Why Student Loan “Forgiveness” is misleading, and not progressive.
(Specifically about Biden’s Student debt relief plan)
The federal government has student loan programs, many of which pass no interest to the borrower. They’ve made arrangements with private loan agencies and set some ground rules so that a student can walk into their campuses’ financial aid building and meet with a campus employee about getting a loan. The school tells you how much you are eligible for in federal loans that are fully subsidized by the government and also in loans that are not.
As a student I’m left wondering why people are in so much debt. They are not forced to take these loans; a person can easily take all the fully-subsidized loans and only a few non-subsidized loans or none; and there are even caps on how much of each you can take per semester.
While waiting in the lobby at student aid in my last semester in college, I asked the lady at the desk what her thoughts were on student loan forgiveness. She explained that when you hear about someone having $100,000 in student debt, it’s usually because they took a private loan, which has no cap.
People who are in the kind of student debt that would make you wake up sweating at 2 in the morning definitely went to a bank with their parents and were given irresponsible loans with absurd amounts of interest that both they and their parents, who cosigned, are responsible for indefinitely.
Now we have a society that is heavily crippled by student debt. Crippled through individuals being in debt, crippled by money being funneled out of local economies and to the banks. People who should be close to retirement decided to get into a financial coffin with their 18 year old and now see no end in sight. More people are graduating while fewer are retiring. Biden's response to that situation was to give relief to borrowers, which would solve all those problems immediately, but would enable the underlying issues they stemmed from and really only give a small amount of relief for those who have hundreds of thousands in debt, since his plan would only forgive up to $20,000.
Make no mistake, I personally would get out debt-free, but that doesn’t mean I think it’s a good idea.
Misleading: who’s the real winner?
Principally, the description of this as “student debt forgiveness” is misleading for a few reasons.
Let’s say I borrow money from you and someone else pays you back with interest on my behalf. You’re not forgiving my loan. While it’s true that I am now relieved of my obligation, you make your money back with interest, and that someone else loses billions, and you are incentivized to keep loaning knowing that your return is protected.
The predatory lender is the winner of “student debt relief”. They can only gain from doing it again. They are incentivized because the taxpayer guarantees the return on their investment.
It’s marketed as “Student debt relief” because Biden wants the vote of the student. In reality, it’s privatized profits and socialized losses.
Should the lenders be given government handouts when it was they, the experts on banking and loans, who made the mistake of making predatory loans with no caps to 18 year old's and their parents? Should the federal government reward parents for digging a credit grave for their adult child? Should the federal government reward banks for crippling the millennial economy? If this were a nursery rhyme, the bank would be a slaughterhouse, the 18 year old would be a cow, and the parent would be the farmer. The federal government would be the federal government, saying “people gotta eat!”
Banks did not just start loaning money to parents of college students ten years ago. It’s happened before and it will happen again. There needs to be caps on all student loans. There needs to be caps on all cosigned loans. The solution isn’t to buy out the banks, the solution is to regulate them.
“What about trade school and small business owners?”
Everyone always brings up the obvious: that tradespeople and small business owners have debt that is not being forgiven, and that it’s unfair and classist to only forgive “student” loans. While I agree with this argument, I think that it does two things wrong. One, it shifts the blame onto individuals who went to college, rather than the onto banks and the hand they have in our government, and, two, it fuels antipathy between the working class and the underemployed educated class.
You hear that your brother who went to college might be getting their loans forgiven, while you, a successful tradesman, got loans when starting your business, and you resent him. You might think “well nobody gave me handouts”...but what you're missing is that what your brother is receiving in relief is crumbs compared to what the bank is receiving. He’s not the lobbyist, he’s not the problem.
Corporations and Republican lawmakers love this misdirected aggravation. Banks can still be corrupt and the blame is shifted to the educated class. Republican lawmakers’ love it because they thrive on mistrust of academia. The same way racial differences benefit the top 1% by keeping us distracted and divided, and mega corporations benefit when workers are not united, crony lawmakers, banks, and the 1% benefit from the working class thinking that $20,000 is something to be jealous of. It is in the benefit of the crony lawmakers, banks and the 1% to have you focus on the unfairness between you and your brother rather than the unfairness between you and the bank, the unfairness between you and their crony lawmakers, and unfairness between you and the 1%.
Any short term debt relief plan would incentivize predatory lending, incentivize parental control of their adult children, weaken our government while strengthening banks, create antipathy between the working class and the educated class, and stimulate the economy only in the short term without solving the underlying problem.
Any kind of debt relief that pays off the banks and validates their schemes, is not progressive. For anything to be progressive it has to actually get rid of the problem so that it doesn’t come back when you’re trying to tackle the next.
Progressive policy boldly reforms problematic systems on a fundamental level. Student debt forgiveness is a tepid half measure that neither solves the problem, nor eliminates the system of incentives that caused the problem in the first place.