Who pays for forgiven school loans?

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81

“This student loan forgiveness plan isn’t perfect. But it’s better than doing nothing.”

Any solution to help those who can’t pay their student loan will always upset those who did pay it off, but I think a better first step might be to allow them to be discharged via bankruptcy like any other loan.

Many won’t want to go through that, but those who truly need to will be able to make a fresh start (after whatever period it takes to re-establish credit).

Banks may take some losses, but they get tax relief for that like any other defaulted loan.

Of course, the full solution will involve other steps that take longer.

In truth, all of our systems (education, health care, government, infrastructure etc.) need to be reconstituted.

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82

But it’s better than doing nothing.

Peter,

We have a very low real economic growth rate right now. It fuels economic growth as younger people can consume.

It can be said it is awkwardly done, but the younger folks should not have much for school in the first place.

83

This student loan forgiveness plan isn’t perfect. But it’s better than doing nothing.

—Peter

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

If you are trying to say, the student in need of that loan should do nothing and not go forward with that agreement, then YES, but that is doing nothing as the right thing rather than taking the deal. If more students did that, there would be pressure on the institutions to make the cost more realistic to keep the inflow of students. This is just basic business 101.

If you are saying, we will subsidize the bad deal because we didn’t make it a good deal to start with, then take the cost of the subsidy out of the retirement of those in Congress who established and maintained this relationship.

I paid all of my loans off early, with the prescribed interest rate/terms AND I am immensely grateful for that event. No one ever guaranteed me a specific income, I just knew over time I could make that work.

Do your own due diligence and if the bottom line is not there, don’t do it. Find another avenue to where you want to go.

YR

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84

That said, we run into the risky position of protecting the unsuccessful …

Isn’t one of the functions of government to protect the powerless from the powerful?

Nope. The relevant function of government is to protect those who have - whether they have a lot or a little, or even only their lives and the rags they are wearing - from those who would unjustly take from them. It isn’t about protecting the powerless from the powerful, and it most certainly isn’t about protecting the poor from the wealthy; those questions are irrelevant.

So, let’s simplify things.

We have three plumbers here, each pulling in $56K per year in that job(about average for plumbers https://www.zippia.com/plumber-jobs/salary/ ). #1 didn’t go to college or tech school, and so accrued no student debt. #2 went to college (racking up a bunch of debt) to pursue a dream, and spends her evenings becoming a not-very-successful-yet novelist - but in the meantime she’s scrimped and saved and managed to pay off her student debt. #3 went to school to become a network technician, and racked up a bunch of student debt before the school went broke and it was revealed that what they were teaching varied from never-was-correct to obsolete, and has since paid the bare minimum on the debt while applying for every delay and deferral available.

Why exactly should #1 and #2 be forced to cough up cash for #3’s student debt? What did they do to merit that punishment?

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85

"But borrowers can’t discharge student loan debt in bankruptcy. And you can’t walk away from student loan debt like a failed business.

There are only two ways out of student loan debt. Pay it or die.

When you die, guess who pays for the bad debt? Yep, we the people."

Wrong.

Oh, I’m sure the IRS is right there when you die and have assets like a home, or home equity, or a stock market account or IRA/401K. I’d bet they quickly remove some of those assets to pay off your student debt. When you file your estate taxes, if you have assets to be distributed, the IRS will be at the head of the line.

And no, there are several ways (give aways at tax payer expense). If you work in ‘public service’ for 10 years, you can get most of your loans forgiven.

Pay your loans for 10 years while working for a public service organization, and magically, the rest vanishes!

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

t.

86

“Any solution to help those who can’t pay their student loan will always upset those who did pay it off, but I think a better first step might be to allow them to be discharged via bankruptcy like any other loan.”

You default on a car loan…they repo your car. It’s an asset. Not only that, you are still liable for the rest of any ‘shortage’.

You default on your home loan - they foreclose and take it back. Even after 20 years of you paying it.

There is no way to take back your education… we haven’t come up with a ‘brain cleaner’ technology yet. You don’t pay, we take it back? Wipe your brain clean?

t

87

“#3 went to school to become a network technician, and racked up a bunch of student debt before the school went broke”

In most cases, that debt has already been forgiven by the Federal government. If your education facility was a fraud, or went bust after you started taking courses…then

"Last week, Education Secretary Miguel Cardona canceled $1 billion in student loan debt for about 72,000 defrauded borrowers.

The decision, his first major one as President Joe Biden’s education chief, came after a series of investigations over the past decade of for-profit schools for engaging in fraudulent behavior related to federal loans. Corinthian Colleges and ITT Technical Institute were the main institutions connected with the canceled debt, but others were similarly accused, according to a series of legal settlements.

Since 2015, more than 200,000 defrauded students filed claims for a complete discharge of their loans, and the Education Department approved nearly 28,000 claims in the six-month period before January 2017. "

https://www.businessinsider.com/for-profit-colleges-alleged-…

https://www.npr.org/2022/07/21/1112554478/student-loan-forgi…

t

88

Are you implying that a lack of success means one is powerless?

No. But I am saying that if you want to look for the powerless, looking among the unsuccessful is probably a good place to start. To use a bit of set theory, they are two different sets, but have a significant overlap.

mindset is the key to changing and becoming successful from a place of non-success;

I find that a highly unsatisfying solution. It places the bulk of the responsibility for change on the individual. But there can be many reasons for the lack of success that are beyond the control of the individual, no matter how determined they are to succeed.

And that is where the role of government comes in. To break down barriers that the powerful have put in place to keep the powerless powerless.

The US government has done some good things on this front over the last nearly 250 years.

Emancipating the enslaved.
Trust busting.
Giving women the right to vote.
Enacting wage and hour laws.
Environmental protection.
Civil rights protection.
Voting rights protection.

I’m sure others can add many more.

The point is not that a few unique individuals can manage to overcome the hurdles placed in their way. The point is that those hurdles should not be there at all.

To be clear, I’m not talking about merit based or skills based hurdles, but hurdles that are NOT based on anything related to the ability to succeed.

To loop back to the thread topic, some people are going to make a mistake by getting higher education via student loans. Some should not have got the education at all. Some should, but should not have used loans (or so many loans).

How do we treat people who have made such mistakes? We have already decided that student loans cannot be forgiven via bankruptcy (with a couple of rare exceptions). As things stand now, people who have made this mistake have virtually no way to resolve that mistake and get on with a productive life. We force them to carry this student loan burden with them for life.

Is this plan for loan forgiveness perfect? Of course not. But it is far better than continuing the status quo. Yes, some who might not need the help will get it anyway. But those who do need the help will get some help.

And that is the point. Through this loan forgiveness, the government is taking the side of the powerless over the side of the powerful. That has been a rare thing in the last few decades.

—Peter

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89

The student loan mess was created by corrupt congressmen who exempted student loans from the bankruptcy process.

The story I heard is that freshly minted doctors were filing bankruptcy shortly after finishing med school. Their income is low, their debt high, and the formulas the court used at that time say they qualify for discharge.

I could see bought and paid for Congress critters stepping in at that point to exclude student loans from bankruptcy.

—Peter

90

The story I heard is that freshly minted doctors were filing bankruptcy shortly after finishing med school. Their income is low, their debt high, and the formulas the court used at that time say they qualify for discharge.

Hurt everyone for a small minority gaming the system? How collectivist of the “free enterprise” crowd. Sounds a lot like the POTUS that was demanding “tort reform” for everyone (except the “JCs”), while complaining about “junk lawsuits”.

Steve

91

Any solution to help those who can’t pay their student loan will always upset those who did pay it off, but I think a better first step might be to allow them to be discharged via bankruptcy like any other loan.

I just posted one way the bankruptcy system can be abused. My improvement would be to make student loans dischargeable in BK something like 10 years after the loan was made. That would help discourage abuse while still allowing discharge eventually.

The bigger issue is that this forgiveness plan can be done by the executive branch, while changing BK will need Congress to pass a law change. And we all know how easy that is to do.

—Peter

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92

The relevant function of government is to protect those who have - whether they have a lot or a little, or even only their lives and the rags they are wearing - from those who would unjustly take from them.

Ok. Let’s work with that definition. I’m not saying I fully agree with it, but I’ll work with it since it is yours.

#3 went to school to become a network technician, and racked up a bunch of student debt before the school went broke and it was revealed that what they were teaching varied from never-was-correct to obsolete,

So the school unjustly took what belonged to #3. Specifically, the borrowed money. By your definition, #3 merits protection.

As to why #2 and #1 are paying, they are paying a small part, as are #4 through #335 million, because they would get the same protection if the situation happened to them. The government - which is all of us - has the job of protecting people from those who would unjustly take whatever it is that we have. That’s what you said.

—Peter

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93

Oh, I’m sure the IRS is right there when you die and have assets like a home, or home equity, or a stock market account or IRA/401K. I’d bet they quickly remove some of those assets to pay off your student debt.

You would be wrong in that.

Federally guaranteed student loans are forgiven at death. They do not have to be paid from the decedent’s assets.

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

Which raises another thought.

A common idea here in these parts is that keeping a mortgage into retirement is a good financial move. The loan is typically at a rate less that what you can expect to get from the stock market over a longer period of time. And it can’t be called early.

But can’t you say the same thing about a student loan? Rates are generally very reasonable. The loan can’t be called early. Deferral of payments is easily obtained if financial hardships arise - sometimes with no interest accrual, depending on the hardship.

Why pay off your student loan early? Instead, shouldn’t you defer payment as long as possible to extend the time the loan is outstanding? That leaves more money available for investing. And if you die still owing the money, you (ok, your heirs) get a bonus.

—Peter

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94

Why pay off your student loan early?

Not all student loans were low rates. You get loans at the rate you start with, which was 9% for me in the '80s. Rates started going lower after I got my first loan but mine were stuck at 9%. You could get a used car loan for less than that after I graduated. You bet I paid them off PDQ.

IP

95

a better first step …

One has to remember that there are some things, limited things, the President can do on his own and other things require the legislature … which is, shall we say, challenging at present.

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96

take the cost of the subsidy out of the retirement of those in Congress who established and maintained this relationship.

Except Congress was not involved in this.

97

Why exactly should #1 and #2 be forced to cough up cash for #3’s student debt?

False premise. Nothing about the current program will increase the tax burden of #1 and #2 (or #3 for that matter). It might raise the debt and, at some point, they may want to reduce that debt, but there is nothing that says that the mechanism for debt reduction will be tax on any of these people. Could be, but also could be taxes on large corporations or high earners or who knows.

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98

…I find that a highly unsatisfying solution. It places the bulk of the responsibility for change on the individual…

Precisely as it should be…except, as I noted in my post, for those who can’t…not those who won’t.

…The point is not that a few unique individuals can manage to overcome the hurdles placed in their way…

You make it sound like taking individual responsibility for motivation, perseverance and change to improve one’s life is a rare thing. I suggest, for example, you consider the waves of immigrants that have come to our shores over time that were seen as powerless (Irish, Italians, Chinese, Hispanic, etc., etc.,). Yes, over time the government removed some of the systemic barriers for them…but not for many years. They succeeded primarily due to their individual perseverance, talents and the motivation to do/change. By “success”, I don’t necessarily mean they started a business, etc., but they made a life for themselves and improved their lot in life versus from whence they came.

…some people are going to make a mistake by getting higher education via student loans. Some should not have got the education at all. Some should, but should not have used loans (or so many loans).

How do we treat people who have made such mistakes? We have already decided that student loans cannot be forgiven via bankruptcy (with a couple of rare exceptions). As things stand now, people who have made this mistake have virtually no way to resolve that mistake and get on with a productive life. We force them to carry this student loan burden with them for life.

Well, Peter, big financial mistakes are made by many people in all walks of life. Why does this one group get singled out for special debt relief on big financial mistakes? How about the non-college educated working class? Small business entrepreneurs who fail? Etc., etc.

(By the way, I am also against the idea/practice of socializing the losses of “big business”…car manufacturers, etc. when they screw up, while allowing them to keep all the profits during good times.)

The “solution” for this student-loan specific issue is right in front of our noses…and in your post: Students should have been able to clear these loans via bankruptcy, like any other debt Then, fewer loans would have been issued…as should be, because college is NOT for everyone…and our governmental/societal actions/words for many decades have implied just the opposite.

Given lower demand driven by the actions above, college-education costs would not have been artificially inflated by “college for everybody” theme.

We obviously view things very differently, with you advocating that the government play a larger role in an area (personal debt) which I think should primarily be the responsibility of the individual.

Cheers!
Murph

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99

Murph:"The “solution” for this student-loan specific issue is right in front of our noses…and in your post: Students should have been able to clear these loans via bankruptcy, like any other debt "

Then every student would pile up debt, and immediately declare bankruptcy after graduation as they tend to have no assets - maybe an old car - and nothing else. Or maybe take out nice car loan…then declare bankruptcy before going to work.

Nope, bad idea.

t.

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100

Then every student would pile up debt, and immediately declare bankruptcy after graduation as they tend to have no assets - maybe an old car - and nothing else. Or maybe take out nice car loan…then declare bankruptcy before going to work.

Nope, bad idea.

Or perhaps the loan would not be made…unless co-signed, etc…just like things used to be before the Feds took over student loans…and got us where we are today.

Cheers!
Murph

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