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FEMALE 1: Going to college has become part of, like, a necessity for everyone, that the
government should be able to pay their part in order for everyone to be able to go.
FEMALE 2: The idea of taxpayers, sort of, forgiving the debt is a good one in principle,
but in practice I’m not really sure how they’d carry that out.
PROFESSOR DANIEL LIN: Student loan debt has reached an all-time high, placing a great
strain on many young graduates. This has led some to propose debt forgiveness as a way
to help the needy. Would debt forgiveness achieve this goal?
I’d say no, for two reasons. First of all it would only be a temporary solution to help
currently indebted students. It wouldn’t change what got those students into debt in
the first place. It wouldn’t prevent future students from taking on even more debt. And
it wouldn’t reduce the pressures causing tuitions to rise. Second, forgiving the debt
doesn’t magically make it go away: the government, meaning taxpayers, would be forced to pay
it. With our enormous national debt, that’s pretty hard to justify, especially since college
graduates, on the whole, are one of the more privileged groups in the country.
After all, college graduates have higher wages and a lower unemployment rate than the national
average. Plus, they have already benefited from government subsidies in the form of grants,
tax credits, subsidized tuition, and subsidized loans. Forgiving the debt of college graduates
would be giving money to a group that’s already relatively well off.
Of course, many college graduates are still struggling to find jobs and pay back their
loans. But instead of debt forgiveness there’s another reform that would give relief to those
carrying large amounts of student debt. Under current law, all student loans, public and
private, are nondischargeable. This means that unlike all other types of loans, borrowers
cannot get rid of their student debt through bankruptcy. The government will get it back
by taking your tax refund, denying federal benefits, and garnishing your paycheck.
This makes lenders less careful about who receives student loans. There are no credit
checks, no underwriting, and no collateral, as there would be for virtually any other
loan-approval process. Students are offered loans even if they use the funds for a degree
with little market value. Why be choosey if a loan is guaranteed?
One way to fix this is by allowing student loans to be discharged in bankruptcy. Lenders
could no longer use the government as a collection agency. Bad loans would become a problem for
the lenders, who would then have better incentives to be careful with their loans. This would
lead to fewer loans or loans with higher interest rates. This may sound bad for borrowers, but
it’d be important for giving borrowers the right incentives as well. Instead of taking
on debt before thinking through the repercussions, they’d have to have a plan for paying them
back.
Finally, with fewer loans being given out, colleges would have less fuel for tuition
increases and feel greater pressure to control their costs. Student debt forgiveness may
be a tempting idea, but it would just shift the burden onto taxpayers while doing nothing
to address the fundamental causes of tuition increases and mounting student debt. Making
student debt dischargeable in bankruptcy is a good first step toward reform that would
better address the concerns of students both now and in the future.