitly factor in the chance of having debt wiped out, they'll be willing to take on more of it, which puts upward pressure on college costs.

So, here's my pet idea, in lieu of that:

The government agrees to pay off however much student debt you'd like them to pay off, but in exchange you get a PERMANENT increase in all your tax rates of 0.1 point (income, estate, and capital gains), for each $1,000 of debt the government assumes.

So, say you graduate with $50,000 in student debt at 10yrs/5% terms, but you can only find work paying $30,000 per year. And so that $6,364 per year in loan payments is just killing you. You can wipe it all out, and in exchange your tax rates go up 5 points. Based on a $12,550 standard deduction, you would have been on the hook for $1,895 in taxes, but after the increase you'd be on the hook for $2,270. So, year one, you're relieved of $6,364 in payments, in exchange for $375 in extra taxes. Great deal. And even across a lifetime of earning, you are likely to come out ahead with that deal, unless you wind up making a lot more money down the road. So, you'd probably be smart to take the deal.

Now say that, instead, you're a freshly minted lawyer with a job offer from a big firm to earn $200,000. Well, now, if you take that same offer to wipe out $50k in debt for a permanent 5 point hike in tax rates, then year one you get the same $6,364 off your loan liability, but it's in exchange for a year one increase in taxes of $14,169. So, right out of the gate, it's a garbage deal, and you won't take it. You'll just pay what you owe.

Where it gets a bit tougher is in the middle. Like same deal, but your job pays $60k/year. Taking the deal helps you out in the early years: $6,365/year of debt payment relief in exchange for $3,498 more in taxes. But ten years down the road, that loan would be going away, anyway, whereas that tax increase persists. So, if you're really hurting right now, maybe it's worth paying more in the long haul in exchange for relief when you really need it. But if you're honest with yourself, you may admit the current pain isn't really that bad, so just bite bullet, tighten your belt, and pay what you owe.

You can tweak this idea by adjusting what dollar amounts equate with what tax change. Like if it's 0.1 point of hike for every $2,000, instead of every $1,000, it's friendlier to debtors..... it still wouldn't be attractive the lawyer in the second example, but will look like a better deal for the guy making $60k in the third.

The advantage of this system is that it gives people an incentive to be honest with the government, and themselves, about future earning prospects. If you're genuinely desperate, you'll jump at this, but if you know you're just temporarily strapped and will soon have plenty of money, you won't offload that debt onto the taxpayer when you know it'll mean higher taxes on a lifetime of high earnings. And it preserve the incentive to keep school costs low, since you pay at least some of it in some form, regardless.

What? You're under the illusion that the lenders are at risk? Seriously? Nothing could be further from the truth. A government-backed student loan is very attractive to banks primarily because the bank is never at risk if the borrower defaults. The government guarantees payment.

 

[Mina]

IMO it makes more sense to get rid of the program altogether.

Replace it with one-of scholarships, but only for STEM and perhaps Education and Vocational Training courses.

I know that's a really popular idea on the right, where education is seen as nothing but a job-training program. But I think society is better off if we have a population with a broad array of educations, rather than just Stem majors. So, I'd go with a modified approach, where the government provides scholarships and loans on a tiered system.

Just to illustrate the concept I'm going for, picture if you could come up with a simple "student quality index" that was some combination of your SAT's and GPA. It would divide kids into three tiers.

For the bottom 50% or so of students, the government would provide assistance to pay for further education, but only in those fields where, statistically, there's evidence that most people who go into those fields, regardless of academic qualifications, wind up having their future earnings boosted enough to more than cover the education costs (maybe two-year programs to learn in-demand technical skills). That would be tier one.

Tier two would be the next 40%, of somewhat-more-academically-accomplished kids, who'd have access to assistance for any four-year programs that tend to produce people with good employment prospects -- STEM, but also things like accounting. The level of assistance would be enhanced for any positions that are seen as being significantly short-staffed (or likely to be that way within a generation) -- so, people pursuing educations in fields like teaching and nursing would get the most generous help.

Tier three would be for the academically elite kids -- the top 10% types. They'd get assistance regardless of what they want to study. This would ensure that we continue to produce a broadly-educated populace, including in subjects that may benefit the society in too dispersed a way for it to be readily commoditized by the individual workers. Sure, that may mean we wind up with people at Walmart who are also experts in medieval art, but I think it's a good thing for society if you sprinkle that kind of knowledge and perspective broadly throughout the society.

 

[Eriech]

It is a fairly easy fix. Colleges and universities who received the funds borrowed should be on the hook for defaults.

 

[Mina]

What? You're under the illusion that the lenders are at risk? Seriously? Nothing could be further from the truth. A government-backed student loan is very attractive to banks primarily because the bank is never at risk if the borrower defaults. The government guarantees payment.

That is true of some of the loans. I'm talking about a program that would be available for all the student loans, not just federal guaranteed ones.

Even for those loans where the government protects the lenders, there are serious negative side effects when it comes to transferring that debt to the taxpayers in general. It means that you create a disconnect between those who are deciding what to spend, and those who are expected to pay for it, which of course will drive up costs. In a similar way, if I expect my car loan to actually be paid by the government instead of me, I don't have much incentive to say "no" to the fancy branded floor mats, glitzy chrome trim, heated steering wheel, and all the other stuff that drives up costs without doing anything to enhance the basic function of the car. Likewise, if I expect to be able to hand over all or much of my student debt to the taxpayer, I have less incentive to steer to a more cost-effective university. The system I'm talking about would at least preserve much of that incentive.

The other way to come at it, of course, would be to say that government money is only available in relation to universities that meet various cost controls -- e.g., no more than x% of tuition spent on administration positions, as opposed to actual professors, no more than y% tuition increases year-to-year, and tuition cannot be above z percentile of accredited universities.

 

[Mina]

It is a fairly easy fix. Colleges and universities who received the funds borrowed should be on the hook for defaults.

Which problem, specifically, do you think that fixes? The problem I'm trying to tackle is the problem of how to provide some student debt relief for people who desperately, without allowing people to game the system by offloading debt that could, in fact, afford to pay without undue suffering.

 

[AZRWinger]

I know that's a really popular idea on the right, where education is seen as nothing but a job-training program. But I think society is better off if we have a population with a broad array of educations, rather than just Stem majors. So, I'd go with a modified approach, where the government provides scholarships and loans on a tiered system.

Just to illustrate the concept I'm going for, picture if you could come up with a simple "student quality index" that was some combination of your SAT's and GPA. It would divide kids into three tiers.

For the bottom 50% or so of students, the government would provide assistance to pay for further education, but only in those fields where, statistically, there's evidence that most people who go into those fields, regardless of academic qualifications, wind up having their future earnings boosted enough to more than cover the education costs (maybe two-year programs to learn in-demand technical skills). That would be tier one.

Tier two would be the next 40%, of somewhat-more-academically-accomplished kids, who'd have access to assistance for any four-year programs that tend to produce people with good employment prospects -- STEM, but also things like accounting. The level of assistance would be enhanced for any positions that are seen as being significantly short-staffed (or likely to be that way within a generation) -- so, people pursuing educations in fields like teaching and nursing would get the most generous help.

Tier three would be for the academically elite kids -- the top 10% types. They'd get assistance regardless of what they want to study. This would ensure that we continue to produce a broadly-educated populace, including in subjects that may benefit the society in too dispersed a way for it to be readily commoditized by the individual workers. Sure, that may mean we wind up with people at Walmart who are also experts in medieval art, but I think it's a good thing for society if you sprinkle that kind of knowledge and perspective broadly throughout the society.

There is no way the system you describe doesn't become politicized. No way a Hunter Biden doesn't end up in the elite tier. No way a Donald Trump Jr doesn't get pushed down to the bottom. Then there is the inevitable imposition of racial equity to tier assignments and graduation.

The student loan program began as an effort to address the shortfall of scientists and engineers compared to the Soviets. Like so many government programs its become bloated far beyond its original purpose. Changing the student loan program back to its original scope doesn’t mean students wouldn't be able to major in Medieval poetry, just that the taxpayers aren't going to underwrite their loan.

 

[JMB802]

Unlike most liberals, I don't like the idea of generalized elimination of student debt.

Partly that's because I dislike the idea of a net transfer of wealth to people like young doctors and lawyers who will end up making a killing in their lifetimes.

Partly it's that I don't like the injustice of it in a situation where you compare someone who spent years making sacrifices to pay down what she owes, and a peer who lived the high life while making only minimum payments and taking every deferment opportunity, and now they're both put in the same situation.

But mostly it's because I worry about the unintended consequences -- for example, if lenders worry about debts being wiped out again, they'll charge much higher rates to account for that risk, making education even less affordable. Similarly, if people implicitly factor in the chance of having debt wiped out, they'll be willing to take on more of it, which puts upward pressure on college costs.

So, here's my pet idea, in lieu of that:

The government agrees to pay off however much student debt you'd like them to pay off, but in exchange you get a PERMANENT increase in all your tax rates of 0.1 point (income, estate, and capital gains), for each $1,000 of debt the government assumes.

So, say you graduate with $50,000 in student debt at 10yrs/5% terms, but you can only find work paying $30,000 per year. And so that $6,364 per year in loan payments is just killing you. You can wipe it all out, and in exchange your tax rates go up 5 points. Based on a $12,550 standard deduction, you would have been on the hook for $1,895 in taxes, but after the increase you'd be on the hook for $2,270. So, year one, you're relieved of $6,364 in payments, in exchange for $375 in extra taxes. Great deal. And even across a lifetime of earning, you are likely to come out ahead with that deal, unless you wind up making a lot more money down the road. So, you'd probably be smart to take the deal.

Now say that, instead, you're a freshly minted lawyer with a job offer from a big firm to earn $200,000. Well, now, if you take that same offer to wipe out $50k in debt for a permanent 5 point hike in tax rates, then year one you get the same $6,364 off your loan liability, but it's in exchange for a year one increase in taxes of $14,169. So, right out of the gate, it's a garbage deal, and you won't take it. You'll just pay what you owe.

Where it gets a bit tougher is in the middle. Like same deal, but your job pays $60k/year. Taking the deal helps you out in the early years: $6,365/year of debt payment relief in exchange for $3,498 more in taxes. But ten years down the road, that loan would be going away, anyway, whereas that tax increase persists. So, if you're really hurting right now, maybe it's worth paying more in the long haul in exchange for relief when you really need it. But if you're honest with yourself, you may admit the current pain isn't really that bad, so just bite bullet, tighten your belt, and pay what you owe.

You can tweak this idea by adjusting what dollar amounts equate with what tax change. Like if it's 0.1 point of hike for every $2,000, instead of every $1,000, it's friendlier to debtors..... it still wouldn't be attractive the lawyer in the second example, but will look like a better deal for the guy making $60k in the third.

The advantage of this system is that it gives people an incentive to be honest with the government, and themselves, about future earning prospects. If you're genuinely desperate, you'll jump at this, but if you know you're just temporarily strapped and will soon have plenty of money, you won't offload that debt onto the taxpayer when you know it'll mean higher taxes on a lifetime of high earnings. And it preserve the incentive to keep school costs low, since you pay at least some of it in some form, regardless.

The whole premise is based on expecting people who made poor financial decisions to suddenly become financially savvy.

I say we expand some of the current programs like the public service and teaching loan forgiveness.

https://studentaid.gov/manage-loans/forgiveness-cancellation

 

[Eriech]

Which problem, specifically, do you think that fixes? The problem I'm trying to tackle is the problem of how to provide some student debt relief for people who desperately, without allowing people to game the system by offloading debt that could, in fact, afford to pay without undue suffering.

It would put pressure on schools to deliver marketable skills. Given that we have Biden as president why not retroactively hold them accountable for defaults. These schools benefited from the money borrowed. Based on the borrowers inability to pay society aka taxpayers as a whole did not benefit and should not be on the hook.

 

[VanceMack]

There are many problems with what the system has become...but one of the biggest problems is the notion that everyone should go to college. Sorry...its simply not the case. If you have spent any time at all on college campuses over the last 20+ years you would see immediately..there are people there that have no business being there. There are a large number of people on todays college campus that require remedial non credit classes just to be able to attend regular credit producing classes. Their reading and reading comprehension skills are better suited to smart phone texts and twitter posts. The ability to write on a college level is rare at best. Basic high school math competencies are rare.. There are people in their 2nd and 3rd years with no real program direction...just attending classes, changing majors, not really knowing why they are there nor what they plan on doing when they leave college...if they leave college. Now...if you are a person of means and can afford that...fine...but if you are taking out student loans, racking up debt, AND taking out the living expense loans that nearly DOUBLE student loan debt...AND you expect someone else to now pay for it? Thats not fine. And thats another part of the problem....a good chunk of the student loan debt is NOT the college expenses...its due to students taking out money on loan for living expenses instead of working a job to provide for their own living expenses.

College attendance used to be competitive.. the degrees used to matter. MOST people attending college left college upon graduation ready to go to work. Now, everyone should go...and the universities are little more than indoctrination centers.

So...we should change things and its a pretty simple solution. Tie the students loan to the University as a primary responsible party. If the student defaults, the University has to pay back the loan. There really doesnt have to be many other changes. The loans still get paid back...the Universities would be more responsible about their programming, attendance, and admissions. The only other change that should occur would be an end to the student stipend. Get a part time job and pay for your living expenses.

 

[Mina]

It would put pressure on schools to deliver marketable skills. Given that we have Biden as president why not retroactively hold them accountable for defaults. These schools benefited from the money borrowed. Based on the borrowers inability to pay society aka taxpayers as a whole did not benefit and should not be on the hook.

Well, from a market perspective, the schools delivered what they promised. They're not the ones in default.