Should the government forgive student loans?

I was in college when the first student loan program was initiated. Almost instantly, college costs began a precipitous rise that hasn't stopped (when I started at UCLA in 1958, there was no tuition and fees of $248 per semester, 10 years later, it was five times that.)

The education world is a business that, however it represents itself, charges what the market will bear. When it knows that its clients (students) can afford to pay more by borrowing, it will charge more. In today's world, students at least have the spectre of repayment as a partial restraint on how much they are willing to borrow for and education. If those students come to believe that the government (now the sole source for student loans) will pay back their loan for them, they will have no restraint nor will the colleges.

If the government made car loans and offered to pay them back, wouldn't the price of all cars rise and wouldn't everyone want a Mercedes or BMW... heck why not a Rolls?
In the end, it seems to me that this entire question is about the government creating "clients" who depend on it for support or money or whathaveyou. When the proportion of those clients reaches a majority of the nation (and the voters) government officials who support continued or increased payments will be a permanent majority.

That, as Hayek realized, amounts to soft tyranny.

First off, a commitment is a commitment. However, when our government sets students up to fail from the beginning, it is not all the students fault. Government put in place a system that gets students to elongate their college career putting them into further debt. So, rising prices causes them to work more, and working more causes them to extend their tenure at a university. This adds up to an equation in which government ONLY wins. Forgiving all student loans and restructuring the loan process would not only allow government to pay back their mistakes, but would also free up billions of dollars in income for many Americans. Now that is what I call a bail out. In a demand economy, nothing helps more than giving 20-somethings enough money back to buy houses, cars, and other durable goods. This would be 10 times more effective at stimuluating the economy than any bailout of big corporations.

I totally agree! I am so frustrated at the large payments and the LOCKED interest rate and the unforgiving inflexibility of the loan structure. It is keeping my spending curtailed for the last 15 years and for the next 15 years. I am glad I could borrow the money because I couldn't have gone to school without it, and I want to pay it back but not 6 times over! What a racket!

Absolutely not! The economic stimulus argument aside, what lesson would "forgiving" a loan teach college graduates? It's OK to stiff a lender just because you can? Personal responsibility is for someone else? Making a commitment means nothing?

We already have a huge entitlement mentality in this country. People are living on credit way beyond their means, purchasing homes (at the behest of the Federal Government) that they cannot afford and then going into foreclosure and filing bankruptcy so they can get out of their agreements with other creditors.

It is the wrong message to send to our younger people.

How about, if I can't afford it, I don't buy it --- including loans to go to school?

What ever happened to "working your way through school"?

Dena -- I am well aware of the cost of education today. If people cannot afford the tuition rates of a major school, then how about attending a community college and then transferring to a smaller 4 year school? That becomes more affordable for many families.

Also, as others have mentioned, how about a certificate program or trade school? Not everyone can have the best --- especially when it is at taxpayer expense.

Hell no. Young people need to learn about the value of money and the obligations money creates.

Furthermore--our taxpayer dollars help fund student loans and we are all paying every time one defaults.

I think the loans should be repaid but I think there may be some creative ways to improve the situation. A few thoughts....

1. Added flexibility in payments and interest rates - especially for those who are struggling to make ends meet. Essentially let them "re-finance" at a lower rate.

2. Loan reductions for people who take on certain positions that are beneficial to society. For example: 10% of the loan forgiven for each year somebody spend teaching in a public school. Also payment deferment for school teachers - as long as you're teaching you have no payments and no interest. If you leave the teaching profession 10% of your original balance is forgiven for each year you taught and you start payments and interest on the remainder (if any).

There may be other public service positions other than teaching that we'd want to extend that to.

3. Offer employers an incentive if they choose to repay student loans for their employees. Perhaps make the amount employers pay on their employees student loans tax deductible.

It's a knotty issue, isn't it?

First, I reject the "moral hazard" argument. If it wasn't sufficient to prevent bank and auto maker bailouts, why should it apply to individuals who are struggling?

I support selective use of forgiveness or renegotiation on a case-by-case (or class-by-glass) basis for the social benefits and stimulative effects (here I disagree with Scott; people struggling to pay their bills will most certainly spend any extra cash they get by losing a loan payment).

The tax deduction/credit approach has at least two problems: it doesn't help those who don't have the upfront cash or those who don't earn enough to use the deduction.

Looking forward, I agree that the over-emphasis on college degrees should be reversed and more recognition given to apprenticeships and certificates. However, since I think the over-emphasis on degrees came from private sector hiring practices, the solution will presumably need to come from there as well.

That said, I believe that for the health of our society, we should also have some abbreviated form of nearly universal post-secondary liberal arts education as well as a period of perhaps mandatory national service. Perhaps the two could be combined. The idea would be to develop a populace with a common sense of purpose and enough common sense to see through demagoguery and elect capable leaders.

No, if for no other reason than there's no evidence that it would have a stimulative effect on the economy. In other words, there's no guarantee that a reduction in future student loan payment obligations would turn into increased consumer spending in the short term. That's the argument against doing this from an economic policy perspective.

There is also an equally important "moral hazard" argument to be made here though. Right now, there's a tremendous amount of waste in the higher education market that is fueled by profligate lending practices and poor decisions by consumers who choose to assume tens to hundreds of thousands of dollars in debt in fields that just don't offer a good rate of return on that debt. The rise of for-profit colleges is certainly one subprime example of this, but law school is another example of waste at the higher end of the education market.

Furthermore, there are other policy options here that would benefit the economy and society much more than across the board student loan forgiveness. For example, the government could make tuition tax deductible when a student majors in an area where the skills gap is large such as engineering. Right now, student loan interest is tax deductible usually up to $2,500 per year, but this policy could be made much more expansive.

The more the government loans students, the more the colleges pump up their prices to absorb those dollars, and the further indentured graduating students become. It's a vicious inflationary cycle that simply must be broken.

Forgiving student loans - which I support - is a start. But what really needs to happen is for government loan programs to be dramatically reduced, and lending authority returned to the private sector so that market forces can determine which students and universities are - and aren't - worth the credit risk. Student loan risk should be held by private institutions, not the government - in which case we won't be having this conversation.

Such changes will, of course, be fiercely rejected by pampered and overpaid university staff and faculty, as colleges will suddenly be forced to compete much more aggressively on price and value delivered per tuition dollar. But it is necessary and, ultimately, inevitable.

Recent data shows the number of borrowers defaulting on federal student loans has jumped sharply, the latest indication that rising college tuition costs, low graduation rates and poor job prospects are getting more and more students over their heads in debt.

Reports also state the Department of Education has begun an income-based repayment plan that caps federal loan payments at 15 percent of discretionary income.
15% seems pretty reasonable at first glance, kind of like the first home I bought in 1985 where I had to prove my mortgage payment wouldn’t exceed 28% of my adjusted monthly gross pay (this is BEFORE Barney Frank and his forcing the overextension of credit markets to folks who could not afford to borrow).

The catch is you need a job to have discretionary income before this can be calculated.

Since you cannot ever get out of a student loan, not even through bankruptcy, borrowers must pay and I do not support a bailout here, but maybe we can extend the grace period (I think today 6-9 months) for when the graduated or departing student must commence the payback (with incentive to finish). This can help a little and since the loan term will potentially extend over decades, I don’t see a big problem with this? But no more free rides. If you want to get an MBA so you can earn more, then own up to the agreement and obligation to pay for it.

I couldn't add to Bill's comments at the beginning of the discussion, but I have to say I agree with him. I realize that it's very difficult out there but I know I worked full time, had two children to raise on my own and still paid off my education. If we forgive debts, whether in the form of student loans or not; how can we then turn around and say we want others to be accountable and responsible? No, I think whatever debt you have must be repaid. If we forgive student loans, then it's not fair to those who would have wanted an education but could not afford to pay and went down another road.

As others have stated there are alternative ways to get an education outside of brick and mortar universities and obtaining a degree. Certificates and diplomas also hold value and there are universities that offer on line certifications so you can work while you attend school. Gaining that experience gives your degree/certification/diploma even more value.

I truly believe the society we live in today is creating victim-hood and if we're going to get healthy - our schools, our workplaces, our governments, then we need to do whatever we can to live up to the commitments and promises we have made. If that means going without or making a sacrifice of some sort, then so be it. I am proud of what I have accomplished and an example of what we can do when we want something badly enough. Living in constant debt is not the answer - learn to live with a bit less and get what you need as you can afford to.

So, I'll step off my high horse now and for those who took the time to read my opinion, thank you.

I haven't read all of the responses to the post, however, I think many of the answers I did read were idyllic and not evaluating all of the circumstances surrounding the repayment of students loans today. Many young adults over the past twenty years have graduated into sub optimal job markets, and after investing $30, $40 or today possibly as much as $100,000 or more, find themselves grossly underemployed and unable to afford to repay their loans. I personally graduated from college into what was then considered "the worst recession in our country's history" and a job market so bad only the Great Depression trumped it in joblessness at the time. Frank Rhoades, in a play on his famous welcome speech, told us on graduation day..."look to your right, look to you left, there is a strong chance neither of those peers you just saw will be employed one year from now..." Not very encouraging. After graduating from Cornell with over $75,000 in debt, I found myself only able to obtain a job in a hotel as a front desk clerk, making $15 per hour. Although I was living at home with my parents at the time, the gross underemployment left me unable to repay my loans and still be able to survive in the expensive NY metropolitan area. After exhausting my deferrments, I was unable to afford gas and repay my $1,800 per month student loans payment on a gross income of $2,475 which left me about $1,905 after taxes. As a result I defauted. I've tried several times to reenter a repayment agreement, but as one student loans worker explained to me, most students reentering into an agreement will find themselves defaulting again within 1-year. Not a very positive statistic. After over twenty years, I finally find myself in a stable job paying me what I'm worth, however even at a salary which is over 150% of the county in my state with the highest median income, I am unable to enter into a repayment agreement because the value of my loans after fees, penalties, the costs of refinancing and whatever else they've charged me, are aver twice the loan value and concomittantly the payments are still prohibitive. I agree, I'd like to repay my loans, maybe instead of forgiving the loans entirely, the government should consider forgiving the fees, interest and penalties on the loans currently outstanding and allow students to replay their debts on the original principal values. Banks, homeowners, business owners, including some very wealthly entrepreneurs and hotel tycoons, have all been forgiven. Why has no one considered giving lowly students a break too. Certainly having the principals repaid on all of these loans would be a great benefit to the entire system, and with the reahbilitation of all of these consumers' credits, there would be a potential increase in the purchases made by these graduated students, leading to more jobs and more improvements in our econonomy. I know for myself, I will never buy a new car or own a house, my credit precludes these luxuries. Maybe something has to change.

Perhaps this is the question we should really be asking here - http://www.focus.com/questions/should-government-be-student-loan-business-fir...

I would vote for student loan forgiveness, as someone who has completed her BS degree later in life in the first decade in twenty-first century.

I realize that each student has a set of personal circumstances. I am a baby boomer, I have nine siblings an am I am the seventh child of ten children. My father, a WWII veteran was employeed with the US postal service as a rural mail carrier. My mother worked at home.

The year I graducated high school, 1973, one of my sister's passed away, she was ill for apporoximate 18 months. Although she was married and lived in a different part of the state she came back home because she wasn't able to get the medical care she needed. In the early to mid '70s economic times were trying. I went to work straight out of high school as both my parents were dealing with a dying daughter and providing care for their infant grandson and the remaining three children under 18 years of age.

In the 2002, I entered the online education world with the goal to complete my bachelor's degree, that I started in 1973 one class at a time. When going back to collect my credits earned, I had earned at least three credit hours in each decade, 1970's, 1980's 1990's and 2000's.

I chose the online education world due to the fact that there is not a college campus within a 60 mile radius of where I reside and I was working fulltime, 60+ hours per week. I had a grown daughter who began her on campus college education the following year, 2003.

Both the economic condtion as well as the amount of student loan debt that I have accumulated has placed a hardship on myself and my husband as consumers in the US. My husband was a small business owner from 1986 - 2002, he was downsized at the bank he was working at in 1986 and opened a small buisiness and operated it until 2002. Small business owners suffer the most when economics times get difficult.

We have always paid our bills, taxes etc. We do not take extravagant vacations yet we struggle each month to get everything paid we need to pay.

I expect to have my student loans paid by age 72 and I hope that I am healthy enought to work until they are paid in full or they are forgiven.

As a CEO I understand your position. Yet, I do feel there are circumstances that could be considered and hardship cases alevieated on a more personal basis.

I appreciate you asking the question and allowing me to voice my opinion. I have a very strong work ethic and hopefully equally strong credit rating that will keep me actively participate as a US consumer.

God Bless America!

Yes, in exchange for a scheduled allotment of hours working in and contributing to those not-for-profits approved by the United Way who have a proven track record of making difference in meeting the needs of the needy.

For those former students with rather high, depicting advanced degrees, should be assigned to the hardcore challenges in the community--again monitored & managed by established entities previously mentioned.

Seton Hall University offers applicants 2/3 Off Tuition:

http://www.nytimes.com/2011/09/29/nyregion/seton-hall-university-to-offer-ste...

It's a crazy prospect. However in the wake of all the big business bail outs to stimulate the economy; it sounds tempting doesn't it.

I never support forgiveness - I support tight controls on who gets the loans and for what. A whole industry developed around ways to provide education services to get at the student loan money. I know students that use loans for things like plastic surgery. So many students get into programs and then don't complete them (why?).

I also believe a commercial side of the education industry sprang up to get their hands on student loan money - this should be stopped. Student loans should only go to 4 year advanced degree programs which are accredited by the discipline's accreditation authority. Too many loan guarantees are going to what I see as "scams" which only hurts everyone (except the company "school" that's banking the money).

An entirely separate program, which much lower caps, should be created for other degree type programs.

From a personal accountability position, absolutely not. Yet, the government by changing full time status from 15 hours to 12 hours through the Pell Grants has set young people up to fail while encouraging universities to extend the college learning experience. In the US, the majority of young people going to school full time are taking 3 years to earn a 2 year degree and 6 years to earn a 4 year one. Source: NCES.edu.gov.

The increase in student debt is the symptom of a larger problem and that is schools are not achieving the desired results both at the K-12 and at the post secondary levels. Imagine if any business could not deliver 50% of their products on time. Would they still be in business?

I learned something yesterday dealing with my Tax and debt problem. I lost my Income and my home just turned 61. I chose not to go bankrupt, since you can't get rid of Student loans (for my children) or Taxes.

My credit is just as screwed for 7 years, couldn't even get a collateralize loan, because of late and reporting.

And yesterday my tax counselor said that in settling with the IRS they do not include Student loan in Debt, but actually add it as spendable income, and gross it up against your taxes owed. So you can't get rid of it in Bankruptcy but to the IRS it is $350/month in disposable income GO FIGURE

No, enough of this already. People made a commitment. And besides, we are so far in the hole the population of student loan holders would not even amount to a drop in the bucket.

Chris, I agree that the cycle needs to be broken! My husband and I struggle to pay back our loans and they are not all in repayment yet (I graduate in December). Forgiveness is a great step in the right direction. Then getting the government out of lending and putting the consumer protections back on student loans (bankruptcy protection) would also help. With the banks having more risks the more likely they would be to limit what a student borrows depending on their field of study and their future earning potential. Once that is done colleges would be forced to lower prices and then eventually the college price will be where it should be, at market value. Please if you support loan forgiveness go to http://www.signon.org/sign/want-a-real-economic.fb1?source=c.fb&r_by=525506 and sign the petition!