Student Loan 'Forgiveness'?
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2022-04-30 07:00 by Karl Denninger
in Education , 780 references Ignore this thread
Student Loan 'Forgiveness'? *
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In a word: No.

Biden has a bunch of scolds cheering this onward, and there are plenty of people who think it would be "popular."

If you're one of them then you're arguing against your own interest for political purposes, and that's dumb.

Broadly the problem with college education cost today is two-fold:

  • It's too expensive.  Its expensive because the government subsidized it and removed risk computation in lending.  This in turn made an effectively unlimited price payable by the "student", even though said student had no income, no assets and no guarantee of ever being able to earn enough to both live in a reasonable fashion and make the debt service.  This never happens in a free market because those who lend money in such a stupid fashion lose it when it can't be repaid.

  • Colleges do not care if they sell effectively-worthless educations.  A college would care if it had to underwrite the loans and they were dischargeable in bankruptcy.  If the only actual post-college market for a "gender studies" degree is teaching gender studies then (1) the price will be something that can be paid by someone teaching gender studies and (2) you won't get a loan except on risk-adjusted terms that reflect that.

If you want to solve the problem, in other words, the price has to come down and the lender has to take the risk of default and non-payment.

Thus you do the following:

  • College debt from this day forward is dischargeable in bankruptcy.  Period.  It's unsecured debt -- sort of.

  • If your college debt is discharged your degree is void.  That's the hook to prevent "strategic" defaults, which was what goaded Congress into restricting defaults in the first place -- a bunch of high-fautin people who decided to strategically default and eat the 7-year credit ding.  Since there is no physical thing you can repossess but the degree has value and is what was bought then the correct answer is you revoke every credit-hour earned and thus the degree is revoked if a person files for bankruptcy and successfully throws off the debt.  Congress can do this since Congress explicitly has the power to set uniform national bankruptcy law binding in all 50 states.

  • The Federal Government gets entirely out of the college financing business.  If colleges want to underwrite and carry the paper they can, at whatever price they want.  Ditto for private lenders.  The above two checks and balances will make very certain that nobody lends more than can, on a risk-adjusted basis across the pool of students, be paid and thus the price of the education will reflect the actual value in the marketplace.

That's it.  Three simple steps, problem solved.

#1 and #2 are opt in for all current student debt.  This is entirely legal as well and shuts up the whiners.  If you have a "worthless degree" then fine -- turn it in, file bankruptcy, take the credit hit and go on with your life.  When the price falls (and it will, like a stone) and you want to go get it again, have at it, this time at a more-reasonable cost.  No, you don't get credit for the other classes; you said they weren't worth the money so they don't count.  That was your decision, so make if that is your call for both good and bad.

If you simply want a FREE degree, on the other hand, and many people are arguing for exactly that -- the right to steal the cost from other people -- then this change will expose those who have as their actual intent grifting rather than truly being in trouble while making certain those who were in fact misled as young adults have a reasonable path forward.

Fix the problem instead of screwing other people.

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Chromehill
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I never considered voiding the degree. It makes sense, I like all three parts to the solution.

I think the government, since they are the lender, should start collection procedures against the people who are refusing to pay their student loans. The people who actually have good jobs. An example, a former co-worker of my wife is a pharmacist. He is late 20's and refuses to pay his student loans back because he believes the government is going to wipe it away. He has a well paying job, over $100K a year and a real estate investment business. This type of asshole, without a doubt the government (lender) should go after. He obviously is not going file for bankruptcy, he is trying to take advantage of the politics of the situation.

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Dan_e
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Tickerguy wrote..
If the only actual post-college market for a "gender studies" degree is teaching gender studies then (1) the price will be something that can be paid by someone teaching gender studies and (2) you won't get a loan except on risk-adjusted terms that reflect that.
and (3) there would be one student per teacher per average career length allowing them to train their own replacement and nothing more. Ok maybe a few students each year working for extra credit but otherwise engaged in more marketable pursuits.
Invisiblesun
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Perfect plan. Makes too much sense which is why it won't be be done. As it has done with healthcare, the government will prop up the education industry until collapse is inevitable.

And the collapse will be beautiful, except for the economic shock wave. That destruction will be ugly, but necessary.
Radiosity
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"Fix the problem instead of screwing other people."

This one line is why it'll never happen.
Dingleberry
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My question is how is this even legal? Under what authority can Brandon just take a pen and sign the loans away? Since we are on the hook as taxpayers, we have to pay so shouldn't Congress be passing any "forgiveness"?

If Brandon can erase any debt that easily...can he do the same with our national debt, even in theory?

The educational-industrial complex is now a workfare program for marxist professors and administrators. This is a backdoor bailout for them too, it keeps the scams going. If and when the value of most degrees gets marked to market, 80% of them go poof. They are not even worth toilet paper, as TP at least serves a purpose.

On a side note, you would instantly see about 2/3rds less women and certain ethnic groups on campus. They are the ones who are mostly getting these lazy, soft, garbage degrees. This is why the forgiveness mantra is being pushed, just in time for the elections this fall. The student loan "crisis" is not evenly spread out amongst millennials....it's fairly concentrated in those who got shitty degrees with low-to-no ROI.

Brandon may not know much these days....but he knows bribes.
Quantum
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There's another angle to the state of higher education that does not get much notice. Easy risk-free (to the lender) loans definitely allowed higher tuition to prevail (the last time I looked the inflation-adjusted tuition at my first school was up 500% from when I started as freshman in the 1980s). But tuition didn't go up just because of a demand shift:

https://www.wsj.com/articles/SB100014241....

This WSJ piece from 2014 is paywalled, but the part you can see for free basically tells the whole story. Some students are getting student loans to pay full price and are having their borrowed money handed to other students in a non-transparent way via subsidies for more favored classes of people. The part of the article that is unreadable includes the observation that college administrators worry that if that was well-known, paying/borrowing students might object.


Mikivoja
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There are really only two components to education: training and testing. Training should only be restricted to things you can't teach yourself, where you need access to expensive infrastructure or hands-on experience. The most of things that are currently taught at the colleges can be learned from books and tutorials which only leads to the second part of education and that is testing. In my opinion colleges should only be about figuring out how to prove your knowledge and skill and teaching you only things where you can't do it on your own. This cuts the cost of education substantially and gets rid of debt problem for those who are motivated to learn on their own and only want a way to prove their knowledge and skill.

For example, take a degree in history, literature, economics, etc. - all these things require no hands-on training, they only require a lot of reading and feedback. Reading you can do on your own, and feedback is all the rejection you are going to suffer unless come up with something actually useful rather than just bunch of useless theories that don't amount to anything.

For the exact sciences it is much easier to construct testing and it is much easier to learn on your own, because feedback is just about getting the answers right, which you can look up. The true value in engineering and sciences comes from job experience, not education anyways.

As for medicine, crafts, and things of that nature, you need hands-on experience and expensive infrastructure in order to learn, so education makes sense but only for part of it, because education there even today is mostly theoretical.

Colleges are just dinosaurs from the time when access to books and libraries was an expensive privilege and they would like to keep it that way through an expensive subscription model for both books and articles, where people who extract the value are not the ones that contribute much to its creation.
Technojunkie
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Close down the fed Dept of Ed and fed student loans and I'll consider debt forgiveness in exchange.
Tonythetiger
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That plan makes so much sense that it'll never happen.

(You left out the details where CONgress-critters get their palms greased as part of the process.)


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Whitehat
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Voiding the entire college credit record for any applicant for this bankruptcy could possibly fuel the movement towards "free college" which has been brewing in the woke crowd for quite some time.

It is in this comparison which they make with other countries from where the loan forgiveness push arises. These takers did the same thing with healthcare.

I remember the push in the 90s that this and that, "should be free". Well, what else is on their list. They like to compare to Europe all of the time.

Thus, this forgiveness concept is in their minds rectification for something for which they feel that they should never have paid or borrowed for in the first place.

We must explore how this mentality originated to attempt to fix it. If we are to be honest, many of the very libertarian and conservative amongst us do notice all of the freebies given to special classes on our backs directly and indirectly while at the same time making our lives that much harder and more miserable. We have chosen to simply adapt, do with less, work harder, figure out hacks, whatever. Some of this demand which we are discussing is based in legitimate resentments. A society built on resentful people has no future. You are here.

In a nutshell once a society becomes a grab fest with many takers, the name of the game becomes for a significant percentage, "grab as much as i can for myself." There is only one way to achieve the moral authority to change this:

End all giveaways and welfare of any kind.

Or else one is leaving more and more people with the feeling that they are stupid for not playing the same games and demanding the same things.

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Iou
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Albert Einstein wrote..
Never expect the people who caused a problem to solve it.

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Orangecrush
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...but screwing other people is what many American voters do at every election. The screwing will continue until all taxpayer pockets and FedReserve games run out.
Jesjohn94
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USA continues to act like it has vast amounts of money and can do whatever it wants. The reality is we were that wealthy but corruption, scams and complete mismanagement of our finances have turned us into an economic basket case living on fumes.

I think most student loans nowadays are private and so not subject to any federal action Biden might take without laws being passed by Congress. Students can only borrow $5k/year without a co-signer which pays for diddly squat. I wonder how many financially illiterate family members like parents, grandparents, aunts & uncles got pulled into co-signing as they were all told spending any amount of money on your education is the greatest investment you can ever make?

Personally I say fuck these companies that made loans to 18 year olds with no regard to the degree because they knew they were getting a virtual slave who would owe the money to the day they died. Let the loans be discharged in bankruptcy with no other complication.

Look at John Mauldin's (free) blog this week where the content is from a guy called Ben Hunt. He really puts a knife in the back of the Fed. It is shocking those people have no real world experience.

https://www.mauldineconomics.com/frontli....

Susanlauren
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What cannot be sustained will not be sustained. Karl has suggested a practical and workable solution to the problem. He has suggested practical and workable solutions to other issues as well (i.e., health care costs, tariffs, import/ exports, off-shoring of US jobs, etc.). I am convinced that the "leaders" do not want solutions because there is no money to be made in solutions. There is obscene amounts of money to be made with the system exactly the way it is.

My prediction is that student loan debt will be forgiven with a strike of Dementia Joe's pen. And that act will bring about an entirely new set of unintended (and "unforseen") secondary consequences.
Lastquagga
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Not sure stripping the degree will work. Once you have the job, who cares whether you still have a degree? It's the quality and quantity of the work that keeps you there.

Fortunately, it is self-correcting in a market situation. The banks don't want to be out the money, so it's just a matter of setting interest rates for useless degrees high enough to weed out the probable deadbeats, and of setting the credit rating ding sufficiently high (say, lifetime, or 1 year per $1k, or whatever it takes) to discourage strategic defaults. Those that still do default, well, suck it up, banksters. You made a bad call. Make enough of those and your bank belongs to someone else.
Dingleberry
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@ Chromehill,

I have met several in that category of voluntary deadbeats, with very high salaries.

They fully expect the debt to be written off by dems, and why they vote as such (including their parents). They literally said "Biden will get rid of it" and not blink an eye.

Much of the debt is for useless degrees by the usual suspects.....but a decent chunk of it is held by those who are capable (but unwilling) to pay.

I recall decades ago that physicians started to get bad press for not paying their student loans despite their obviously high salaries. I don't think there was much of a non-payment penalty back then. It was like a strategic default on their part. Much like what corporations do I suppose, at least back then. I don't think there was a way to enforce collections or penalties if I remember correctly.

Anyways, all that changed with the news laws preventing BK on student loans, gov taking them over, etc.
Invisiblesun
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Any loan forgiveness that does not claw back the "profits" of the schools will be a political noose on any who support it. Any loan forgiveness policy that does put schools on the hook for unpaid debt is also a political zero within the Democratic party.

This reality begs the question of what in the wide world of sports is Biden doing? Why elevate an issue that will boomerang against you, unless you do what your progressive friends will hate you for doing?

Knowing the track record of the Biden administration, they don't care how badly their policies are hated. They will lie, cheat, steal & plunder and worry about the political consequences later.
Capcomp
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Alexander Fraser Tytler, Lord Woodhouselee wrote..
"A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy"

Hence the rise of the free sh*t army. If the bulk of our economy was still centered around actually making physical goods (Food, Cars, etc.) instead of grifting (health, education, banking, etc.) then the education system would not be focused on churning out worthless degrees and building food courts as there would not be a demand for them.

The government is very good at incentivizing bad behaviors as they continuously fund and back industries (education, green new deal, etc.) that actually make life more difficult and expensive for the average citizen while subsidizing the entities behind these malinvestments.

Tickerguy
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@Lastquagga - It has nothing to do with whether it "works"; it is simply this -- you do not have a right to keep something you contracted to pay for and then didn't. That's the beginning and end of it.

Civilized nations operate on a set of civil rules, one of which is that if you agree to do something and then reneg you don't get to keep the thing. This also prohibits the abuse by those who strategically default, in that many of these professions REQUIRE the degree as a licensing bar (e.g. physicians, pharmacists, PEs, etc.) so while it is certainly true that a once hired as a coder (even once, if you're any good) you'll never care again (myself being a perfect example, and I never had the degree in the first place) the fact remains that there are professions where this is a real barrier and, so long as that's the case, it will impose a serious cost on those who would otherwise attempt a strategic default.

Strategic defaults were WHY bankruptcy discharge was prohibited in the first place. It happened in stages across decades and that's why the law changed. This fixes that.

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Stop consenting and it is forced to stop. Always.
No violence required.

Ajkalian
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@Mikivoja

Quote:
For example, take a degree in history, literature, economics, etc. - all these things require no hands-on training, they only require a lot of reading and feedback. Reading you can do on your own, and feedback is all the rejection you are going to suffer unless come up with something actually useful rather than just bunch of useless theories that don't amount to anything.


That reminds me of when I was interviewing new hires for a position in the IT department. I liked one of the candidates and on the second interview I asked him what his major was in college. He said he was a History major and then proudly stated he graduated with a 3.8 GPA.

The next question I asked him was, "so with your 3.8 GPA in History did you plan on going to work for one of the big History firms in town?"

.
Boredfree
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western slope colorado
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@whitehat from the bar

I agree there is competition from illegals and from guys like me who do a lot of unlicensed side work. In a place where there is more workers than work, such a dynamic drives cost down, hurting the licensed more than the unlicensed.

This isn't the case here. People can't find available tradesmen. Licensed contractors are a year out and people are desperate. This will change at some point and then the fly-by-night contractors will move on to greener pastures or find new work.

Guys like my friend who got burned by bad choices in 2006/07 will continue to provide work because he doesn't carry debt. Our company will also survive due to the workers being exceptional in both their work skills and their personalities. Service is important. You can't just be good at the work, you have to be comfortable dealing with billionaires. It's a unique skillset and many tradesmen dont have the social skills to work in this environment.

There are many professionals who might have the paperwork saying they're qualified, but there is so much more to being 'good' than passing a test. This is as true for electricians and plumbers as it is lawyers and doctors.

If you have the license, but not the business skills to marry to it, you probably SHOULD be working for someone else.

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Don24mac
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But... But... Both my Major in 11th Century Poetry, and my Minor in Gender Studies are useless? There's nary a job listing for either in the help wanted section of my newspaper. How can I pay off my $80,000 loan? /sarc

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"..it does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people's minds.." --Samuel Adams
Evilcecil
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This is brilliant in both it's simplicity and it's effectiveness.

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Just doin' the best I can.
Boredfree
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western slope colorado
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As for the usefulness of college degrees, a lot depends on the person getting the degree.

One of the smartest journalists I worked with during my newspaper days had a major in poly sci and a minor in philosophy. She explained that journalism was a trade and a journalism degree was pointless. Most of the best reporters report on subjects they have a background in (defense writers tend to have a background in the military, medical writers usually are trained doctors or nurses, ect)

She chose her majors because they interested her - she knew they weren't going to lead to a career, but both helped her develop depth. Also she came from money, so she was paying for her school out of pocket and could afford to use college to 'grow' as a person without worrying about succeeding.

She eventually went on to get her law degree and wrote a least one book (while attending law school and covering Roseville, CA politics full time for the paper...an over achiever for sure.

I think college could be fun and interesting way to expand yourself as a person, but such growth probably isn't worth the money spent. And it certainly isn't worth spending MY money on.


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The problem is most people want to point a finger rather than their thumb when dealing with challenges.
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