Student bailout makes no sense | Editorials


You have to ask yourself if student loan cancellation is on the table because it’s good public policy or because it’s good policy for winning future elections.

It is easy to see how he wins in political strategy. Just float a loan remission and chain students and graduates with an ever-changing deadline on a repayment moratorium, the last of which has been extended from this Thursday to January 31, 2022. Interest groups will reward a political party that distributes freebies, in this case the Democrats who propose debt cancellation at the expense of taxpayers.

For starters, student loan cancellation is a regressive government benefit, something conveniently overlooked on “waking” college campuses. It is a transfer program that lavishes more on the rich and whites, as opposed to those from lower income backgrounds. The median household income with student loans is $ 76,400, with just 7% below the poverty line. Those from better-off backgrounds tend to attend elite colleges and private universities, accumulating more debt and therefore benefiting more from forgiveness.

The economic benefits of delisting are marginal. We hear that forgiveness frees borrowers in debt to become consumers, but payments are so spread out over time that the impact is limited. Moody’s Investors Service, in a 2019 analysis, found that canceling student loans would provide a short-term stimulus comparable to a tax cut – about 0.4% of the total economy. Forgiveness does not make the debt disappear, it simply transfers it to future taxpayers via the public debt. The grandchildren of today’s borrowers will have to pay for it. If interest rates rise, we will all pay the increased cost of servicing the public debt.

Moody’s also cited what it called “moral hazard” – students taking on more debt or choosing majors with poor job prospects if they think a government bailout is in the cards. Moreover, forgiveness does little to encourage colleges to become more efficient, to embrace change, or to better align majors with job availability, employer needs or potential income.

Finally, there is the issue of fairness. Not everyone goes to college. Out of 225 million adult Americans, about 45 million have federal student debt. Why are they suddenly a protected class that must have their obligations erased? Small businesses go into debt, and so do owners. They learned a lesson the students apparently missed. If you borrow money, you have to pay it back someday.

Perhaps students and recent graduates will learn this lesson by the last student loan repayment deadline.


About Alma Ackerman

Check Also

Tough roster decisions await LAFC as it sorts through player contracts

Tough roster decisions await LAFC as it sorts through player contracts

The eventual MLS Cup champion LAFC celebrates after their victory over Austin FC in the …

Leave a Reply

Your email address will not be published. Required fields are marked *