Student Loan Debt Forgiveness

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I was reading the commentary on student loan forgiveness since Joe Biden has said he would do something. It is not going to be $50,000 in forgiveness as Senators Warren, Sanders, and Schumer are pushing. Biden has said it is unlikely it will be this amount. Indeed, he suggested $10,000. The $10,000 might be worthy if we canceled all of the penalties, consolidation fees, and the excess interest along with the $10,000.

If you are not aware, Joe Biden has been helpful in promoting the false narrative since the nineties of students scamming the student loan system to offload debt. This is not true according to sources since then. These are not typical loans.

Tom Sullivan has a good take on the issues with student loans bringing us to this point and why a failure to do so is complete bull sh*t.

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Repost of Tom Sullivan’s Student Loan commentary,

“Ask not what your country can do for you,” Hullabaloo

Rescuing you (student) is controversial unless you’re a “job creator”

The New York Times’ “The Daily” on Monday considered the pros and cons of addressing the student loan debt crisis. Partway through, I felt a rant coming on.

The Covid pandemic prompted the government two years ago to defer collection of student loan payments. The Joe Biden administration has extended the collection moratorium four times. Restarting collections after a two-plus year hiatus, says Stacy Cowley of the Times, will be at best logistically dicey. Cancelling student debt, as Sens. Elizabeth Warren and Bernie Sanders have suggested, faces its own hurdles:

The thing that has kept them from pulling the trigger and going one way or the other on this — resume payments or cancel some debt — is that there’s really big obstacles to either of those courses of action. They fall into three buckets. There’s political obstacles, there’s economic obstacles and there’s logistical obstacles.

Biden may or may not have the authority to wipe out the loans with a stroke of a pen, Cowley argues. Congress could address it more definitively, but:

They don’t have the votes for it at the moment. That’s part of why we haven’t seen it happen in Congress. The House has passed a version of this, but it has basically died in the Senate.

And that’s because, first of all, the Republicans are pretty much universally against this. They’re very concerned about the cost of it. We’re talking about hundreds of billions of dollars here.

There’s also concerns about is this a giveaway to well-off college-educated folks? This gets perceived as you’re potentially subsidizing loan payments for people who took out expensive graduate degrees, went to professional schools. Is that really the best use of taxpayer dollars? So that’s the concern you hear a lot from the Republican side of the aisle.

This is about the point my blood began to boil.

Let me preface where I’m headed with a disclaimer that will come as no shock. I am not David Dayen or in any way equipped to suss out the economic benefits or downsides of this issue except in the broadest terms.

What pisses me off is this: that cancelling student loans for students, graduates and non-graduates, well-off and not-so-well-off, is more fraught than the government dedicating billions or trillions to bail out the very, very well-off, college-educated bankers that brought on the financial crisis and the Great Recession. Millions of Americans lost their homes while we made the bankers and the financial industry whole.

Estimates for what the financial bailout cost are all over the map. As much as $7.7 trillion in undisclosed loans. Many (most?) were paid back with interest. Deborah J. Lucas of MIT Sloan, however, estimated in February 2019 that “the total direct cost of crisis-related bailouts in the U.S. was on order of $500 billion, or 3.5 percent of GDP in 2009.”

“As for who directly benefitted, Lucas found that the main winners were the large, unsecured creditors of large financial institutions,” a companion Sloan article explained. “While their exact identities have not been made public, most are likely to have been large institutional investors such as banks, pension and mutual funds, insurance companies, and sovereigns.”

Well government sure works for them, doesn’t it?

Moderate Democrats have their own reservations about student debt forgiveness, says Cowley:

There is a sense of people took these debts on willingly. Is this really the best use of our dollars, especially at a time when we’re trying to expand our appeal to working-class voters? Should we be dumping money into people who attended some college or have degrees and redirecting the taxpayer dollars from the working class folks to them?

Where were these Democrats when we were bailing out losses for risks the financial sector took on willingly? “Moral hazard for thee but not for me,” say those assimilated by late-stage capitalism.

Wiping out student debt alone would simply leave a broken system in place, argues Matt Lewis at Daily Beast, and upset people like him who paid off their loans. (So did I; it wouldn’t bother me.) Plus, about half of all student debt (not borrowers) is for graduate school. Thus, debt cancellation is ultimately regressive, he argues, benefitting professionals and the well-off who, dime-store moralists might argue, are less deserving. But that ain’t necessarily so, says Cowley:

So Black student borrowers and student borrowers of color are typically disproportionately burdened by student loans. They both typically leave college with higher debt loads and they carry those debt loads for far longer than white borrowers. And this has a really pronounced effect in the data. You can see it on household wealth. This has been a real factor in the wealth gap between white households and other households.

So, what would it cost, this debt forgiveness? Brookings provided the range in February 2021:

In terms of its scale in budget and cost to taxpayers, widespread student loan forgiveness would rank among the largest transfer programs in American history. Based on data from the Department of Education, forgiving all federal loans (as Senator Bernie Sanders proposed) would cost on the order of $1.6 trillion.^[1] Forgiving student debt up to $50,000 per borrower (as Senators Elizabeth Warren and Chuck Schumer have proposed) would cost about $1 trillion. Limiting loan forgiveness to $10,000, as President Biden has proposed, would cost about $373 billion. Under each of these proposals, all 43 million borrowers would stand to benefit to differing degrees.

Brookings offers more analysis of who benefits and options for how such a plan might be structured at the link. But that’s beside my point.

I’m in no position to judge the economic merits of the various cancellation proposals. And I have no dog in the fight. What rankles me is the fact that when it comes to securing the financial industry, other major industries, or the 1%, government’s response is, “Yes, sir! How high?” Social implications and political considerations are secondary. But when it’s a discussion about backstopping Americans who are not Big Money Boyz, Washington gets all hand-wringy. The Boyz know what they are getting for their campaign donations and what taxes they grudgingly pay. Everyone else who sees federal deductions from their paychecks and pays taxes this week is left to wonder.

That’s why Matt Taibbi wrote in Griftopia, “There are really two Americas.” For the grifter class, government is “a tool for making money,” while “in everybody-else land, the government is something to be avoided.”

During Covid, the government provided stimulus money to citizens and unemployment supports during the lockdown. But as soon as the death-counts began falling, politicians were back to complaining that the proles would need sticks to get back to work making money for the investor class. For “stockholders, bondholders, and corporate executives,” government stepped up once again. “Workers are not only not protected, they’re paying for the rescue, with taxpayer money propping up the Fed actions,” Dayen wrote in May 2020. During the pandemic, Congress pawned off the task of mounting a “stealth bailout“:

Congress didn’t have to cede authority to the Fed and carp about it after the fact. It could have decided the parameters of any economic rescue. But that would involve making actual governing decisions, which Congress would rather defer to others. You can argue that, in the absence of state functionality, the Fed had to step in. But we’re living with the unequal consequences of a central bank that can only solve problems for one set of powerful interests. And perversely, rescuing investors—rich people like members of Congress and the donors they listen to—makes it easier for Congress to keep ignoring the needs of everyone else.

Holders of student loans they’re struggling to pay off while investors get handouts know too well they are being ignored.