There's no need to cancel student loan debt

There's lots of huffing and puffing over student loan debt, but little smoke and not much fire.  Where's the crisis?

Forbes provides a good overview of the status of student loans in America.  Of the $1.368 trillion in outstanding federal direct student loans, only 8% by value (13% of borrowers) are in default.  Twelve percent of loans by value (20% of borrowers) are in school or in their grace periods.  One percent of loans (1% of borrowers) are being repaid, while 8% (8%) are in some sort of deferment.  A whopping 71% of loans (59% of borrowers) are in forbearance.  As these are higher education loans, they presumably have gone to smart people.  Given the opportunity that the COVID debacle presented to stop making loan payments for a time, wouldn't the smartest people take advantage of this?  Especially since student loan forgiveness has been bandied about as a possibility since the 2020 presidential campaign season? 

But "don't underestimate his ability to..."  Biden's gonna Biden.  When the COVID deferments end on September 1 this year, he'll probably find some reason to immediately squander the entire ten years' worth of deficit reduction contained in the Inflation Reduction Act on folks already making a decent living.

This reads a lot like all the "legalization" programs for illegal aliens that have been implemented over the past few decades.  All the benefits up front, and no change or enforcement at the back.  Debt will just keep piling up and require periodic redemption.  In the face of historically high inflation, is it wise to initiate a program of fouling up the annual federal budget to the tune of billions every year?  Guaranteed, if this gets underway, it will never stop.

I wonder, do the folks with no intention of ever paying back their loans not understand that they will pay them back, through increased income taxes; overall inflation; and the rise in state and local income, sales, and property taxes that the inflation brings about?  They will pay, as will their children, and not only for themselves, but for everyone else who has taken out such a loan.  They really should think twice. 

Before any "forgiveness" of loans that will simply land on hardworking taxpayers who have already paid off their own loans and their children's loans, major changes should be made in the structure of federally secured loans.  I think they should be abolished.  Let the universities and colleges, public and private, states and localities, and all the varieties of lending institutions manage this need. 

The endowed universities could invest in their own students, charging them interest and securing a permanent income stream.  Their wokie DIE programs would ensure that the original goals of federally secured student loans would be met.  States could match their 529 tuition programs and lend from that account, again at an interest rate sufficient to fully sustain such a program.  Each of these entities could then determine whether offering loans for programs that have no hope of ever providing the graduate with the ability to earn enough to repay the loan is worth the effort.  Educational institutions determine what will be taught and funded — and be on the financial hook for those decisions.  A novel idea, but likely beyond the realm of hope, let alone possibility.

The federal government could and should restrict loans to students attending institutions that have less than a 10% default rate.  That would reduce the risk to taxpayers, as well as the risk to students of not graduating with a marketable degree, license, or certificate that is worth the cost of the schooling to get it.  A default rate any higher than that smacks of the higher education institution scamming both the student and the government simply to line its pockets.  The deferment for military service could be converted to a forgiveness program.  Four years of honorable military service in exchange for wiping out student loans?  Might be a worthwhile recruiting tool. 

If there is a sincere fear that when the COVID deferment ends, the default rate will skyrocket, well, that is still not a crisis.  Turns out to be a good thing that we're hiring 87,000 new IRS enforcement agents.  Those heavily armed federal officers can go after the deadbeats, garnish their wages, redirect their federal payments including tax refunds, and seize their assets.  After all, if you're not cheating the federal government out of the rightful repayment of a loan, which you promised to make, there's nothing for you to worry about.  Right?

Anony Mee is the nom de blog of a retired public servant.

Image: StockSnap from Pixabay, Pixabay License, free for commercial use, no attribution required

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