Should We Forgive Student Loan Debt to Stimulate the Economy? [My Two Cents]
Posted in Adulthood + Money, Best of the Blog, College + Career + Cash on July 16, 2012
There’s a campaign on Twitter called #ListenToTheMillion, pushing Congress and the powers that be to forgive student debt to stimulate the economy. I’ll admit: the Student Loan Forgiveness act sounds great on paper. I regret borrowing as much as I did for college, and I’d be the first to sign up for some extra financial support.
But what would really happen if student loan debt were forgiven?
As with much of the student loan debate, there is a lot of hype. Before I answer whether or not loan forgiveness would boost the economy, let me clarify a few things:
- Debt forgiveness would only apply to federal loans (this includes Parent PLUS loans)
- If you have consolidated federal loans through a private service, you are not eligible
- You must have paid at least 10 percent of income for at least 10 years to have your loans forgiven
- The plan would be retroactive (your loans would be forgiven if you already met the above requirement)
- To prevent abuse, the act caps the amount that could be forgiven for new borrowers
My Two Cents
I don’t think that Congress (or advocates, for that matter) get it. This is just a conciliatory gesture, but it will not stimulate the economy.
The problem doesn’t lie with folks that have spent 10 years paying 10% of their income toward their federal loans.
The student loan problem happened because of the ridiculous cost of higher education, access to easy borrowing, students attending schools they might not be able to afford and no jobs for college graduates.
Here’s what we do need:
- Provide better information to high school students about borrowing for college and attending a college you can afford
- Use technology and remote learning to support cost-effective, low-touch and distance education
- Fix a broken and wildly expensive market for post-secondary education system by creating a grading system for students to compare their “return on investment” across multiples colleges
I don’t have the solutions, but I do think that more of our country’s time and resources would be better spent fixing the root of the problem instead of applying a band-aid.
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What do you think? Do you think forgiving student loans will actually stimulate the economy? How would it affect you if federal student loans were forgiven? Let me know on Twitter, Facebook or in the comments below!
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We should help more people with the housing crisis. That is really what needs to be done. What good is a family on the street who has no place to stay? Maybe they don’t need to be forgiven but helped at least.
I agree that this should be a non-starter. I have no problem with taking measures to make the interest less burdensome, but by no means should principle debt for student loan ever be ‘forgiven’. It insults those who have paid theirs already, and especially so those who might have chosen to pay theirs early, as I’m sure that they wouldn’t reimburse anybody in that regard.
Plus, it’s not like we’re running a surplus that we can afford to take on this debt as a country. It would just add to the deficit, and we’d pay for it anyways.
You have a couple of your facts wrong. Your first one is partially correct. Yes debt forgiveness only applies to Federal loans but what you didn’t mention is you will have the chance to turn your PRIVATE loans into Federal loans. The guidelines for if you can are in the bill. Your second one is completely wrong, I would like to know where you got it at.
I do like some of your “two cents” but the first one I find hard. There are not many colleges that are considered low cost so there is no affording them. On your second on remote technology is a good idea but when I went to college the online courses were actually MORE expensive because they added a technology fee!
The main point of this legislation is that because of capitalized interest people are paying back their loans 3-5 times over. There are no consumer protections for student loans. I have a friend that has paid well over the original amount of $60,000 but still owes over $100,000. How does that work? The student lending system is a big scam and it needs to be dealt with and this is the best way possible in my opinion. You are not getting it free, you still have to pay for 10 years. But I also think this is only a start. More has to be done to lower the cost of college!
Thanks for the article!
Hi Dena,
Thanks for the thoughtful comment. Yes, you’re right – you can turn your private loans into federal loans. Regarding the second point, I’ve seen it mentioned in a few places. Here’s one from U.S. News: http://www.usnews.com/education/blogs/student-loan-ranger/2011/01/19/4-reasons-to-consolidate-your-student-loans
“Beware of consolidating federal loans into a private consolidation loan. Federal loans have important borrower protections that you lose if you choose to consolidate federal loans with a private lender.”
Your point about “affordability” is well-taken. What I mean is that it’s important for students to explore the net costs. Some student avoid going to Harvard because of the price tag, but in reality, that college may pay all of their tuition if their family makes a certain amount of money. At the same time, you may be able to get a similar education in a more affordable state school as you would at a super expensive private college in New York.
I think we can agree that more has to be done for lowering the cost of college in general
Thanks for the reply and more info on what you meant. Regarding the quote from US News. They are correct you don’t want to consolidate your Federal loans in to private loan but when you do a Federal consolidation you often get stuck with a private lender servicing those Federal loans but they are still considered Federal loans. Many companies like Sallie Mae service Federal and Private loans together and you would contact them (a private lender) to do the Federal consolidation. I just think it is a wording issue. If you would like more info you could check out HR4170.com, forgivestudentloandebt.com and also the Facebook page ForgiveStudentLoanDebt. There is a lot of information on those sites! Thanks again on replying!
That’s an important distinction – thanks for clarifying that. It’s a confusing system in general (actually, the feds just sold my loan to a private servicing company and I didn’t even know it: http://www.empowereddollar.com/my-finances/no-more-student-loans/). I’m glad sites like ForgiveStudentLoanDebt.com are raising the issue of student loans. I just wish that we (Congress) focused more on solution-oriented approaches instead of a band-aid.
After 2005 legislation, all steudnt loans are exempt from discharge in bankruptcy. You may be able to avoid this with private loans if you can show that your loans are not really “educational loans” as defined by the Bankruptcy Code. For example, the standard does not apply to payments for tuition or room and board if you did not receive an extension of credit. Also, the higher standard applies only if you went to an “eligible educational institution.” That means an institution that is eligible to participate in one of the government steudnt financial assistance programs. Most, but not all, schools fit this category. You should consult a lawyer for more information about whether your loans meet these definitions.