President Obama has announced a plan to cap student loan payments at 10 percent of income, yet it's nowhere close to what organizations like Move On.org and some in the "Occupy' movement are demanding.
With Americans' student loan debts reaching 1 trillion dollars this year, there have been a number of noisy people calling for the federal government to erase student loan debts entirely in order to create "stimulus' for the economy.
Most student loans are either direct federal loans or federally backed private loans. In the case of the later, if the government were to still meet its obligations to the private lenders, then that would amount to a bailout with money that was either taxed, printed, or borrowed and thus not "free". If the government were to back out of its obligations to private lenders, then private lenders would wisely stop working with the government and stop issuing student loans or tighten their standards when awarding them. That wouldn't be bad in the sense that it would give the free market a chance to come up for air, however if those in debt-- for whom there are less and less jobs available-- defaulted on these loans we could be looking a brand new crisis (on top of others) much like the subprime crisis.
In the case of direct government loans, the government could forgive that debt. What would result is a temporary freeing up of cash in the economy, keeping alive a comatose patient-- the victim of a failed Keynesian system-- for a while longer during this election season so that those who got their debt erased could thank their leader, forget their anger, and act surprised again in a few years when the impact of that stimulus ran out and the economy started melting down once more...all because the fundamentals of it were never sound, and nothing about how the government or the industries it subsidizes does business ever changed.
But letting economic arguments go for a moment, nobody who is calling for this student loan forgiveness seems to be addressing the obvious problem with doing it-- it's not fair!
And it never can be. Not for...
1) The people who have already paid off their student loans .
Yes there are people-- not just our baby boomer parents-- who have done so. They have made sacrifices in this economy, ignored the "this isn't what I went to college for" chip on their shoulders, and taken those horrible jobs getting screamed at on the phone every minute of every day in a call center, or flipping burgers until two in the morning every night. They may have lived with their parents (not exactly "cool" when you're out of college) delaying that final step to adulthood for a few years so that they could get those debt chains off of their necks before they began worrying about rent payments. They didn't get married right away, they were careful not to get pregnant before they were ready, and they didn't buy a new car . The crowd that likes to throw the word "fair" around when asking for the government to wipe out their debts needs to explain how this would be fair to the people who delayed their consumption because they didn't have a crystal ball and thus lacked the ability to know that an angry mob would one day metaphorically storm the records office and burn all the books. Some may argue that not every person's circumstances are equal, and that is true-- there are no societies in which everybody is equal unless you're talking about North Korea where most of everyone is starving to death-- but when a person takes on debt that means that at some point a choice was made by them to do so, knowing what their circumstances were.
But if you want to go far enough, let's assume that we try to make debt forgiveness fair for both those who were forgiven of their debts and those who paid them off. How do we do that? Do we refund student loan payments? Where's that money going to come from? (Printing or borrowing...can't tax it because that would be taking money away only to give it back.) Where do we draw the line in picking those whom we choose to refund? People under fifty? People under forty? Thirty? Maybe we could base it on specific circumstances...then who decides the circumstances and how are we going to pay for the labor of the people in the new offices that will need to be created in order to oversee this process? (Again, printing or borrowing...you know that further destroys our currency and standard of living, right?).
Such considerations quickly become a bottomless pit.
2) Those who passed up higher education out of fear of debt.
Yes there are people-- whether they be cleaning toilets, decorating cakes, or in some middle management position at an office-- who decided that the B.A., the M.A.,or the law degree that they considered chasing wasn't worth the debt that would shackle them after they got it. Maybe they decided to invest in a college fund for their children instead, or perhaps they watched a few videos on You Tube and saw this crisis coming way back when the mainstream media was still laughing at people like Ron Paul. People who-- lacking that crystal ball mentioned earlier--may have made different decisions if they had known that the esteemed degrees they considered getting in order to improve their resumes and their incomes (or simply to be able to pursue their dream jobs) would one day be rendered "free" by the desperate powers that be.
Is there some way that we're going catch everyone up with their peers, who individually decided to take on the debt they're now demanding be forgiven? Some suggest making higher education "free", ignoring the fact that anything involving people's labor is never "free" and has to be paid for. (Taxing, printing, or borrowing).
But if we're going to go ahead and do that, then I want to be a lawyer.
Hey wait, so do millions of other people. We can't have all of them become lawyers, otherwise there will be too many lawyers. The government could issue a test and just pay for those who get the best scores to become lawyers. But then who decides how this test is written (people will inevitably claim that the test is biased in some way), and what about the people below the cut off line? If they're forced to pay for their degrees, then that will undermine the whole notion of education being "free". The government would then have to decide how many lawyers are needed in the country and plan it so that only a certain amount of people from each generation can be lawyers and nobody else.
If you've read any history books, you know that's the first step to a really bad place.
3) People currently getting their degrees.
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