Skip to comments.Bailout of Student Loan Debt Is Not the Answer
Posted on 03/23/2012 7:17:31 AM PDT by MichCapCon
Michigan Congressman Hansen Clarke, D-Detroit, recently introduced a bill to forgive college loan debt, provided an individuals debt service payments consume 10 percent of his or her discretionary income for 10 years.
If the former students are teachers or firefighters, their debt would be canceled after five years.
The idea of a mass bailout is deeply flawed for a variety of reasons. First, in large part it would represent a reverse Robin Hood wealth transfer from the poor to the middle class, whose children are more likely to both attend college and incur college loan debt. 28 percent of Americans have obtained a bachelors degree, but only 7 percent of degree earners come from the bottom one-fourth of wage earning families this is actually down from 12 percent in 1970.
Moreover, the program would be a slap in the face to former students who have played by the rules, worked hard and repaid their debts. More responsible and diligent members of our society would be punished by forcing them to reward the less responsible with subsidies.
In addition, the proposed bailout pulls us further from being a society that honors contract agreements and respects the rule of law. Both institutions are necessary core components of a free and prosperous nation, and both are under assault from the political class. (Ask investors, including state pension funds, who bought Chrysler bonds before the auto bailouts.)
Freakonomics blogger Justin Wolfers calls this bailout proposal simply the worst idea ever and lists several reasons why in article of that that title. Economist Richard Vedder also panned the idea, and argues that the easy availability of cheap college loans has contributed to the tuition explosion. (Not surprisingly then, the few schools that operate outside the system of subsidized college tuition and loans appear to provide better value.)
Vedder also fears that cheap interest rates are creating a higher education bubble in the same way that federally sponsored Fannie Mae and Freddie Mac home loans helped stimulate the housing bubble, whose bursting triggered the 2008 financial crisis.
Having a college degree is correlated with higher income and employment levels, plus a host of other benefits. In many cases the specific degree is unquestionably responsible, but others raise a chicken or the egg conundrum: Did higher income result from what was learned in college, or is the kind of person who can stick their nose to the academic grindstone for four years just more likely to earn more, with or without a degree?
Few areas in the American economy are more entwined than government and student loans. It is ironic when politicians see a problem with skyrocketing college costs and want government help to solve the problem, while being apparently completely oblivious to the fact that nearly every higher-education loan is subsidized, interest-capped and backed up by the federal government. Even greater government involvement is not the answer.
Forcing those with fewer opportunities and lower income potential to bail out former college students who took on too much debt is a bad idea. Lets hope Congress heeds this free education.
That would be nothing more than another tax without calling it a tax!
Why don't we just ALL work for government and not receive a pay check, just everything government determines that we need to live?
When you go from $600 a year to $40,000 a year for a college education, something is terribly wrong in our education system. Especially today when graduates can’t even find a job. Even if they do find a job, wages are way down compared to years ago. Personally, I think colleges are ripping off the students.
Michigan Cap Con ping.
If anyone wants to be added to the list let me know.
Trying to buy votes with other people’s money. It’s the Democrat way.
This would favor people who get degrees in worthless majors and then are surprised that there are no jobs, plus people who should never have gone to college and leave without a degree and with a lot of debt.
Alternate solution: immediately make colleges underwrite their own student loan debt, and make student loan debt dischargable in bankruptcy. Immediately, colleges would stop accepting students who would not be likely to graduate and get a decent job, and stop offering useless majors.
I think we need a national attitude adjustment.
Get over the fantasy that success can only be achieved in a white collar job. This needs to be followed by an increase in apprenticeships and trade schools.
Also we need to eliminate public funding of colleges. Corporations and private philanthropists will still support scholarships. Trust fund babies can pay their own way and anyone left over will find a means of paying for college or forego it altogether.
That would make sense. But no, they would not. There is affirmative action to consider. That is where a lot of those useless majors are.
Perhaps they are, but the students (and their parents) are accessories to the crime. You can't rack up tens of thousands of dollars in education costs, and then later claim you thought the costs were too high.
A college education is an investment. As a potential investor, you must weigh the risks and the rewards. You might even lose money in the deal, but don't come running to the taxpayer if you do.
I don’t really see how these loans can’t be paid back unless the student NEVER gets a job. Even if it’s years from now they still will have to pay taxes and the government has never been shy about garnishing wages and/or tax refunds before.
I agree. When parents accept the responsibility of paying for the kids education, they need to pay for it and not come back on the taxpayer. What they need to do is start hammering on the colleges for the price of that education. It’s getting crazy out there. If you look at a family of 5 or 6, you’re looking at a huge sum of money. Some thing has to give.
I worked for a company that had its own schools....free to the employees. They were job specific but worked well and were run by employees of the company. When people left the schools, they transferred to new jobs. Then the company hired new people to fill the openings. It was great for the community and employees.
Corporate scholarships create the jobs of the present and the future.
My choice would be to add a loan surtax to their income tax until it is paid off, mortgage amortization like.