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May 08, 2014

A Modest (But Apparently Not In The Least Satirical) Proposal

The GOP should seize the "opportunity" (or was that "opportunism"?) to discharge student loans and end federal subsidies of postsecondary education.

Here's a summary of the argument as we understand it:

1. Student loans subsidize academia.

2. Academia is overwhelmingly liberal.

3. Academia delenda est.

4. Cut off their funding and you seriously weaken (if not destroy) the Left.

We'll bet you just can't wait to hear the plan:

What all this means is that firing an Exocet missile into the heart of the American higher-education establishment should qualify the trigger man for a place on Mount Rushmore.

Here’s the missile: Republicans commit, as part of their 2016 platform, to (1) canceling all student loans owed to the federal government and paying off all loans owed to private institutions and (2) eliminating all federal aid, grants, support, etc. to postsecondary educational institutions. It’s a package deal: no elimination of aid, no cancellation of debts.

Hmm. I wonder how the 38 million people with student-loan debt would vote on that issue. In 2012, 60% of Millennials voted for Obama. It doesn’t have to be that way.

Aye Chihuahua. The mind boggles.

Posted by Cassandra at May 8, 2014 06:22 AM

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Comments

Yeah! Because using tax dollars to buy votes is SUCH a conservative value...

/facepalm

Posted by: MikeD at May 8, 2014 10:01 AM

I guess some folks have finally come up with an answer to "How do conservatives compete with a party that promises goodies to voters?"

*sigh*

Posted by: Cass at May 8, 2014 10:07 AM

From the article:
to free the current indentured former students from their debts and open up a brighter future for them, and to prevent another generation of young people—or two generations, or five, or seven—from wasting years at college and going into debt to do it, and then living a life of agony trying to pay off that debt.

To free one from a contractual obligation in which the party of the second part had not fulfilled its contractual obligations is a matter of justice and not at all un-conservative. It’s hardly a stretch to believe the wrong done here by the educrats is a tortious act and the educarats (the educational institutions) the tortfeasors. The litigant, the debtor, has been unfairly harmed and suffers a loss. The party of the second part had misrepresented his product:
1. inculcation is not education (even in a nation where not a tax is a tax).
2. the value of it had been misrepresented in many, most cases (e.g., the value of a JD from YakaTaka U hasn’t the same intrinsic value as one from ol’ ivy – not even a relative one).
3. most all of the educational complex is a flim-flam scam. Grifting is illegal.


(2) eliminating all federal aid, grants, support, etc. to postsecondary educational institutions.

If it had gone further and included secondary schools it would be more than brilliant, it would be good common sense. If the cost of their money is a 'core curriculum' they can shove both YKW.

If ever anything like this resulted in a vote or several – what of it? Even Conservatives like their cake frosted.

Posted by: George Pal at May 8, 2014 11:35 AM

It's a more interesting proposal than that, I think. For one thing, it's fiscally responsible over time:

So: if total student debt is a trillion dollars, and annual federal support to higher education that can be eliminated is $109 billion, cancelling both would allow the Treasury to break even in only nine years—and that assumes that if the trillion-dollar debt were not canceled, all of it would eventually be repaid, which it obviously wouldn’t be. The default rate is about 10%.

There's something to the claim that much of what is being produced is not actually valuable:

And some of the research, which has exploded in recent decades, is probably worthless. Do we really need one book a week on Shakespeare?
In fact, the rate of citation for academic journal articles -- mostly not the work of students, but of fully-trained professionals -- averages under 11% over the last ten years. So the vast majority of articles being produced aren't even useful to other professionals within the discipline!

We might want a more targeted approach, but it does sound like it might make sense to limit Federal (i.e., taxpayer) support of academia.

That doesn't mean that we shouldn't educate, of course! I'm a tremendous fan of education. It just means that the current structure may no longer be worthy of the vast amount of money we are pumping into it.

Posted by: Grim at May 8, 2014 12:04 PM

Wow.

George, you are really scaring me.

A consumer takes out a loan to buy a product he and only he selects and then - because he failed to conduct the appropriate market research - he wants me to pay off his loan?

And this is "conservative"? What other regrettable major purchases made by fools should I be taxed to pay for? This represents an income transfer. That it seems politically expedient doesn't change the nature of the proposal.

Posted by: Cass at May 8, 2014 12:08 PM

I'm far more favorably disposed to Grim's suggestion that postsecondary education should not be so heavily subsidized by fedgov.

But discharging freely assumed loans by reaching into my pocketbook doesn't do it for me.

Posted by: Cass at May 8, 2014 12:09 PM

If the author's right about the numbers, it's better for your pocketbook too -- from year nine, when the numbers break even, you'd be increasingly ahead.

The question is whether the benefits -- freeing up a large amount of taxpayer money to address other debts and concerns, and reforming academia -- are worth the price of letting people who made bad decisions escape their debts.

Perhaps it's worth remembering that this particular kind of loan is almost unique in that it can't be discharged in bankruptcy. Normally, in other words, we're OK with people who make bad decisions being given a fresh start at some point: there's some cost to it (especially in terms of credit ratings, which has real costs in terms of the availability and price of credit), but we accept that our market-based society is going to sometimes leave people crippled if we don't provide some sort of relief.

What's being proposed here is a similar relief, in return for a significant reform that we have reasons to think is wise and desirable. It may not be such a bad deal. If you want, you could add a condition that credit agencies be free to consider accepting debt relief on similar terms to accepting a bankruptcy.

Posted by: Grim at May 8, 2014 12:53 PM

This "solution" isn't about letting people who made bad decisions escape their debts.

It's about taking my tax dollars so that ANYONE who took on college debt (including a significant number for whom college represents a BIG benefit) can skate away without having to pay for it.

What other groups of "disadvantaged" (read "people whose perceived wounds are entirely self-inflicted") should be allowed to rob me?

It continues to amaze me that all the wonderful principles we conservatives claim to believe in are so easily reasoned away.

It's wrong to take my money to monetarily benefit someone who did nothing to earn that benefit... except when we can come up with some spurious argument that allows us to violate our professed principles. FWIW, I'm not OK with bankruptcy. I'm not OK with telling people it's acceptable to obtain loans under false pretenses and then refuse to honor their promises because that drives up interest rates for everyone and makes loans harder to get.

I have zero reason to think this proposal is either wise OR desirable. All it is is government picking more state-sponsored "winners" and paying them with funds taken out of my wallet.

Posted by: Cassandra at May 8, 2014 01:07 PM

Sorry, I'm firmly with Cass on this one. break even points aside, it is simply rewarding bad behavior. "Well, 10% don't pay it back anyway." You're the %#$&^%#$ Federal Government. Take the money back the same way you'd take it back if they failed to pay their taxes!!!

Eliminate the Federal support to education. Fine, we're on the same page here. But do NOT spend that money granting these deadbeats waivers for their own poor choices! They took that money from taxpayers with a promise to pay it back at loan rates banks wouldn't offer them (otherwise, they'd just take out a loan). And then... 10% don't even bother to do that! If I owed $100k in back taxes, the FedGov wouldn't just go "well... I guess that money's just gone." They'd come after me! So why not deadbeat loan recipients?

"But Mike, they don't have any money!" Funny, I'm pretty sure that's not taken as an excuse if you're 100k in the hole to the IRS. They'll garnish your wages, seize property, and generally do whatever it takes to get that money from you. I'm pretty sure they could do the same here.

Posted by: MikeD at May 8, 2014 01:09 PM

Amen.

I paid off my student loans while we were still living under the federal poverty level for a family of 3 (which we were at the time).

The average student loan debt is the same as the average new car loan but the repayment period is a LOT longer. I'm sick to death of government created victims.

The list grows longer every week, and now we're jumping on that same morally bankrupt (pun fully intended) bandwagon?

Not me.

Posted by: Cassandra at May 8, 2014 01:12 PM

The consumer led to believe he must have A (a degree) to get Z (a productive future) has been bamboozled. When it turns out he has indentured himself for a misrepresentation he should have recourse, or a champion, or at least a cup of tea and sympathy.

You need not pay off anyone’s loan. As the loaners had not or would not conduct the appropriate market research (as in the case of mortgage loaners) as to the likelihood of repayment they eat the loss (just as mortgage loaners should have been made to do). And Government can guarantee nothing the taxpayer will not. I believe that meets the requirements of a conservative position.

Finally, we are talking here of education and all that, all of which has a fundamental not tangential effect on the nation. So suggesting I’m opening up Pandora’s box here is a bit too ingenious.

And stop being so jittery – I’m not THAT scary.

Posted by: George Pal at May 8, 2014 01:37 PM

You could, I suppose, limit the forgiveness to those in the worst shape -- similar to those who would be suitable candidates for bankruptcy -- but give it a second thought. Assume this guy is right that you could pass this Federal funding reform, if and only if you tied it to student debt forgiveness (of some kind). Look at the two plans, ten years down the line.

Since people tend to vote their interests most of the time, in ten years these students whose debts got forgiven would have had time to build some wealth they wanted to protect. That would tend to locate them on the anti-tax side of the political equation, i.e., in a more conservative position.

In addition, you'd have cut off the production of ten years' worth of people in a similar position.

So the ten-year picture looks like it's much improved politically for conservatives, vice not reforming along these lines. You'd have moved a lot of people from the "we need a handout" camp to the "we need lower taxes" camp; you'd have cut Federal spending substantially; reformed education; and you'd be enjoying the savings every year after.

Politics is often about compromise, as you (Cass) so often say. So the question might be, is the compromise worth it?

As I said to start with, I think it's a more interesting proposal than it might sound at first. It might be worth checking the guy's math, and seeing if such a compromise is really capable of being enacted.

Posted by: Grim at May 8, 2014 01:38 PM

Who has "led" people to believe they have to have a degree to have a productive future?

Who has forced ANYONE to take student loans?

And yes, you really are that scary.

Posted by: Cassandra at May 8, 2014 01:45 PM

You could, I suppose, limit the forgiveness to those in the worst shape -- similar to those who would be suitable candidates for bankruptcy

So, we should favor the most irresponsible students and punish the most responsible ones?

I don't have the least bit of sympathy for anyone who takes on a ton of student loan debt.

Since people tend to vote their interests most of the time, in ten years these students whose debts got forgiven would have had time to build some wealth they wanted to protect. That would tend to locate them on the anti-tax side of the political equation, i.e., in a more conservative position.

This is the rosiest of optimistic assumptions. Why wouldn't people who had once been forgiven huge amounts of debt expect that practice to be repeated whenever they need it? The practical outcome of mortgage forebearance was that more people defaulted - they become LESS responsible, not more responsible.

Which, come to think of it, is pretty much what happens when parents continually fix their kids' problems. The kids never grow up.

You'd have moved a lot of people from the "we need a handout" camp to the "we need lower taxes" camp; you'd have cut Federal spending substantially; reformed education; and you'd be enjoying the savings every year after.

This just doesn't logically follow, Grim. Every time one segment of the population gets a handout, others clamor for the same benefits. It defies reason to think a HUGE bailout would beget anything different than such tactics have in the past (more bailouts, more entitlement, more people looking to government to solve their problems).

After all, it worked once!

Posted by: Cassandra at May 8, 2014 01:51 PM

George,

I get the idea that "college degrees are oversold as something everybody needs". I really do. But for crying out loud, that's not "fraud" anymore than it's "fraud" that people are oversold on this "organic is good for you" nonsense. Furthermore, allowing them to default on a loan that we taxpayers have already given them the money for is absolutely taking money out of our pockets. If you think the government is going to surrender the revenue stream that college loan repayments currently provide by cutting back, then you've not been paying much attention to how the government has been operating. They'll raise taxes to replace that money faster than you can imagine.

And while we're on that topic, Grim, can you imagine that our legislators who believe "we don't have a spending problem" are going to cut the education funding for any reason? Or, if they do (to pay off the college loan forgiveness in a compromise), that they won't just go ahead and reinstate it later? For crying out loud, they call it a cut if we increase spending for a program at a lower rate than we increased it the previous year! These people have never met a spending proposal they didn't like.

No. Any Representative or Senator of mine who would propose this would lose my vote.

Posted by: MikeD at May 8, 2014 02:32 PM

First off it will never work, any savings will be re-programmed into other spending. The taxpayers' return? Zero, zip, nada.

Hey lookee here, we're saving 100 billion a year. Great let's spend it on k-12 education.

If a policy will not produce the desired outcome there is no point in having that policy.

Savings in government, forsooth.

Posted by: Allen at May 8, 2014 02:35 PM

The most wildly unrealistic assumption in all of this is that young people will think that cutting all federal subsidization of higher ed is a *good* thing.

They won't. Taking away Pell Grants and federally subsidized student loans will be interpreted as racist/ sexist/ ageist/ anti-poor: the party of rich, white entitled oppressors making it impossible for the Deserving Poor to Get Ahead. Believing anything else requires a deliberate refusal to learn from history.

I don't believe (and have never believed) that "everyone needs to go to college" or that "no one can succeed without college".

I don't understand the argument that government has "victimized" students by offering them loans NO ONE is forced to take. If a family can't afford college, there are *plenty* of affordable schools out there that don't require anyone to sell their firstborn son or the family farm.

If that's not good enough, then people should figure out whether they can afford a pricier institution. I figured out I couldn't. I could have gotten into one, but I wouldn't have been able to afford the bill.

And that's OK, there are lots of things in life I can't afford and many I *can* afford but choose not to spend money on.

Posted by: Cassandra at May 8, 2014 02:59 PM

Who has "led" people to believe they have to have a degree to have a productive future?

Cass,

Anyone wishing to know anything must first ask about the money. The entire education complex and the moneymen behind it are doing the best they can.

I find it difficult to swallow that at a time when cognative abilities are plummeting college enrollments are up, and in the process make necessary remedial, angst, and resentment 'studies' in the curricula so as not to challenge the intellectually different with liberal arts but keep them in school and borrowing. The cost of higher education skyrockets (along with textbook costs), far outpacing the rate of inflation. I’m not privy to the experience but have read of usurious interest rates, capitalization of interest and the sole option of interest-only payments, and as Grim has mentioned, the loans are non-dischargeable in bankruptcy proceedings. That last has all the subtlety of an extortionist’s pay-or-play threat. Further down the fetid stream we find student loans are now bundled and bought and sold much as mortgage loans had and continue to be. I stand by what I had charged, flim-flam – or fraud if you like.

Posted by: George Pal at May 8, 2014 04:17 PM

I would like to see Federal aid to post-secondary education disappear but to me, the practical problem with this plan dooms it. The Republicans could probably get this bill through - forgive all college debt in return for getting rid of all Federal aid to post-secondary education. And then next year or the year after (or maybe next month) someone (could be a Democrat, could be a Republican) will introduce a little tiny bill offering a little tiny bit of Federal help with something very, very valuable (maybe college students who want to become high-school physics teachers - we need more of them, right?) And the whole problem will start over again. It's amnesty all over again.

On the other hand, if we're going to allow people to discharge things like credit card debt in bankruptcy, I don't know why we wouldn't allow people to discharge school loan debt in bankruptcy. I'm not sure why being an idiot about buying shoes when you're in your 30s is "forgivable" but being an idiot about buying a college degree when you're in your late teens isn't.

If we allowed school loan debt to be discharged in bankruptcy we could turn off much of the private spigot for ludicrously expensive school loans. We'd still need a way to turn off or restrict Federal government loans and/or Federal government guarantees. We could try bundling that with a law allowing school loans to be discharged in bankruptcy but we still have the problem that someone not too far down the road will start putting things back the way they are now.

Posted by: Elise at May 8, 2014 04:28 PM

On the other hand, if we're going to allow people to discharge things like credit card debt in bankruptcy, I don't know why we wouldn't allow people to discharge school loan debt in bankruptcy. I'm not sure why being an idiot about buying shoes when you're in your 30s is "forgivable" but being an idiot about buying a college degree when you're in your late teens isn't.

I don't think it's really a case of who's the bigger idiot. The two types of loans are different in several important ways.

Credit card debt involves commercial enterprises (banks) extending unsecured credit to private citizens for profit. Interest rates are set by each bank, which is in competition with other banks, but rates can and do climb a LOT higher than student loan rates. And interest rates on outstanding balances aren't paid by taxpayers. Finally, banks can legally discriminate against borrowers with poor credit histories by charging them higher interest rates and assessing higher fees. So they have a way to mitigate potential losses.

When the private citizen declares bankruptcy, the bank loses money (which it is expected to write into the cost of future loans and the decisions about who gets them). Taxpayers are not asked to step in and make anyone whole.

Student loan debt is intrinsically different. Instead of a market interest rate, banks charge artificially low interest rates. The interest on subsidized student loans is paid by the govt. while the student is in school, during the grace period, and during a legitimate deferment. So there is ALWAYS a cost to the taxpayer even when a student pays his or her loan off on time.

Prior to 2010, the fedgov guaranteed some student loans - another cost to the taxpayer. And fedgov still provides direct loans to students - yet another cost to the taxpayer. There really isn't much similarity to credit card debt.

Posted by: Cass at May 8, 2014 04:48 PM

One more thing: what is a "ludicrously expensive student loan"?

Federal student loans are cheap compared to private loans. That's the whole reason they exist - because students can't afford private loans.

Just because a student is dumb and borrows more than they can afford to pay back doesn't make the loan expensive. That's a voluntary decision.

And let me repeat - the average student loan balance is the same as the average new car loan. Except you have a LOT longer to pay off the student loan and you don't get charged any interest at all while you're in school.

Posted by: Cass at May 8, 2014 04:51 PM

The cost of higher education skyrockets (along with textbook costs), far outpacing the rate of inflation. I’m not privy to the experience but have read of usurious interest rates, capitalization of interest and the sole option of interest-only payments, and as Grim has mentioned, the loans are non-dischargeable in bankruptcy proceedings. That last has all the subtlety of an extortionist’s pay-or-play threat.

George, I have no idea what you're talking about here but it has only a tenuous relation to the facts.

Federal subsidized student loan rates are currently somewhere between 3 and 4%. Hardly "usorious". Loans for grad students and parents are between 5 and 6.4%

Student loans issued earlier have varied between 3.5-6.5%, and there are all sorts of options to lower your rate.

We took both PLUS (parent) and student loans when my boys were in school. Simply putting them on autopayment reduced the interest rate to 3%. Try that with a commercial loan.

And there are all sorts of options for forebearance, deferment, or even forgiveness of student loans so it's ridiculous to pretend it's a merciless system that crushes people's souls.

The facts matter.

Posted by: Cass at May 8, 2014 05:06 PM

One more thing: what is a "ludicrously expensive student loan"?

Federal student loans are cheap compared to private loans.

A "ludicrously expensive student loan" is a loan to go to a ludicrously expensive school. A ludicrously expensive school is one someone cannot afford without putting himself or his parents into more debt than is manageable.

Posted by: Elise at May 8, 2014 05:17 PM

The most wildly unrealistic assumption in all of this is that young people will think that cutting all federal subsidization of higher ed is a *good* thing. They won't. Taking away Pell Grants and federally subsidized student loans will be interpreted as racist/ sexist/ ageist/ anti-poor: the party of rich, white entitled oppressors making it impossible for the Deserving Poor to Get Ahead. Believing anything else requires a deliberate refusal to learn from history.

That's why I said I thought the next step would be doing some checking to see if the compromise was really possible at all. It could well be that a little focus grouping and polling would demonstrate that it isn't a workable compromise at all.

In any case, you sound very much like I did in 2008 when we were debating the bailout of the banks. I was morally opposed to that in the strongest terms, and unalterably so; indeed I still think we did the wrong thing by bailing them out. I get the moral argument, even if my instincts differ on where any exceptions to the general principle ought to be located. I just think that this sounds like an idea worth exploring.

If it doesn't pan out, it doesn't.

Posted by: Grim at May 8, 2014 05:30 PM

Why should I subsidize someone's desire to attend a school they can't afford?

I could easily have gotten into an expensive school but I didn't. My kids could have done so, too. I don't see a compelling case for ordering one set of taxpayers to pay off the (foolishly and voluntarily acquired) debts of others.

One thing I'm not sure you all are taking into account is that students often take more loan than is required to cover their expenses and use the money to buy "stuff". I've seen this happen, even though they are repeatedly warned not to.

People take loans to buy all sorts of things: cars they can't afford, and houses, and vacations, and clothes and stereos. The loan itself isn't expensive (unless the interest rate truly *is* usorious). The problem here lies with people who knowingly sign promissory notes without bothering to think about whether they can fulfill those promises.

By the way, federal loan recipients are also required to sit through a counseling session before they sign their first loan that covers all of this. Yet somehow George thinks full disclosure is *fraudulent*?

Don't people have any duty to pay attention to their own lives anymore?

Posted by: Cass at May 8, 2014 05:37 PM

Yes, the use of 'usurious' – careless. It appears though you agree with the rest.

Posted by: George Pal at May 8, 2014 05:37 PM

The bailout of the banks was (again) a different case, and I totally agree with the moral hazard argument. But I wasn't arguing for a bank bailout to "help" either banks or borrowers. I argued for the bank bailout to prevent a full-blown meltdown of the financial system that I still believe would have been catastrophic.

Different argument entirely.

In the case of student loans, the federal govt. isn't forcing anyone to take loans. They're not even pressuring them to take loans. The fedgov DID pressure banks to lend to uncreditworthy borrowers, though.

So there's a LOT better moral case for a federal bailout of banks: fedgov policies materially contributed to the resulting crash, so there's at least some argument for them to step in to keep the damage they brought on from being transferred to people and businesses who don't even have mortgages and would be ruined by a collapse of the entire financial system.

To reiterate, the fedgov hasn't forced any student to take a loan, and there's no immediate or widespread crisis here. So I don't see an argument for a bailout.

Posted by: Cass at May 8, 2014 05:45 PM

It appears though you agree with the rest.

No, I'm not sure I do at all George. I just don't have time to do the research I would need to address the rest. I don't like making arguments without checking the facts. It's a waste of everyone's time.

Posted by: Cass at May 8, 2014 05:46 PM

In the case of student loans, the federal govt. isn't forcing anyone to take loans.

They weren't forcing anyone to take loans in the mortgage case, either. They were forcing people to make loans. And that's true here as well. The taxpayer is being forced to take on the loans (and the risk of default), whether or not the student is being wise.

You can get student loans just by being (a) enrolled in college full or half time, and (b) not having enough income or savings to meet Federal guidelines. In other words, they're exactly the kind of mandatory, high-risk loans that were objectionable Federal involvement in the mortgage case.

So the deal being offered here is as if the Feds went to the banks and said, "OK, here's the way we're going to handle the problem of all these bad loans we forced you to take on. In return for you fronting us the money to pay them off, we'll stop making you make new bad loans. In ten years, you'll come out ahead."

Great deal for the banks/taxpayers? Well, not nearly as good as if the Feds hadn't made them take on the bad loans in the first place. But a better deal than continuing to force them to make the loans!

Posted by: Grim at May 8, 2014 06:03 PM

They weren't forcing anyone to take loans in the mortgage case, either. They were forcing people to make loans.

Where did I suggest otherwise? I said that right here:

The fedgov DID pressure banks to lend to uncreditworthy borrowers, though.

George thinks these banks are evil and predatory. I'm not sure what you're suggesting at all. You have suggested in the past that we needed to "do something" about students taking on debt irresponsibly.

I don't agree. They voluntarily assumed these loans, and they got a better deal than they could get in the market. *And* they received educational services that cost money (paid for with other people's money).

So I don't see them as victims.

So the deal being offered here is as if the Feds went to the banks and said, "OK, here's the way we're going to handle the problem of all these bad loans we forced you to take on. In return for you fronting us the money to pay them off, we'll stop making you make new bad loans. In ten years, you'll come out ahead."

That wasn't the suggestion though. They proposal was that *taxpayers* front the money.

Posted by: Cass at May 8, 2014 06:34 PM

Are you seriously suggesting that you would support the federal govt going to banks and telling them to write off even loans that are being paid on time?

You seriously don't see any danger in the federal government (no wait - Republicans!) holding up an industry?

Because government knows what's best for everyone?

Posted by: Cass at May 8, 2014 06:36 PM

Ok, so, who's the lender to students? Used to be banks! But since the Obama administration, now it's the Federal government. That means taxpayers, right?

So the parallel to *taxpayers* fronting the money now is *banks* fronting the money in the mortgage bailout. Just as banks were being forced to make loans then, taxpayers are being forced to make loans now.

This deal, if it were really on the table, would let taxpayers (the analog to banks) stop making questionable loans, at below-market rates, to questionable borrowers. That's pretty parallel to the earlier case.

Of course, the real truth is that the government doesn't intend for anyone to "front" the money. They'll just print some more money, like always. So really, you get the benefits for free! I mean, aside from the debased currency... but at this point, that's priced into the market, right?

The last part is sarcasm, sort of.

Posted by: Grim at May 8, 2014 06:38 PM

Are you seriously suggesting that you would support the federal govt going to banks and telling them to write off even loans that are being paid on time?

What I said was that we might need to modify the deal so that it looked more like bankruptcy protections -- some loans could get written off, but in a way that allowed credit ratings to be modified accordingly (so that real costs were imposed on those who took advantage of the bankruptcy protections).

All I'm saying is, this isn't the worst deal ever proposed in Washington. It might not be feasible, but it might be worth considering.

Posted by: Grim at May 8, 2014 06:40 PM

Is the currency debased? Are we experiencing some sort of unusual inflation?

I haven't seen any sign of this. I know you were being sarcastic, but again, shouldn't the facts matter?

Who gets to decide which loans get written off? What's the criteria? Having been incredibly irresponsible and then expecting a handout? What do we say to the poor schmucks who stupidly played by the rules?

The lesson here is to stick your hand out and whine. Someone will offer to buy your vote, eventually. I would have thought one party doing that was quite enough.

Posted by: Cass at May 8, 2014 07:06 PM

What I said was that we might need to modify the deal so that it looked more like bankruptcy protections

It would be simpler to make these loans able to be written off in bankruptcy proceedings - there's no point re-inventing the wheel. The bankruptcy laws already have safeguards so people who can pay their debts can’t just willy-nilly declare bankruptcy and bankruptcy already causes a hit to credit ratings. I don’t see any reason to re-write those same rules into a law dealing specifically with student loan debt.

However, I would be open to what I believe was an old rule at some time: student debt cannot be discharged in bankruptcy for the first five years after the debtor is supposed to start paying it off. This seems reasonable because a lot more people qualify for bankruptcy right after they finish school than they do five years further along.

I don’t think the fact that it’s the Federal government who takes the hit if these loans get written off in bankruptcy has any bearing on whether it’s defensible to make credit card debt covered by bankruptcy but not make student loan debt so covered. To me, the idea behind bankruptcy is that when people get themselves in way over their heads we give them a way to clear the decks and start fresh - at a cost to themselves in availability of future credit, a clean resume for employers, and so on.

I also think there’s unclear cause and effect in using the way student loans work now to argue against changing their handling in bankruptcy. To quote Megan McArdle (who else) on the likely consequences of making this change to the bankruptcy laws:

I am fully aware of what this would mean: government lending costs would go up, the program might well become unaffordable, and if private loans were included (as they should be, at least for new loans), the private loan market might well disappear altogether for all but the most lucrative specialties.  The reason that the bankruptcy exception was written in the first place was that the loans used to have an extraordinarily high default rate.

Posted by: Elise at May 8, 2014 07:38 PM

I don’t think the fact that it’s the Federal government who takes the hit if these loans get written off in bankruptcy has any bearing on whether it’s defensible to make credit card debt covered by bankruptcy but not make student loan debt so covered.

Sure it does. Banks are allowed to make a profit on loans and have more latitude on pricing. The government isn't allowed to make a profit and pricing is set by Congress to artificially low levels. The math is pretty straightforward here.

To me, the idea behind bankruptcy is that when people get themselves in way over their heads we give them a way to clear the decks and start fresh - at a cost to themselves in availability of future credit, a clean resume for employers, and so on.

I understand the rationale for bankruptcy, but when Person A wants to "clear the decks" at my expense, you'll excuse me for not whipping out my wallet right away.

The reason that the bankruptcy exception was written in the first place was that the loans used to have an extraordinarily high default rate.

The idea that student loans aren't paid back because students won't ever be able to pay them off is nonsense. There are tons of deferral and repayment plans, most tied to income. How does it help students who (if we believe this) can't make enough to make even payments tied to their income to allow them to declare bankruptcy?

Who's going to hire them with that on their record?

I'm pretty sure that students who can't even be bothered to go on the Internet to find out their options or read any of the numerous letters they get sent with the information right on them aren't going to be industrious enough to be aware that employers run credit checks on job applicants all the time.

What is the great crisis that we're trying to solve here? I just don't see it.

Finally, if McArdle is right and default rates were even higher BEFORE the bankruptcy exception was passed, then shouldn't default rates go higher if it is repealed?

I can't understand the argument that the Nanny State should protect people from making bad decisions by forcing other people to assume their costs. What you subsidize, you get more of. This amounts to a federal subsidy for fiscal recklessness.

We just keep transferring system risk from individuals to the government. There's always another "crisis" lurking around the corner with no end to any of it.

I don't want to live in a society where no one expects people to keep their promises or honor their debts. That's the problem - we don't take commitments seriously and then wonder why everything is so screwed up and we can't depend on anyone or anything?

You can't legislate away consequences. All you can do is force someone else to pay for them. Usually a person who didn't even do anything wrong.

Posted by: Cass at May 8, 2014 08:30 PM

Wow! Away too much energy wasted on this.
Solution in MUCH simpler:
- fire *every* federal employee involved
- eliminate *all* federal subsidies & guarantees
- allow student loan debt to be discharged by bankruptcy
Then wait for whatever private market may, or may not develop for student loans.

Problem solved:
- no more taxpayer subsidy (aka govt waste)
- no more implicit subsidy to colleges
- no more moral hazard

Ask me a hard one . . .

Very Best Regards,

Posted by: CAPT Mike at May 8, 2014 10:42 PM

Apparently I've missed something here somewhere so I'll just say I agree with Capt Mike.

Posted by: Elise at May 8, 2014 11:48 PM

As for me, I'll waste my energy how I like. Talking things over with Cass is one of my favorite things to do, especially when we disagree. Honi soit qui mal y pense.

Posted by: Grim at May 9, 2014 12:01 AM

Cass you mean, mean woman. :) For period of time my wife worked for the county welfare office.

"What the hell do you mean you can't take care of your babies! For pity sake they're not magical..."

Hell, I think serious women should be running the show, less bullshit.

Posted by: Allen at May 9, 2014 02:32 AM

I could easily have gotten into an expensive school but I didn't. My kids could have done so, too. I don't see a compelling case for ordering one set of taxpayers to pay off the (foolishly and voluntarily acquired) debts of others.

Winner. Winner. Chicken. Dinner.

I received my degree from a Georgia State school that cost me ~$1000 a semester (plus books) in 2001. Could I have gotten into a more expensive school? Almost certainly. Would it have benefited me more? Likely not.

The true moral hazard here is not forcing students (who made bad choices in both in what to get a degree in as well as where to get it from) to take a college loan they cannot repay (which no one has done) it is excusing them from having to take responsibility for those poor choices by using the government to seize repayment from the taxpayers at gunpoint. And I do not accept that we "owe it to them" because they were convinced they HAD to get a college degree. People believe all sorts of manifest nonsense that something is "good for them" that happens to cost a ton of money, but we don't say that the taxpayer should foot the bill for their crystal healing practices, or their food coaches, or their civit cat poop coffee expenses.

And that's what this all boils down to, for me. Banks (when they are not forced at gunpoint by the government to accept bailouts for issuing loans the government forced them at gunpoint to make) assume the risks when they loan money to individuals and wrap the cost of those risks into the interest rates they charge, all in an effort to make profit. When student loans are issued, we the people do not have any say in the matter, the rates are chosen by a bureaucrat somewhere not based on anything but that person's sense of "fairness", all in an effort to "help more people go to college". That is why student loan debt is and should be immune to being discharged by bankruptcy proceedings and why bank loans are not.

And again, I flatly reject "they can't ever collect on those loans because the students have no money." They absolutely can and will collect on money owed to the FedGov IF it's owed to the IRS. Run up $100k in back taxes, file bankruptcy and tell me if the Feds don't still come after that money. They WILL get their due as surely as any loanshark.

Now, absolutely anyone can kvetch about a problem. But I even have a solution. The loans that are already out there? They must be handled in accordance with the loan agreements. That's basic contract law, founded upon the principles of property ownership. Changing the rules after the fact is more than just dishonest, it's destructive. But, new loans? I say that they should only be issued (if at all) after a rational, responsible adult (not related to the student) evaluates the earning potential of a student from the desired university with the desired degree and finds that it is a good risk to loan them the money. You know, like responsible banks do? You want a degree in Law from an ivy-league school? You're a good risk. You want a degree in Underwater Basket Weaving from Vasser? Rejected. Undecided major from UGA? Rejected. Undecided major from John Tyler Community College? Ok. But only because it's so cheap. And even then, we'll be watching your grades closely before spending money for another semester.

But then again, I'm a heartless Libertarian.

Posted by: MikeD at May 9, 2014 09:44 AM

From my perspective, Mike, you're stuck on the wrong thing.

When student loans are issued, we the people do not have any say in the matter, the rates are chosen by a bureaucrat somewhere not based on anything but that person's sense of "fairness", all in an effort to "help more people go to college". That is why...

The place your stuck is, "Would it be right to discharge these loans?" Since the answer is an emphatic "No!" for you, the issue is closed.

But the real question is, "Can we change the game so that taxpayers are allowed to stop issuing new loans?"

That's what the proposal is about. The discharge of existing loans isn't being advocated on its own merits, but as a compromise that might win votes from the left. It might be worth doing, I'm suggesting, for strategic reasons. Compromise means doing things you don't like, but this compromise looks like it might possibly have significant long-term advantages.

You don't have to convince me of the merits of your position -- I went to Georgia State too! A bit earlier than you, when it was even cheaper. :) Between scholarships and work, I got out of my undergrad with no debt at all. (Graduate school did not work out the same way, sadly.)

Posted by: Grim at May 9, 2014 10:56 AM

Ugh. "The place you're stuck," obviously.

Posted by: Grim at May 9, 2014 10:56 AM

Actually, it was Augusta State for me (which is a Georgia State school, not Georgia State itself ;) ).

And I did address this in my "solution". Either issue loans based upon the likelihood they'll be paid back (and thus also discourage students from going to an expensive school for a degree that will not provide enough earnings to repay... or don't issue a loan at all.

I don't think my "solution" will ever happen (thus the scare quotes) because those on the Left will see it as racist, or classist, or homophobic, or some other form of discrimination if we don't issue the loans to everyone. They've already proven that back when they required home loans to be issued regardless of any chance the loan would ever be repaid, and boy howdy THAT sure worked out well.

Compromise means doing things you don't like, but this compromise looks like it might possibly have significant long-term advantages.

I certainly understand that, but I don't think they'd ever go for it. Or if they did, they'd simply reinstate the old spending AFTER the loans were discharged (again, at taxpayer expense and again, rewarding irresponsible behavior). Because why WOULDN'T they? In the vote buying schemes of the world, they'd get the best of both. They've discharged debts AND get to play Santa Claus again and start handing out more "free money". It's the same game as they've played with immigration time after time after time. "If you'll just give an amnesty now, then we'll totally get serious on closing the border." Except they NEVER do.

Posted by: MikeD at May 9, 2014 12:00 PM

Student loans are hard to discharge because legislators, in a brief fit of financial sanity, realized that it would be a bad idea for the government to subsidize loans with one hand and discharge them with the other. That's why they're different from credit-card debt: it's so much easier to discharge the debt that other creditors were expecting to collect.

I think the current student-loan frenzy did nothing but explode tuition prices by disconnecting the party that paid the tuition from the party that benefited from it. So I'd love to see it either go away completely or be replaced with a system that reconnected reward and risk. Failing that, if I really thought it was possible to buy the votes of millennials by promising a student-loan jubilee in exchange for killing the program, I'd at least be tempted by the irony. But whoever it was who pointed out that we'd only have to wait a few years for a modest proposal to reinstitute the tuition giveaway programs was exactly right. A one-time fix would never work. We have to win the argument with voters on the merits if we expect long-term reform.

I'm not saying I object to student loans. I went to law school on student loans. But I always expected to have to repay every penny, so I thought carefully about how much I was willing to borrow. Would I have liked to attend graduate school at Harvard or Yale? Sure, but not at the cost of borrowing hundreds of thousands of dollars. I checked out the student-aid situation, didn't like what I heard, and opted for a school that had a scholarship available. Later, when I attended law school, I chose one that was cheap and nearby.

Posted by: Texan99 at May 9, 2014 12:24 PM

Would I like to see the .fedgov get out of the educrat funding business? Absolutely.

Would that be conservative? Yes.

Would it ever happen? No.

Even if it could, would it be permanent? No.

If, under some hypothetical reality where it could happen, *and* it would be permanent (and if frogs had wings...) would I be willing to do something unconservative (student debt jubilee) to get it? Maybe.

But what do I know? I'm just an extremist Tea Party sympathizer who thinks compromising with Democrats is Satan's work. :-)

Posted by: Yu-Ain Gonnano at May 9, 2014 12:42 PM

I sort of like the proposal, in horse-trading sort of way: ask for a hell of a lot more than you really want, and negotiate from there.

What do I really want?
Get the gov't out of the student loan business, even as a secondary lender, and eliminate the bankruptcy exception that student loan holders now enjoy. If someone really can't pay it back, let them discharge it in bankruptcy, like any other debt. This should also have a salubrious effect of cutting down on the number of economically useless degrees; when the lender has to calculate what the odds are that the guy with an MA in "******* Studies" will have a job that pays enough to service this loan, it may cut back on this nonsense.


Kill the DOE. At least start on it, by limiting assistance to post-graduate work, and by reducing their ability to attach conditions to grants. See how much money they want to give away when they can't control how it's spent.

Posted by: bud at May 9, 2014 12:51 PM

Cass: "Is the currency debased? Are we experiencing some sort of unusual inflation?"

Fact: Food and fuel prices are NOT included in the "official" inflation rate.

Have you bought food or gas in the last month?

Who are you going to believe: the gov't with the Official Inflation Rate...

or your lying eyes.

Posted by: bu at May 9, 2014 01:04 PM

There's actually a very good reason food and fuel are not included in inflation stats.

Not all price increases are due to currency valuation. A drought in the midwest reduces supply of grain products and prices increase accordingly. That isn't because the currency is worth less. It's just the market. Same thing when oil cartels limit the supply.

Those price increases hurt everyone's budget, but they aren't currency debasement problems. Food and fuel are effected by market conditions vastly disproportionately compared to other items. When summer ends and the cheaper winter gas becomes legal to sell again, I don't think you'll want to argue that deflation has set in.

Food and Fuel have a way to low signal-to-noise ratio when it comes to measuring currency valuation.

That said, the reason that we haven't seen very much in the way of inflationary effects is pretty simple. The Treasury is printing money to buy mortgages. The banks take this money and, per the old maxim about the easist way to double your money, fold it over and stick it back in their pockets. It's all pretty much going into reserves to protect against future losses and thus that cash never reaches circulation.

Treasury is printing money and it's just building up behind the dam. Eventually, the banks will stop being scared and start releasing the money. Hopefully this will happen slow enough to mitigate the effects somewhat and not all at once.

Posted by: Yu-Ain Gonnano at May 9, 2014 02:37 PM

sorry for dropping out of this discussion. just a little out of it today.

Oh, and I like argu... err... discussing things with you too, Grim :)

Posted by: Cass at May 9, 2014 06:44 PM

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