Who pays for forgiven school loans?

Today I heard the Secretary of Education give aa teaser that more forgiveness of student loans was going to take place soon.

I was wondering if this pinged the securitized debt holders of the loan. I never found a reasonable answer to that (I expect it will be like a bond called early?)

Anyway, came across a couple of interesting spins:

https://www.cnn.com/2022/08/16/politics/biden-for-profit-stu…

The Department of Education said Tuesday that it will cancel $3.9 billion in student loan debt for 208,000 students who attended the now-defunct for-profit ITT Technical Institute – bringing the total amount of loan discharges approved under President Joe Biden to nearly $32 billion.

Some former ITT Tech students were already eligible for debt cancellation, but now the department will automatically cancel all remaining federal student loan debt that borrowers took on to attend the school from January 1, 2005, through its closure in September 2016.

ITT Tech shut down shortly after the government pulled the plug on its federal funding because it had failed to show it was in compliance with certain accreditation standards. At the time, the school was the subject of several state and federal probes over its recruitment tactics, lending practices and job placement figures.

The Department of Education also announced Tuesday that it has formally notified DeVry University (coincidently associated with the Secretary of Education of the previous administration) that it is required to pay millions of dollars for previously approved student debt cancellations for about 1,800 of its students. DeVry University is still operating and the government wants to recoup the cost of the student loan discharges from the institution. It is difficult for the government to get money back from colleges like ITT Tech that have already shut their doors, Cordray said.

The following one waxed more towards the macroeconomic effect of the actions:

https://www.forbes.com/advisor/personal-finance/who-pays-for…

Canceling federal student loans will cost the federal government hundreds of billions of dollars— and it’s the general public that will eventually end up footing the bill.

Canceling up to $10,000 in federal student loans per borrower would cost the government roughly $245 billion, according to the Committee for a Responsible Federal Budget (CRFB). If income caps were implemented to limit forgiveness to folks with lower incomes, that would only drop the CRFB’s estimate to about $230 billion.

But what exactly does “cost the government” mean? Canceled federal student loans would be immediately added to the federal deficit, which measures how the country owes more money than it takes in during a year.

Analysts agree that canceling federal student loans would increase the deficit. But what they’re split on is how significant that addition would be, and how the government could eventually recoup the costs. (READ ON :slight_smile:

Got an answer to my original question here:

https://thehill.com/changing-america/3012034-who-will-pay-if…

No matter what amount of student debt is canceled, the government stands to sustain a loss as federal student loans would cost not only the remaining principal balance but the interest that was expected on all future payments.

There are also various loan types to consider. While the federal government issues about 92 percent of all student loans, 8 percent are owned by private banks and only managed by the government. Another 8 million borrowers collectively owe $175 billion in commercially owned student loans, data shows.

A 2019 Moody’s analysis estimated loan cancellation could result in $86 billion in lost revenue from student loan principle, interest, and fees.

A report from the Urban Institute also notes canceling student loan debt would gradually increase the national debt as the money has already been disbursed through the Treasury Department and eventually will not be paid back at the expected due date.

“Forgiveness means that money that the government thought was going to come in a year from now, five years from now, 10 years from now, 20 years from now, isn’t coming in,” Donald Marron, director of economic policy initiatives at the Urban Institute and coauthor of the report, told Changing America.


Jeff

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As the government guarantees student loans, my first thought it the government eats it.

Second thought is, the “colleges” were a fraud. Can the government ethically demand repayment from students who had been defrauded by the college, which, the government authorized to have it’s students financed by the government? If so, that would be a situation where the fraudulent school, having been given the government seal of approval, takes the student’s money, the government takes the student’s money, the student has nothing to show for all the money that has been taken from him, as the “degree” isn’t worth the paper it’s printed on. Now that rises to the level of “exceptionally shiny”.

Third thought: the government has no problem handing hundreds of Billions to people just because they are rich. So, what is the difference if the people receiving the hundreds of Billions of relief aren’t rich? Do we whistle up Sean Hannity to trot out his nonsense about how showering money on the rich is “free enterprise”, but giving a nickle to anyone else is “socialism”?

Steve

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money that the government thought was going to come in a year from now, five years from now, 10 years from now, 20 years from now, isn’t coming in,”

If someone is making loans to 18-year olds that will take 20 or more years to pay off, they should be horsewhipped, run out of town on a rail, shipped to Australia, and had their fancy-pants possessions put in the town square for the pickins’.

Time was, and not so long ago, that you could only get a high school education if you had the money to pay for it. Maybe there should be a course in 11th grade titled “What is a college education really worth, and do you understand compound interest?”

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If someone is making loans to 18-year olds that will take 20 or more years to pay off, they should be horsewhipped, run out of town on a rail, shipped to Australia, and had their fancy-pants possessions put in the town square for the pickins’.

I’ve mentioned this on other boards, but my wife used to run a tuition program for big company’s hourly employees. It offered pre-paid books and tuition, so it was a pretty good benefit. The only catch was that you had to study for an in-demand field. That is, the course of study had to have a reasonable outcome of getting a job. So yoga instructor no, diesel mechanic yes.

ITT and such of course were dying to get involved and sign up the workers, even offering to create custom curriculum. The hitch was they couldn’t show their graduates were in demand. So her policy was the company wouldn’t pay for anybody to take their crappy courses.

That said, there is value to education beyond just getting a job and I think it should be cheap and easily available. But I don’t see a reason for the government to subsidize predatory educators like ITT.

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Time was, and not so long ago, that you could only get a high school education if you had the money to pay for it. Maybe there should be a course in 11th grade titled “What is a college education really worth, and do you understand compound interest?”

So, that is a vote for rationing knowledge by ability to pay?

Higher education used to be available by “socialistical, big gummit” programs, like the GI Bill and universities that were heavily subsidized by the states. The result was a burgeoning middle class with a high standard of living, and enough brainpower to be a global technology leader.

Now, most people go nowhere near the military, and states like Michigan have cut education funding to a fraction of what it used to be, so the money could be handed to the “JCs” instead.

So, where do we go from here? Turn the clock back a century, where many people don’t get farther than 6th grade? That means fewer potential medical researchers, fewer potential scientists, fewer potential engineers.

Steve

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Where many people don’t get farther than 6th grade?


Wait until we start having to wrestle with the “missing 2 years” of COVID. Do we do the equivalent of graduating students two years older than in the past, or satisfy ourself that they have “passed” those years and allow underqualified students to advance through the system?

Jeff

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and allow underqualified students to advance through the system?

From the discussions that spawned common core, I would say passing unqualified students, most likely to avoid the wrath of hot-headed parents, seems to have been a problem for quite a while now.

Steve

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Won’t it be the same people who paid for the 2017 tax cuts?

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and it’s the general public that will eventually end up footing the bill.

Jeff,

In our day we had demand side economics, students and their families paid far less as a percentage of the college costs. Then our generation decided to cut our economic output so we would do very poorly as a nation. We called that supply side economics. We were labeled the “ME” generation. Dont forget that part.

We or ME decided we did not want the poor rich paying bills. We decided that giving more to rich people for goods and services was a great idea. We decided making things that matter cost money to the people who matter. So we decided to do a rug pull on college students. They were promised the promised land of a cubicle if they borrowed at least $50k. The lay offs and the benefit cuts were somehow not factored in. The poor rich were always our worry.

A very sad story.


Just saw this...

Human beings are the only species on the planet to pay for where we live.
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Who pays for forgiven school loans?

A civilized nation.

Here’s a compromise; just eliminate the interest on student loans.

That way, borrowers pay what they borrowed, don’t drown in usury debt, and wouldn’t be guilty of that terrible “moral hazard” we’ve heard about.

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There should be a cap on total interest paid–these loans that, after 10 years of payment, have almost no principal paid, should be eliminated.

Like, 50% interest over the life of a student loan should be plenty, but it ought to be less than that.

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the GD: “Who pays for forgiven school loans?”

The rest of us US citizens who were responsible borrowers, paid off our loans, or didn’t have loans because we worked our butts off summers and part time jobs to pay for our education, and if we had some loans, paid them back quickly as a priority.


the GD: “A civilized nation.”

If you want ‘free college’ along with it comes TOUGH entrance exams and academic that eliminate 2/3rds of the students at about 8th grade, then route the rest through trade schools and apprentice ships as in Germany and Austria. The other 2/3rds can either pay for other colleges that might accept them or head outside the country and pay for their education.

You OK with that? And of course, no ‘race’ or ‘minority’ or other preferences. Everything by academic standing. National standardized testing starting 8th grade or so.

You 100% OK with that? Sports? Ha…irrelevant. Plus no tolerance academic institutions. Don’t even think they have fraternities, sorority systems either. You go to college to get an education.


the GD:“Here’s a compromise; just eliminate the interest on student loans.”

Why? With most loans a few percent, and inflation running 8+%, your sitting in a good position already. Salary ratcheting up quickly at 5+% a year or more.


The great COLLEGE DEBT Bribe is simply buying votes…if it manages to pass…and will cause EVEN MORE INFLATION. Over 100 Billion, right? Money not in the budget. Extra bloat and cost overruns.


the GD:“That way, borrowers pay what they borrowed, don’t drown in usury debt,”

Yeah, so they can buy a car, pay it off, buy a house, pay it off, and stiff the taxpayer and other responsible borrowers who paid off their loans?

t.

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It add less than $300 b to the budget. We pay for it. We should have been paying more. We are getting off light. People deserve society paying to educate them. This is a no brainer.

Nyt

snippet

On its face, the move could cost taxpayers about $300 billion or more in money they effectively lent out that will never be repaid. But the true cost is harder to calculate, and likely to be smaller, because much of that debt was unlikely to ever be repaid. More than eight million people — one in five borrowers with a payment due — had defaulted on their loans before the coronavirus pandemic. Many of those people carried fairly small balances and will now be eligible for loan cancellation.

Nyt:“It add less than $300 b to the budget. We pay for it. We should have been paying more. We are getting off light. People deserve society paying to educate them. This is a no brainer.”

It adds 300B more to the current year deficit and worse, with interest foregone on the rest till Jan 2023, even more red ink in 2022. ( borrowing more and more and more)

And the budget is already overspent and bloated. Soon, interest rates the fed pays to borrow will go up and up and that will also add hundreds of BILLIONS in interest payment on the debt. If fed rates went to 5%, figure out that would be on 33 trillion dollars… Like a trillion 500 billion plus dollars a year interest?

Guess whose taxes will have to spike to pay for it?

t

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Nyt:"It add less than $300 b to the budget.

According to the NYT 27M borrowers will be eligible for the loan forgiveness. According to Money Magazine, the median college graduate age 22-27 makes $27K more than a high school graduate. Assume a marginal tax bracket of 22%. Then without raising any taxes, the cost of loan forgiveness is paid for with 2 years of the taxes on the additional income college graduates earn. After that, the cost is paid for but the taxes keep rolling in. Seems like a good investment to me.

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Simplistically, this grabs all of the benefits of the “Inflation Reduction Act” (that all agree won’t significantly reduce inflation).

So, after all the smoke and mirrors, this brings us back to net zero by redistricting the taxes collected from businesses to pay off student loans.

And yet - there is no attempt to change our educational system in a way that reduces costs and rewards those who take degrees which benefit society.

(Let’s face it - add a bit of AI and we won’t need lawyers or accountants any more :slight_smile:

Jeff

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after all the smoke and mirrors,

Smoke? Mirrors?

The only thing holding us back is keeping taxes very low on the rich and corporations. I guess you can grouse about the budget. But taxation would change all of it.

We have a military budget we can cut. We have corporations not paying in. We have wealthy tax cheats.

I do not think doing the right thing per college education is that painful.

Frankly a goodly part of the payments becomes future spending with American companies instead of money socked away in the banking sector. This has and will benefit the country.

If we are going to talk smoke and mirrors for decent acts lets talk positive externalities in econ.

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So, where do we go from here? Turn the clock back a century, where many people don’t get farther than 6th grade? That means fewer potential medical researchers, fewer potential scientists, fewer potential engineers.

Steve

++++++++++++++

Then one has to ask what is the economic logic that allows for millions of illegals entering the country annually who will on balance have less than a 6th grade education? These numbers will just adds millions more of folks not reaching lofty potentials as indicated above.

YR

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Who pays for forgiven school loans?

A civilized nation.

++++++++++++++

Perhaps a being a little more specific would be more honest. “Just who are those folks in the civilized nation who are pegged to cough up the dollars?”

Sounds like echos of “you didn’t build that”?

YR

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Then one has to ask what is the economic logic that allows for millions of illegals entering the country annually who will on balance have less than a 6th grade education?

Glad you asked.

From the link below:

The results are striking—43 percent of companies in the 2017 Fortune 500 were founded or co-founded by an immigrant or the child of an immigrant, and among the Top 35, that share is 57 percent.

Sounds like great economic logic to me.

AW

https://www.brookings.edu/blog/the-avenue/2017/12/04/almost-…

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