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My biggest issue with these cancellations is that they don't seem to be fixing the underlying issue at all — that you can't default on your student loans. Lend

My biggest issue with these cancellations is that they don't seem to be fixing the underlying issue at all — that you can't default on your student loans. Lenders are incentivized to loan as much out as possible because their risk is so low, and so there is no reason to NOT approve a $150,000 loan to a student earning a degree which will realistically net them $40,000 a year. As soon as you let borrowers default, the math starts to make sense again. Lenders will have to evaluate how much they are willing to lend a student based on their expected earnings post-graduation. Universities won't be able to increase tuition at such an inflated rate since there wouldn't be infinite money being pumped into the system. College may actually become affordable again over time. It's not a mystery what the actual problem is here. edit: corrected "lenders" to "borrowers"

Manuel_D 2y ago
The issue is that universities are a huge block of democratic support. If you allow people to default on student loans, then banks are going to be much more hesitant to issue them. That, in turn, will reduce universities' revenues. Furthermore, the entire premise of federal student loans is that they're not technically spending. Of course if they allow these loads to be defaulted, then this is ultimately a spending program.
- miohtama 2y ago
  The easiest solution here is to compare data to countries that allow student loan defaults. AFAIK this is most of countries. There should be good data if the issue is real, or hypothetical, or political lobby based.
  - hansvm 2y ago
    Cross-country comparisons like that tend to be hard. It's hard to isolate whether the metrics you're analyzing are because student loan defaults aren't allowed, because of the student selection pressure from an oversized military, because of a culture which views responsibilities and cohesiveness differently, because of secondary funding options, .... There are many such factors, all of which plausibly matter as much as loan defaults, and since the vast majority of the country you'd like to compare to will tend to be homogeneous with respect to those confounders you often can't find many (if any) actual alternatives to compare to. Statistical approaches to appropriately tease out signal from noise in the larger data set are easy to get wrong, even if you get lucky and actually have comparable data in the first place (e.g., including trade schools or not in the metrics, similarly with associate degrees, counting "in-progress" loans with different payment timelines (treating a truncation bias differently), ...).
specialist 2y ago
> don't seem to be fixing the underlying issue at all Rollback higher-ed policy changes since the 70s. (h/t Gov Reagan, James Calhoun) Restore govt subsidizes of higher ed, govt issues loans and financial aid, bankruptcy protections, etc. I'd hope treating higher ed as a public hood, instead of business focused on wealth extraction and hoarding, would help address some of the other "greed is good" pathologies too. Grade inflation, credentialism, focus on STEM at expense of trades and liberal arts, anti labor strategies like reduction of tenture, etc.
drak0n1c 2y ago
To describe the subsidy policy fully, there's on-demand immediate guaranteed federal reimbursement of 97+% of the loan's entire projected value. The DOE brags at the top of its annual letter about the $120+ billion in new loans issued under the policy every year. It's no wonder after many decades of this that colleges are bloated with non-educational excess and tuitions have risen exponentially. Prospective students are not shopping with real prices in mind - if there is a choice between a university with big names, shiny amenities, and attractive dorms the sticker price difference doesn't mean much. Gradually, all schools give up their frugality and delude themselves into mission drift. Arbitrarily cancelling loans now without scaling down new loans is multiplying the subsidy distortion effect, as new borrowers are increasingly convinced they too may not have to pay back the loans they're freely given. In my opinion, subsidized loans need to stop entirely for a period of back-to-essentials relative austerity for university budgets before we bail out and calcify the current bloat with a new benefit. Then if we really need a new benefit it can look like a leaner amount-capped voucher and not a state inflated debt balance that may or may not go away. The voucher could scale on merit, a guaranteed partial scholarship as long as you meet certain standardized test/grade levels (without the need to apply and be chosen amongst a limited pool).
ProblemExplorer 2y ago
> My biggest issue with these cancellations is that they don't seem to be fixing the underlying issue at all — that you can't default on your student loans Lenders being selective about student loans is part of a larger feedback loop. That you can't default on your student loans removes a strong signal for a student to realize what they are planning to do isn't deemed productive by society, but that doesn't mean a well educated student won't figure this out on their own even in the lack of this strong signal. A well educated person shouldn't need a lot of external feedback to figure out if you spend more than you earn, bad things will happen. The root cause is schools are completely failing at their job of laying good foundations for generations of tomorrow and are not getting the feedback they need to be useful and political tricks like this further distorts the feedback loop. This means students are not well educated - they might be able to recite Shakespeare or vomit out coding algorithms from a book but most of them lack logical thinking, clarity of mind, decision making that includes knowledge of finances and projections so you can answer the question "out of all the things I can do, what should I be doing right now?" So they go and land themselves in a mess and then politicians exploit them by digging a deeper hole for them and their children.
rayiner 2y ago
Since Obama federalized the student loan system, 92% of student loans are federal. So there’s no meaningful difference between default and loan forgiveness—it’s the public’s money either way. And the government will never impose creditworthiness checks on borrowers.
latchkey 2y ago
I don't think this is about fixing the underlying issue. If you cancel debt and effectively put money into the hands of people with college degrees, theoretically, they will spend it on more intelligent things. Or at least have a burden off their shoulders so that they can focus their careers.

Manuel_D 2y ago

The issue is that universities are a huge block of democratic support. If you allow people to default on student loans, then banks are going to be much more hesitant to issue them. That, in turn, will reduce universities' revenues. Furthermore, the entire premise of federal student loans is that they're not technically spending. Of course if they allow these loads to be defaulted, then this is ultimately a spending program.

miohtama 2y ago
The easiest solution here is to compare data to countries that allow student loan defaults. AFAIK this is most of countries. There should be good data if the issue is real, or hypothetical, or political lobby based.
- hansvm 2y ago
  Cross-country comparisons like that tend to be hard. It's hard to isolate whether the metrics you're analyzing are because student loan defaults aren't allowed, because of the student selection pressure from an oversized military, because of a culture which views responsibilities and cohesiveness differently, because of secondary funding options, .... There are many such factors, all of which plausibly matter as much as loan defaults, and since the vast majority of the country you'd like to compare to will tend to be homogeneous with respect to those confounders you often can't find many (if any) actual alternatives to compare to. Statistical approaches to appropriately tease out signal from noise in the larger data set are easy to get wrong, even if you get lucky and actually have comparable data in the first place (e.g., including trade schools or not in the metrics, similarly with associate degrees, counting "in-progress" loans with different payment timelines (treating a truncation bias differently), ...).

specialist 2y ago

> don't seem to be fixing the underlying issue at all Rollback higher-ed policy changes since the 70s. (h/t Gov Reagan, James Calhoun) Restore govt subsidizes of higher ed, govt issues loans and financial aid, bankruptcy protections, etc. I'd hope treating higher ed as a public hood, instead of business focused on wealth extraction and hoarding, would help address some of the other "greed is good" pathologies too. Grade inflation, credentialism, focus on STEM at expense of trades and liberal arts, anti labor strategies like reduction of tenture, etc.

drak0n1c 2y ago

To describe the subsidy policy fully, there's on-demand immediate guaranteed federal reimbursement of 97+% of the loan's entire projected value. The DOE brags at the top of its annual letter about the $120+ billion in new loans issued under the policy every year. It's no wonder after many decades of this that colleges are bloated with non-educational excess and tuitions have risen exponentially. Prospective students are not shopping with real prices in mind - if there is a choice between a university with big names, shiny amenities, and attractive dorms the sticker price difference doesn't mean much. Gradually, all schools give up their frugality and delude themselves into mission drift. Arbitrarily cancelling loans now without scaling down new loans is multiplying the subsidy distortion effect, as new borrowers are increasingly convinced they too may not have to pay back the loans they're freely given. In my opinion, subsidized loans need to stop entirely for a period of back-to-essentials relative austerity for university budgets before we bail out and calcify the current bloat with a new benefit. Then if we really need a new benefit it can look like a leaner amount-capped voucher and not a state inflated debt balance that may or may not go away. The voucher could scale on merit, a guaranteed partial scholarship as long as you meet certain standardized test/grade levels (without the need to apply and be chosen amongst a limited pool).

ProblemExplorer 2y ago

> My biggest issue with these cancellations is that they don't seem to be fixing the underlying issue at all — that you can't default on your student loans Lenders being selective about student loans is part of a larger feedback loop. That you can't default on your student loans removes a strong signal for a student to realize what they are planning to do isn't deemed productive by society, but that doesn't mean a well educated student won't figure this out on their own even in the lack of this strong signal. A well educated person shouldn't need a lot of external feedback to figure out if you spend more than you earn, bad things will happen. The root cause is schools are completely failing at their job of laying good foundations for generations of tomorrow and are not getting the feedback they need to be useful and political tricks like this further distorts the feedback loop. This means students are not well educated - they might be able to recite Shakespeare or vomit out coding algorithms from a book but most of them lack logical thinking, clarity of mind, decision making that includes knowledge of finances and projections so you can answer the question "out of all the things I can do, what should I be doing right now?" So they go and land themselves in a mess and then politicians exploit them by digging a deeper hole for them and their children.

rayiner 2y ago

Since Obama federalized the student loan system, 92% of student loans are federal. So there’s no meaningful difference between default and loan forgiveness—it’s the public’s money either way. And the government will never impose creditworthiness checks on borrowers.

latchkey 2y ago

I don't think this is about fixing the underlying issue. If you cancel debt and effectively put money into the hands of people with college degrees, theoretically, they will spend it on more intelligent things. Or at least have a burden off their shoulders so that they can focus their careers.