Student debt forgiveness

Raising living standards or adding fuel to inflation?

[...]

People whose payments are cut or eliminated should have more money to spend elsewhere – maybe to buy a car, put a down payment on a house or even put money aside for their own kids' college savings plan. So the debt forgiveness has the potential to raise the living standard for tens of millions of people.

Critics, however, say that additional spending power would just pour more gasoline on the inflationary fire in an economy where businesses are already struggling to keep up with consumer demand.

[...]

Debt forgiveness is not like the $1200 relief checks the government sent out last year, which some experts say added to inflationary pressure. Borrowers won't suddenly have $20,000 deposited in their bank accounts. Instead, they'll be relieved of making loan payments over many years.

[...]

The White House also notes that borrowers who still have outstanding student debt will have to start making payments again next year. Those payments have been on hold throughout the pandemic.

Restarting them will take money out of borrower's pockets, offsetting some of the additional spending power that comes from loan forgiveness.

Helping lower income Americans or a sop to the rich?

[...]

Some believe that transfer effectively penalizes people who scrimped and saved to pay for college, as well as the majority of Americans who don't go to college.

They might not mind subsidizing a newly minted social worker, making $25,000 a year. But they might bristle at underwriting debt relief for a business school graduate who's about to go to Wall Street and earn six figures.

[...]

The White House estimates 90% of the debt relief would go to people making under $75,000 a year. Lower-income borrowers who qualified for Pell Grants in college are eligible for twice as much debt forgiveness as other borrowers.

But individuals making as much as $125,000 and couples making up to $250,000 are eligible for some debt forgiveness. Subsidizing college for those upper-income borrowers might rub people the wrong way.

[...]

Helping those in need or making college tuition worse?

[...]

For years, the cost of college education has risen much faster than inflation, which is one reason student debt has exploded.

[...]

"People are going to assume there's a likelihood that debt is canceled again and again," Goldwein says. "And if you assume there's a likelihood it's canceled, you're going to be more likely to take out more debt up front. That's going to give colleges more pricing power to raise tuition without pressure and to offer more low-value degrees."

The old rule in economics is when the government subsidizes something, you tend to get more of it. And that includes high tuition and college debt.

  NPR

Maybe high tuition should be addressed in a complementary plan.

Even the somewhat more sober macroeconomic critics are letting their rhetoric get the best of them. Jason Furman attacked Biden's plan as "reckless," saying it would pour "half trillion dollars of gasoline on the inflationary fire that is already burning." But when he finally got around to talking numbers, he informed us that he expects just 0.2 - 0.3 percentage points of inflation from the plan.

[...]

Marc Goldwein from the Center for a Responsible Federal Budget is also really fuming about the inflationary impact, but when CRFB looked at student debt cancellation in 2020 and 2021, they dismissed it as a feeble measure that would do next to nothing to stimulate the economy. Last year, student debt relief wouldn't juice the economy enough, this year, it will juice it too much. It's hard to escape the conclusion that many of the economic impact claims are just being invented on the fly.

[...]

And of course the government subsidizes middle-class people all the time. It’s the central promise of nearly every political campaign.

So why all the vitriol over student debt? When we argue about student debt, we aren't really debating credit policy, inflation, growth or the separation of powers under the U.S. Constitution. All of these avenues of discussion are elaborate detours around the central issue: the structure of the American social order.

In the United States, a college degree is about much more than securing a higher wage. People without college degrees aren't just excluded from a lot of jobs that pay well. They're more likely to be laid off and less likely to be hired during recessions. They're less likely to have health insurance, and more likely to have a disability (the causal arrow there probably points both ways, but the combination is particularly cruel). People who do not graduate from college even have shorter life expectancies than people who do. Higher education is perhaps the single most important factor in determining who has access to a financially secure lifestyle and the leisure to pursue intellectually interesting activities.

[...]

The less there is to go around, the better it is for the people who have it. And so the more people we exclude from higher education, the more secure people with college degrees will feel about their place in society.

  Substack

I wouldn't limit that to people with college degrees. In fact, there are millions of people with college degrees who are working low-wage jobs or are still looking for work. I'd instead simply call it people with money.

After World War II, millions of new college students arrived on campuses around the country to receive an education funded by the G.I. Bill. Suddenly, an experience that had once been restricted almost exclusively to the very rich became open to infantrymen. And though the vast majority of colleges and universities continued to exclude Black students, millions of white people who had never dreamed of going to college eventually earned degrees.

[...]

We've been democratizing college ever since, of course, but there was a genuine explosion in enrollment in the first decade of the 21st century, when the total number of students in school each year jumped by more than 35 percent -- more than triple the rate of increase over the prior decade. This is also when the volume of student debt began to skyrocket, more than doubling between 2006 and 2012.

Also...the quiet part out loud:

The U.S. Army wants a 500,000 active-duty force by the end of this next decade, about 25,000 more than today. And preying on low income high schoolers is apparently how they intend to do it.

This past month the Army announced that they have already surpassed their recruitment goals for 2019–with three months still to go. That a big change from recent years’ where unsuccessful recruiting outcomes have been the norm. So what changed?

Recruiters are no longer using patriotism as their main marketing strategy. And wars in the Middle East are not on the talking points either.

Maj. Gen. Frank Muth, head of Army Recruiting Command, stated this past month that discussion of the endless wars and their potential outcomes “was not really part of the discussion” recruiters are having with high schoolers. Today, recruiters have found a new niche to meet their 2019 goals: the national student debt crisis.

  Courage to Resist October 23, 2019

...but hey, do what you want...you will anyway.