Republicans are outraged that Biden is forgiving the student loan debt of millions of borrowers by $10,000-20,000. They have denounced loan forgiveness as “socialism,” a “big government giveaway,” and worse.
They are on the wrong side of history and politics.
I can tell you from the two years I worked in the U.S. Department of Education that there is a student loan industry that has a powerful lobby. They want student debt to be as high as possible and they want the rates to be as high as possible. Biden’s decision is very disappointing to their lobbyists.
Zachary D. Carter writes in Slate that there is a long history of forgiving debt. This is a terrific article. I urge you to read it.
He begins:
In 1920, the world’s most famous economist, John Maynard Keynes, was digging through old books on the economy of the ancient world, when he discovered something startling. All his life he had been taught that civilization depended on ironclad financial certainty. Without a stable currency and dependable debt contracts, commerce could not exist. Governments that meddled in such matters were thought to be asking for social chaos.
But the documents he perused on Ancient Greece, Rome, Babylon, Assyria, and Persia showed him something else entirely. Throughout history, political leaders had abolished debts and managed the value of their currencies—another way to revise debts—as routine matters of government policy. Keynes was electrified. A year earlier, he had staked his reputation on a call to cancel the largest debts the world had ever seen—those accrued by the governments of Europe during World War I. If these debts were not cleared, Keynes had argued, the international trading system would break down, leading to misery and another war. Predictably, the financial establishments on two continents responded to this apparent heresy with alarm. Now Keynes had discovered precedent for his ideas — thousands of years’ worth, from Hammurabi in ancient Babylon to Solon of Athens.
[As a side note, the Treaty of Versailles imposed massive debt on Germany. Had that debt been forgiven, there might have been no World War II.]
Indeed, debt relief has always been the handmaiden of debt itself. In the United States we have a formal legal process for eliminating nearly all forms of debt: bankruptcy. When debts become unbearable, people file for bankruptcy to have them discharged in court. In the 15 years preceding the pandemic, more than 14.3 million people filed for bankruptcy, and in the decade prior to the pandemic, more than 20,000 businesses filed for bankruptcy every year, with a high water mark of 60,837 in 2009. Debts are discharged every day in the United States, and have been for decades.
Indeed, debt relief has always been the handmaiden of debt itself. In the United States we have a formal legal process for eliminating nearly all forms of debt: bankruptcy. When debts become unbearable, people file for bankruptcy to have them discharged in court. In the 15 years preceding the pandemic, more than 14.3 million people filed for bankruptcy, and in the decade prior to the pandemic, more than 20,000 businesses filed for bankruptcy every year, with a high water mark of 60,837 in 2009. Debts are discharged every day in the United States, and have been for decades.
Not that you would know from the apocalyptic conservative outrage emanating from social media and cable television this week. When President Joe Biden announced his new student loan relief program on Wednesday, Senate Majority Leader Mitch McConnell decried it as “socialism” and Utah Sen. Mitt Romney called it a naked attempt to “bribe the voters.” Reason magazine’s Robby Soave declared it a “fuck you to every financially responsible person in the country.” These reactions belie centuries if not millennia of economic history.
Capitalism would collapse without debt relief systems. Businesses get in trouble all the time—both good businesses that would work fine without a few onerous debt deals, and bad businesses that need to be liquidated or restructured. Sometimes bad things just happen. People get divorced. They get injured and are overwhelmed by medical bills. They get laid off. They have to pay for a parent’s funeral or care for children with special needs. And yeah, some people just don’t know how to manage their money and buy things they can’t afford. But we do not consign such people to never-ending financial servitude as a result of unforeseen circumstances, or even totally reckless spending habits. We have a formal process to eliminate debts and start over, with a reasonable chance of living a healthy financial life.
But not for students who borrow money to attend college. In 2005, Congress passed a law that made it next to impossible to discharge almost any form of student debt. Even the most creative consumer lawyers estimate that only about $50 billion—less than 3 percent of the $1.75 trillion in outstanding student debt—had the potential to be wiped away, but only if students could persuade a court that they had been egregiously wronged, by say, non-accredited programs or institutions that didn’t actually offer degrees.
Biden’s new student debt relief program exists because student debt is currently ineligible for the ordinary process that Americans use for extinguishing excessive debts….
Nor are the recipients of Biden’s aid particularly wealthy. The plan flatly excludes anyone who makes more than $125,000 a year from participation. According to an analysis by the University of Pennsylvania’s Penn Wharton Budget Model, about half of the money will go to borrowers in the bottom half of the income spectrum, with only 2.5 percent of folks breaking into the top 10 percent receiving relief. The median personal income in the United States—the 50 percent line—is $35,800. This makes sense once we consider the actual demographics of the typical American college student, who is not an Ivy Leaguer bound for the 1 percent. About 40 percent of all undergraduate students attend community colleges, about one-third of whom take out student loans to help pay for their education. The average community college borrowergraduating with more than $13,000 in debt. There are also racial disparities in student debt: According to a Brookings Institute analysis, Black borrowers shoulder roughly double the amount of debt to attend college that white borrowers do.
Oh, yesâ¦socialism it isâ¦And what is it called when the rich keep stealing from others??? What an odious nation the US has become. vg
As many as 828 million people go to be hungry every night. A total of 50 million people in 45 countries are teetering on the edge of famine. Michael Snyder (Activist Post)
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The way I figure it, if the Republicans are pissed it must be good policy.
And the more pissed they are, the better it must be.
It’s called Wepissedemology.
Or since it’s Biden’s policy, maybe it would be Hepissedemallogy
He surely did, and he’s having fun with it, calling out the hypocrites who took PPP $ and had their debt forgiven!
If you want to see Mitch McConnell, Ron DeSantis or Ted Cruz go ballistic and start throwing elves and baristas across the Potomac, just mention student debt relief.
The loan forgiveness plan along with the interest revision is a positive long-term economic plan. People saddled with debt cannot buy homes, and they buy fewer goods and services. The revisions to the interest calculations will also make loan repayment more affordable. Reducing debt for some in the working and poor class will allow them to move forward in the lives toward economic independence.
In contrast the PPP loans that were designed to help small businesses mostly went to large corporations, several members of Congress including Republicans that are complaining about student debt relief and assorted celebrities. Many wealthy individuals and companies had their loans forgiven. Some companies used the PPP loans to buy back their own stock! Biden blasted the critical Republicans that had their PPP loans forgiven. https://www.cnn.com/videos/business/2022/08/26/white-house-tweets-ppp-loans-gop-lawmakers-student-loan-debt-relief-lee-sot-lead-vpx.cnn
It’s important to note that all of those ancient civilizations are dead. Wonder why? Besides, comparing these examples, including forgiving national debt after WW I, is hardly the same as forging the debt of some who 1) Most likely don’t need it, 2) requires those that made better choices, including paying off their debt, subsidize those that didn’t, 3) encourages universities to raise tuition even further, 4) requires no effort on universities to reduce or at least maintain costs in order to avoid constant tuition increases (which far excede inflation), 5) encourages students to take out more loans knowing at least 10K will be forgiven, and 6) creates an unsustainable precedent to forgive future debt. How does anyone justify forgiving debt for those who owe between now and November 2024 (which is most likely), but not afterwards?
This entire mess was created by the federal government when it made student borrowing so easy and cheap. If loans were less available and cost more, yes, it might mean a slight reduction in the number of students who enter university, but only 64% ever graduate (https://nces.ed.gov/FastFacts/display.asp?id=40).
There is a huge disconnect here. The federal government is subsidizing mostly state university behavior. The state universities have no incentive to act responsibly with spending. As someone who had student debt and paid it off, it is offensive that I now have to pay for my friends who didn’t.
Adding to the already insane national debt, kills any potential economic advantage this may in theory create. Anyone who thinks that does not matter must agree with Dick Cheny who said deficits do not matter. He was wrong, they do.
Even David Brooks defended relieving student debt -though not at the scale of the Biden plan. (On PBS yesterday).
If we’re going to talk about cutting down on government spending let’s start with the wealthiest and work our way down from there.
And, historically, one of the sure signs of a soon-to-be-dead culture is an extreme gap between the very wealthy at the top and the huge numbers of regular, working folks. To wit: the U.S.A in 2022.
Absolutely, the incredible gap between the very wealthy and everyone else is a major problem that could destroy America. This only adds to that problem by allowing the educated, who are in a better position to become to uber wealthy the ability to push their debt on to others, who may be less educated.and less likely to move up to the wealthiest class.
Never trust David Brooks. He’s positioning himself to curry favor with the elites he pals around with while keeping a safe distance from MAGA-nuts.
I saw David Brooksson The Newshour. When asked about the hypocrisy of Republicans who took millions in PPP, which debts were forgiven, he defended them and said there was no analogy to student debtors. He was hedging his bets, being a little bit for helping student debtors but mostly opposed. Give then $100 each, I guess.
You could make the same arguments against Medicare and Social Security. Why don’t people save to pay their medical expenses instead of expecting the government to pay their bills? How dare those elderly people expect government to pay for them to live in luxury on the backs of taxpayers.
Unlike the student debt relief, neither Medicare nor Social Security is limited to those making less than $125,000.
Aren’t you outraged?
You go first.
Ask the feds to cancel your Medicare and Social Security.
Since I believe in government programs, I’ll keep mine.
Go ahead.
I double dare you.
If you hold on to your government welfare, don’t criticize the young people who get a small amount of debt relief.
Perfect !
MjGB– my reply to you is long so I put it down under general comments to get more margin space.
MjGB,
When thinking about tuition at US colleges and universities it is important to realize that only the wealthiest families pay the published tuition rates. Most pay a discounted price. At my university the average discount rate is about 30% for out of state students and 20% for instate students. Changes in the discount rate interact with changes in published tuition and changes in the income profile of student families to create net tuition. Net tuition is the average amount of tuition paid by the students currently at an institution.
A good example of the interaction of posted tuition rates, discount rates, and admission policy is Perdue University. It is somewhat famous for not increasing published tuition rates for the last 10 years. That’s right, “tuition” has not gone up a dollar in ten years at Perdue. What has gone down, however, is Perdue’s discount rate, so net tuition at Perdue has increased. Increasing net tuition they changed the makeup of the student body: 10 years ago 21% of Perdue students were eligible for Pell Grants, but now only 14% of Perdue students are eligible.
By not increasing published tuition rates for 10 years, Perdue became a contributor to inequality in the US, rather than advancing diversity, equity, and inclusion.
TE,
I have met people who are in their 30s who are still paying off their college debt. Meanwhile, they can’t buy a house, they drive old jalopies, they don’t spend except for bare necessities. Isn’t that bad for the economy?
Dr. Ravitch,
I posted nothing about college debt here, so your question puzzles me.
If you are interested in the utility of debt forgiveness, may I suggest that you listen to the podcast I linked to at the bottom of the comments or you could read the attached transcripts. The reports in. the podcast refer to bankruptcy as “..one of our economy’s secret weapon”.
The ‘means testing’ was unnecessary and complex. The wealthy always have was to hide their ‘income’.
Let’s look at their basic gripe logically. They are saying we should resent the fact that people will get benefits that they did not have before. Using this “logic,” there could never be progress because someone in the future might have a benefit we don’t. What a sick argument. Even attacking beneficiaries as “Ivy League” tries to create another nonexistent divide for political purposes.
No, they are getting benefits they do not need, are not entitled to, and were never expecting to get in the first place. There is nothing that the larger society gets by doing this. There is no “progress” this leads to. No creative destruction, no economic or technological advancement this could lead to. It’s a pure political giveway. It makes the life of a few better off, at the expense of many for no good reason. It is not a social welfare entitlement that is (Poorly) designed to lift up those less fortunate in the lower economic class. It isn’t even corporate welfare that is supposed to lead to economic growth (but rarely actually does, at least at the local level).
I feel the same way about Social Security and Medicare. A “pure political giveaway.” Even Warren Buffett and Bill Gates get both. They are entitlements. Yet they have dramatically reduced poverty among the elderly. That’s a good thing, don’t you think?
I do agree. and I also agree it is a good thing. However there is a huge difference. Social Security and Medicare are both systems that the individual paid into over time. Their benefit it tied to what tehy paid into. While a agree one could argue for means testing them. They are not entitlements such as unemployment or WIC and are certainly not comparable to forgiving student loans. Going to university is a choice.
Going to university is an investment that benefits the individual and society.
The cost of going to public universities should be dramatically lower so higher education is within reach of everyone who wants more education.
Doctrine conservatives are so…well…doctrinaire. They never let real world evidence get in the way of their preconceived–translation: perfect!–notions. See:
https://dianeravitch.net/2022/08/27/republican-vern-buchanan-complains-about-student-loan-forgiveness/ for pertinent examples that just skim the surface of the lies in the first sentence. Never let reality get in the away of a set opinion.
And you would think that unleashing human capital and potential would be welcomed as a great economic benefit by an ideologue. Guess that falls under “nothing” unless it supports one’s biases. I couldn’t get beyond the jargon of “creative destruction”, so I ended it there. That’s so tired. I’m surprised the world “innovation” did show up there.
didn’t show up. WordPress!
Social Security and Medicare are not entitlements for most that rely on both. We paid into those programs while working.
Social Security tax was deducted from the paychecks of the working class. That tax was deducted from my paychecks when I was 15 years old washing dishes nights and weekends while going to school M through F during the school year.
The same applies to Medicare.
But the problem is that when both of those programs “needed” to be supported with higher taxes/fees, the Republicans did all they could to block those increases that would have kept those programs economically healthy for every working class American that relies on them to survive after they retire and/ir can’t work anymore.
Over the decades, trillions that workers and employers paid into SS was borrowed by Congress, because they could, making that program ripe for failure today.
And when I became a teacher, because a portion of my earnings went to the teacher retirement fund, I didn’t have to pay into SS anymore.
Somewhere along the line, because federal funds, a small percentage of the total each state pays for their K-12 public schools, came from the feds, a law was passed to punish teachers by cutting whatever SS they were qualified for in half.
Before I became a teacher, I paid into SS for 15 years and according to SS was eligible for $600 a month when I was eligible and applied, But because I was a teacher for the last 30 years of my having to work life, I ended up with half that and lost half of that when I applied for Medicare. When I retired from teaching after thirty years, that retirement does not include health care.
SS is not an entitlement when we worked and paid into that program during those working years. Most of us that didn’t become injured during our working years and unable to work, earned that SS and healthcare.
dianeravitch
Dramatically lower. How about the student activity fee and books was all I had to pay to attend CUNY in the late 60s . It was that way from 1867 -1977. The entire University of California System was free. By having well funded free and low cost Public University Systems; it held tuition down at private Universities. Most of NYC Private Universities were safe schools for NYC HS grads back in 69.
Nobody called it a give away and there was no means test. .
Joel,
That’s how we built a great nation. By providing free, high-quality higher education for all who wanted it. We are on a dangerous downward slide now re the decline of social responsibility and the rise of selfishness.
MjGB — Some of this I simply disagree with. The rest lacks data to give context on which to draw conclusions.
1.Forgiving the debt for “some who simply don’t need it.” These loans are so budget-gobbling by virtue of compound interest that varies from year to year that anyone who “doesn’t need it”—and has common sense & or a financial consultant—has already paid it off (or is well on the way to doing so).
2.”Requires those that made better choices subsidize those that didn’t.” Nah. The bookkeeping regs alone don’t support that [the entire loan is incurred as debt to govt in the year approved]. But regardless– the manner in which these loans were approved has obviously been a growing problem for decades & now is humungous. That means it represents a problem for all taxpayers; it threatens the economy. Any corrections that can be made now, no matter how small, are in taxpayers’ interest.
3.”Encourages universities to raise tuition even further.” Debatable. $10k per loan – even if extended into future for new loans– come on. That’s 0.007% of the ave US cost of a bachelor’s degree.
“entire mess was created by the federal government when it made student borrowing so easy and cheap.” The other side of coin is missing– how the college-cost-spiral got started in the 1st place. Mostly due to fed & state disinvestment in higher ed. Reagan started that in 1980, slashing Pell et al fed funding. States saw he paid no political penalty & immediately followed suit– along with all the small privates that peg tuition to state college tuition level. The outrageous stud-loan program, a shell game, & more of same. Govt position throughout: “We’re making economic policy decisions that will require many more to attend college just to stay in middle class– and we’re slashing tax rates on the upstairs folks too, so guess who gets to pay for it? But hey, I’ve got a swell loan to sell you…”
“but only 64% ever graduate.” [Actually the stat is: 64% graduate within 6 years of FT enrollment. We don’t know what % finished degree later– but that’s just a niggle.]
NCES did a study on 1980 high-school graduates. The 6-yr graduation rate back then was 48%.
The proportion of hisch grads enrolling in 4yr colleges FT has grown considerably too (as noted above). It was roughly 50% through the 1960s and 1970s. From 1980 to today it has grown to 67%. So, over the last 34 years, a +17% higher proportion of hisch students enrolling in 4yr college, and +16% larger proportion of enrollees attain a bachelors within 6 yrs.
Seems I recall the year of jubilee tradition in the Old Testament
The work of David Graeber in his Debt the first 5000 years is a powerful history.
Here is a good podcast on the role of bankruptcy in the US economy by Planet Money: https://www.npr.org/transcripts/437628996
I’m responding now, Teachingeconomist, a day after this post so I don’t know if you’ll see this comment.
I still don’t own a smartphone and I spent a good part of today walking around in the woods so I tend to be a bit slow on the uptake, ha, ha.
But great link….I enjoyed this NPR piece It’s the sort of thing that makes me miss the prospect of staring up another year of teaching economics next week.
Thanks!
John,
I am glad you enjoyed the podcast. The Planet Money folks do a great job, but there are so many good podcasts out there that I don’t do a good job of keep up. No worries about a late post, I spend a bit of most days walking in the woods. On some days I see white-tailed deer, on really special days I see pileated woodpeckers.
I hope your endorsement of this one will encourage others to listen as well.