19 Comments

Canceling debt is a short-sighted, purely political play. Forcing universities to reign in ridiculous tuition costs, on the other hand, would *actually* make a long-term difference.

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I’d love a detailed follow up post on how to reduce the moral hazard piece. I’m not a debt cancellation proponent but I could stomach it if we actually fixed the underlying issues in the education system.

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I have two long-standing positions that I've refined after a long time suffering under student loans and thinking about how we all got here:

1. The state-level university accreditation commissions work like an old-fashioned guild. They're completely captured by a professionalized administrative class, and have long since evolved from merely enforcing academic standards to enriching themselves. There needs to be systemic reform in how these commissions are selected and held accountable, and it's not going to be just one or two quick tweaks, but a generations-long ball of yarn to untangle.

Sadly, there doesn't exist much of a political appetite for this in either party. America's a broken democracy, after all, which makes doing any of this harder.

2. IBR is a fine intermediary step if government is going to keep financing the whole thing until we figure out a more permanent solution.

But if we're serious about having "the market" work for us, then the neoliberal approach ought to be to convert from the debt model to equity. Equity means the student pays some rate of income for a fixed period. Investors and banks would compete to sign individual students for whom they'd pay their tuition, and would pool their clients' bargaining power to both get better rates and hold institutions accountable - the investors' future revenue, after all, depends on the institutions' success. Also, like a record company, the investors are incentivized to sign as many students as possible, because it's hard to predict which individuals will be "rock stars" and make up most of their revenue.

However, the thing about the neoliberal approach is, if you squint hard enough, you realize it starts to look like "taxing the public to pay for universal higher ed". Now, on a superficial level, one's preference here might just come down to whether or how much you think people should be responsible for paying for their own education. But if you zoom out, you also realize that this question doesn't matter as much as the question of how educated of a society we think we'll have 2, 3, 10 decades into the future. If we think that most people won't need/have degrees, then the neoliberal model has the more sustainable politics. But if we think that most people - up to 80-90%, maybe - will eventually need/have degrees, then the socialized model makes the most sense, because we want to maximize the entire population's potential.

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We have a system that taxes the student loan recipients more—it’s called our progressive income tax system.

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Don’t all your solutions to the moral hazard problem require an act of congress? The argument that forgiving student loan debt is good notwithstanding that there are other debts out there that might be forgiven is that the administration can do it solo. But I don’t see the explanation that the administration can solve the moral hazard problem without congress. If that’s true - congress is necessary to solve the moral hazard - why should we expect it to happen?

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It has always amazed me at how good the left is at defining an issue they want to fight "Don't Say Gay" was absolute brilliance but when it comes time to push policies they support they fail totally. Defund the Police was bound to fail but what about Demilitarize the Police. Or in the case of students loads, fix student loans, simple and to the point!

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Love your analysis and am amazed at how you can write so many thoughtful pieces on diverse topics every week.

But as a former newspaper editor: you're repeating "simply" too much.

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REPAYE provides a path to help low income earners escape school debt, while including safeguards against abuse by high income earners.

It's worth reading how it works for those interested in school loan governance, it's actually an interesting political compromise with some keyhole solutions built in.

I don't know why it is left out of school debt discussions.

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Aug 23, 2022·edited Aug 23, 2022

I feel like I must be in some bubble on this because the people I know seem much less excited about student debt cancelation. Those without debt seem antagonistic to the idea and those that do have it, while excited at the prospect of getting some of it canceled, just don't seem to care at anywhere near the intensity people on Twitter seem to.

Based on these impressions I'm nervous this will backfire politically and hence lean towards kicking the can until at least after the midterms.

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May 2, 2022·edited May 2, 2022

Student loans are a poor way to fund our universities. It should also be noted the non-dischargability of student loan debt dates to the 1978 bankruptcy act. The reason for it is every student who graduates with debt and no trust fund is technically bankrupt (liabilities exceeding assets) and we would today be swamped with a cottage industry of lawyers making money helping them discharge their debts. The implication there's a whole generation of young people being held back from becoming the next Bill Gates or Steve Jobs (both dropouts) by student loan debt is pie-in-the-sky-ism. This piece really wasn't thought through.

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I'm not sure the inflationary effect would be anything more than modest and short term. With interest payments suspended for the past two years and those of modest means getting by without ongoing payments, the effect would be to lighten the "ball and chain" you describe, rather than to free up money in household budgets. Some of the psychological burden that influences future decisions would be lifted, enabling the job switches and risk taking you describe, all the better for the economy going forward. But the impact on immediate spending? Maybe not so much.

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My husband had federal student loans that are now somehow private, and he didn't refinance them. Does anybody know the mechanism behind this? We only found it out when the company started dunning us while I was sure all loans were paused.

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I don’t think student debt cancellation can be justified without changing the underlying system of lending to college aged students. Otherwise, we’ll just find ourselves in this situation again x years down the road and will have learned nothing. I think reforming some lending practices might actually lead to tuitions coming down in the long run and would be a massive net + on education accessibility moving forward. The federal government themselves has sort of created this bubble in student loans and the reality is private universities think they can charge basically whatever they like to get an education at their institution because well, consumers essentially have “free” money at their hands from the federal government to get an education. If you just stopped the federal student loan program today, way way way less people would go to college and subsequently the price of tuition would come down. Not saying that’s gonna happen, but there needs to be some reform on the lending side here and some standards for what consumers are lending money FOR.

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Good post. I’m assuming that with BBB not passing this is the bronze medal?

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Do we really want encourage people who can't pay off $10k in loans to become entrepreneurs and start risky businesses?

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How would a graduated approach play out? That is, what if the government forgave $1000/yr for the next 10 years as long as someone is in good standing i.e. up to date on payments?

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