The Education Conundrum

Here we go. Biden hasn’t even moved into the White House and radical progressives are calling for massive forgiveness of college debt. A New York Times article on the subject of student debt was the inspiration for this blog post.

The bid and ask range of college debt forgiveness stretches from $10,000 per borrower, or a total of $400 million, to $50,000, a total of $1 trillion. The Department of Education owns $1.4 trillion of student debt and is the largest consumer lender in the country. Liberals including teachers’ unions and the NAACP are calling for the higher amount. Biden has endorsed a $10,000 program and a promise to chip away at the remaining debt overtime.

The first major issue to contend with is whether a debt forgiveness program is best legislated or accomplished with a presidential executive mandate. There is an embedded constitutional issue with the mandate, as only Congress has the power to effectively pay Americans. But this is now being hotly contested by attorneys. Obviously, a mandate is the most efficient way to forgive the debt.

It should be noted that forgiving $400 million or $1 trillion would not be a cash outflow from the Treasury. The money has already been spent. Student loans were funded. The federal government would essentially be forgiving principle and interest on the loans, which would reduce future cash flow assuming borrowers paid the money and debt service in the future.

Then of course, someone must decide whether the most needy people would be getting the benefit of the debt forgiveness. Some say debt forgiveness is inefficient as 70% of the unemployed do not have college degrees. And 60% of the debt owed belongs to 40% of earners who have annual income of $74,000 or more. It appears that most debt forgiveness programs will benefit middle and upper class individuals more than the poor.

Proponents say debt forgiveness would be a stimulus to economic activity as borrowers would instantly have more cash flow to spend. And as mentioned earlier, the government would be providing stimulus without incurring more national debt.

Opponents say that those who have paid off loans will surely feel cheated. And, many students would borrow more money hoping that future debt payment forgiveness programs would happen again. Nevertheless, forgiveness of debt does not address the systemic problem of high cost of a college education.

Various experts have said that state schools should be free of charge. Others say repayment should be based upon the borrower’s earning power. But there have been no suggestions to date that would address the underlying problems outlined above.

There has been a lot of talk of the evils of student debt. Mistakes were made by many parties. Students borrowed today and did not concern themselves with the specter of repayment or taking courses that would enable them to repay their student loans after graduation.

Overzealous congresspeople incorrectly thought that providing debt for higher education without any quid pro quos was good policy. They were wrong to the tune of $1.7 trillion. Now the same people want to double down and make the debt disappear.

This legislation will be difficult to consummate unless the number is far lower than what progressives are demanding.  

Leave a Comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s