Let’s Argue About Student Debt Some More

Over the years, I’ve learned to pick my spots when it comes to broaching the student debt relief subject.

Needless to say, this is an issue about which a lot of people have very strong feelings in the US. My feelings on it are the opposite of strong, and from what I can tell, that’s wholly unacceptable. I’m supposed to have an opinion, or so it’s been suggested to me.

I view student loan forgiveness the same way I view a lot of contentious, but ultimately frivolous, debates: If it’s not existential for the species (e.g., climate change) or otherwise a matter of mutual concern (e.g., events that cause widespread, acute physical suffering for sentient beings), and if it’s not something with the potential to upend your life, you probably shouldn’t worry about it.

To be sure, some of the “culture wars” issues that dominate America’s increasingly poisonous political discourse are worth fretting over. On Monday, for example, more school children were murdered in their classroom. That’s a “student” debate of mutual concern. (The scare quotes are there to denote the obvious: It’s actually an assault rifle debate.)

By contrast, it’s not obvious to me why so many people care about student debt burdens that aren’t theirs. If there’s a reason to bother yourself with large debt piles that don’t concern you, it’s that if they become too large, people may default en masse with ramifications for the broader economy. But that’s not really an issue here, because the debate isn’t about increasing the debt pile, it’s about decreasing it, and if people default, they’re basically defaulting to the government.

There are several counterpoints, one of which is about fairness, another is about personal responsibility and a third is about inflation. I only care about the latter, but I’ll briefly address the other two.

Life in general isn’t fair. In fact, for most people, most of the time, it’s profoundly unfair at almost every, single turn. If the biggest injustice you’re compelled to suffer in your life is coping with the psychological distress of knowing that you paid for your own college tuition, or a child’s college tuition, and now a bunch of people you don’t know might not have to pay for theirs, you’re a lucky soul. And besides, someone else’s good fortune isn’t your loss.

Moving quickly along, life administers personal responsibility lessons at regular intervals. If this one doesn’t get taught because a president forgives some loans, that’s ok. The beneficiaries of that forgiveness will get another lesson in personal responsibility soon enough. And then another one after that. And another one after that too. In my experience, those lessons only stop once you fully internalize the concept of personal responsibility. If you never internalize it, you’ll never mature, and you’ll suffer immensely for that.

So, that’s the first two counterpoints. Let’s address the third. If you’re against student loan forgiveness because you’re concerned about the potential ramifications for inflation, I won’t say I’m sympathetic, and I won’t say I think you have a point, but I will say that in 2020 and 2021, I thought handing most Americans a total of $2,000 in stimulus checks wouldn’t do much, if anything, to stoke inflation. I was wrong about that, and rather plainly so, which means I’m cautious about making similar claims when it comes to forgiving up to $20,000 in student loan debt.

Sure, a lot of the borrowers will still have debt even if Biden’s plan survives the Supreme Court and goes into effect. But some borrowers would either see their entire debt burden wiped away or reduced enough such that it goes from being a factor in monthly budget decisions to being a non-factor. I won’t make the same mistake I made in 2020 and 2021: That could be inflationary.

However, in light of recent events in the banking sector and the read-through of those events for lending standards and thereby credit creation, we’d be remiss not consider the other side of the coin. In a new note, for example, Jefferies’ Thomas Simons suggested the resumption of student loan payments could exert a meaningful (if hardly catastrophic) drag on economic activity through reduced spending.

His rationale was straightforward: Students probably didn’t save the money that would’ve gone to making student loan payments over the life of the moratorium, and it’s been so long now, that most impacted Americans likely don’t remember how to budget for those payments.

“It is very likely that most households that were previously making student loan payments have not been saving the extra money or including the payments in their budgets,” Simons wrote, adding that “households still have roughly half of the excess savings from the pandemic sitting on their balance sheets, but there is less cushion to absorb a substantial increase in outlays.”

“Good!” the Scrooges (and GOPers) among you might exclaim. After all, the missing piece of the disinflation puzzle is a slowdown in services sector spending, and relieving a bunch of late-twenty-, thirty- and early-forty-somethings of $400 per month would probably go a long way towards ameliorating the situation.

If that’s your argument, the problem (well, besides the fact that you may be a Charles Dickens villain) is that the potential drag, which Jefferies likened to risks associated with the 2013 fiscal cliff, could coincide with i) the crescendo of the debt ceiling debate, ii) the lagged effect on local lending from the current bout of banking sector turmoil, iii) a dramatic slowdown in corporate spending+, iv) an expected deep earnings recession and v) the much-discussed CRE squeeze.

All of that is tentatively “scheduled” for some time between July and December which, unhappily, fits with the yield curve’s recession timetable, and also with the ominous signal from the recent sharp re-steepening in the 2s10s.

Ultimately, my message to those hoping to see Biden’s student loan plan torpedoed (which, by the way, seems like the most likely outcome), is to be careful what you wish for. Although it’s plausible to suggest that payment resumptions could help tame services sector inflation, this isn’t a controlled lab experiment. Nothing in an economy as complex as America’s happens in a vacuum.

Households have other debt that needs servicing. Most Americans famously don’t have $400 in available cash to fund an emergency expenditure. According to the Fed, monthly student loan payments averaged $393 before the moratoriums.

On Monday, Senate Republicans resorted to a procedural end-around in yet another bid to undercut the forgiveness plan. “President Biden is not forgiving debt, he is shifting the burden of student loans off of the borrowers who willingly took on their debt and placing it onto those who chose to not go to college or already fulfilled their commitment to pay off their loans,” Bill Cassidy said, in a remark that was both true and completely untrue simultaneously.


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15 thoughts on “Let’s Argue About Student Debt Some More

  1. Respectfully, you missed the most important aspect of why many people are against the current proposed forgiveness. Mr. Biden’s plan is a gross usurpation of Congressional authority. Speaker Pelosi agrees that the Executive branch has no authority to blanket forgive student debt. For those dwindling few of us that still care about a federal, constitutional system, THAT is the biggest concern.

    The fairness argument is legitimate. But, Congress debates and implements wildly disparate programs all of the time. Many such programs benefit some people and not others. But, it’s Congress, not the Executive. Using the HEROES Act is complete BS and it’s a ridiculously tortured read that the Administration is applying.

    You’re correct, it’s likely to be shot down. As it should.

    1. The bottom line is that people who obsess over this aren’t genuinely concerned about executive authority. “Respectfully,” I’m going to call that a joke. Because that’s what it is. People who worry themselves over other people’s financial windfalls are jealous pocket-watchers. It’s the same people you’ll catch exhibiting the same behavior anytime something good financially happens to other people and that thing is a windfall as opposed to something that came from “work.” Nobody likes a jealous pocket-watcher.

      1. The best thing about this comment is that now, everybody who reads this will be like, “Damn, am I a jealous pocket-watcher?” If you are, don’t worry. Tomorrow’s a new day! You can change! It’s never too late.

        1. I assume this is obvious, but my point in these responses to the original comment is that if you had to describe America in 2023 as either 1) a nation of dedicated Constitutional law scholars or 2) a nation of often petty, covetous partisans, I’m going with 2) every time.

          I simply don’t find it plausible that most (or even “many,” to quote the original comment) Americans care about the Constitutional debate here. First and foremost, people angry about this are irritable about someone else getting a “handout,” irritable that it’s Joe Biden making the decision or both.

          When you tell those people he may be overstepping his authority, that’s just icing on the cake, and meme fuel. But for most people, the original irritation stems from petty jealously and partisanship. I think that’s self-evident.

          1. I feel somewhat compelled to respond here. I agree with you that #2 is the overwhelming belief of those against the forgiveness. That is why I stated “many” and not “most”. Secondly, further down in the paragraph, I stated, “ For those dwindling few of us …..” which is clearly a very limited subset of Americans who may care about the Article 1 vs Article 2 power.

            My entire point is that the PROCESS is critical. I suspect you’d care more about the process if the Administration was fairy-sprinkling $600M onto oil and gas companies for drilling.

            Lastly, I’m not sure if the jealous pocket-watcher was directed at me specifically. For the record, two of my sons would benefit from the forgiveness. My issue isn’t with the policy of forgiveness, it’s the process. I couldn’t care less about the policy, but I care immensely about the process. The Executive branch for decades across multiple administrations has taken more power. It’s long past time for Congress to step up and push back. We do not need a King.

          2. This headline just scrolled by on MarketWatch.

            “Debt-ceiling standoff: McCarthy floats spending cuts, work requirements in letter to Biden”

            How many foaming right wingers actually pay taxes rather than hiding their income, comforting themself by arguing that it is ALL wasted on mooching poor people?

  2. I worked my way through college and grad school without having to access student loans, because college was somewhat affordable when I went. A lot of younger people went after most universities made education a secondary cover, while they concentrated on raising tuition and making money on patent filings, etc.. Their gain wouldn’t be my loss. If anything, I feel bad that younger people will never know the world that some of us grew up in, so relieving their burden is an okay thing to do instead.

  3. I don’t care about the fairness, but I do care about the lost opportunity to link loan forgiveness with public service. And I do care that a long-overdue discussion of educational inflation has been lost.

    1. I doubt inflation has as much to do with giving people below a certain income level a couple of thousand dollars or forgiving younger people’s student loans, so they can put the money towards a vastly-overpriced house.

      To me it seems like inflation has more to do with manufacturing leveling China (yay!), Russia’s fool’s errand in Ukraine disrupting the global food supply, and Covid exposing supply chain issues that left the world with a currency level calibrated for 2019, in a world with a lot less to buy in some critical areas. That gives sellers pricing power and they took it.

  4. I wish the Republicans would say “It’s the Principle of the matter!” and not just immediately become hypocrites on spending. That being said, I’m not sure the Republicans know who “The Republicans” are any more?

  5. As someone who has paid off student loan debt that I accrued even though I also had the GI Bill to supplement my college expenses I feel like I have some grounds to weigh in here. I think the student loan forgiveness plan is a band aid that ignores the real problem here which is that secondary education has become unaffordable for anyone who is not wealthy. Even if the plan goes through, we’ll be right back here again in 10 years, what’s the point?

    The larger problem with this debate is the root cause of the student debt problem, overall. If the United States wishes to remain a super power in the world, then it is going to need innovative and educated resources to keep that advantage in the future. College education, while not always successful, is the best way to foster that innovation and at least be able to maintain status quo on education. The alternative, immigration, is also a hot button issue and thus is not a way forward to keep a competitive edge.

    The fact that we can sit here and argue over whether or not kids who have no idea how the world works should be held responsible for doing the very thing teachers, parents, and society tells them they are supposed to do after High School, is irrelevant. The pessimistic greed with which publicly funded schools can ensure they not only dissuade the next generation from pursuing higher education but also saddle them with enormous debt to start out their adult lives to do so is, at a minimum, problematic.

    Student loan forgiveness doesn’t even acknowledge what really needs fixing.

  6. Like so many things in our current society, student debt forgiveness has become an all or nothing issue.
    With involvement from the government, people could be assigned a reasonable portion of their income for debt repayment each year, perhaps as part of the tax filing process. Likewise, the government could buy private debt from lenders at a discounted level and pass the interest reductions along to the borrowers.
    The point would be to create an annuity of sorts whereby the government would collect an impressive amount of money every year, while reducing the burden on the debtors, and the economy. Some borrowers might never pay in full, but except for the moral hazard, I’m good with that.

  7. I have never understood why it upsets people that college students might get a break on their student loans, but that forgiving PPP money is just the normal course of business, to say nothing of the vast quantities of money that flow to companies from the US government that are in essence corporate welfare.

    The Republican Party’s great achievement is to get regular middle-class Americans to believe punching down at those less fortunate is more worthy than punching up.

  8. I taught university level classes in finance, real estate, entrepreneurship and most of all, strategic management. I was lucky enough to have my wife as a colleague for 27 of those years. Together we were lucky enough to help 22,000 students enter the “real world” with the tools to give themselves a better life. I watched those students as they became bankers, business owners, successful C-suite executives, even artists, or whatever else they wanted to become. Some, sadly also became cheats and left their opportunity for bettering themselves on the table. More than half of those who started on their difficult path could not, for many reasons, finish. On the other hand, often folks who had missed the chance the first time around came back. My wife taught the wife of US Senator who never got a degree and decided she needed to make up for that. She majored in accounting, got her degree at 50+, went back to Washington and soon took over the management of a successful non-profit human service organization after being its accountant for a few years. My daughter went to a somewhat pricey small top tier liberal arts college where she majored in Psych and Anthro. She’s now a successful manager of cloud services and software engineering. She makes twice as much in a year as her four year education cost. After she graduated she got two more STEM-related degrees (paid for by her), got into med school but changed her mind and went to work instead. She and a colleague invented a machine to improve the collection of donated blood which earned a patent. One of my early students majored in accounting, paid for by himself. Each year he took out the max student loans he could get and invested the money. He paid for school with money he earned in the summer and from side gigs while earning top grades on 20 hour semester loads. When he graduated he sold enough investments to pay off all his loans and stride into life with $50k. He was a C-suite manager at a top bank, was able to retire at 50 and is now one of the richest people in his home state. He has his own venture fund and finances many startups.

    I am so tired of hearing about college costs. In 1950 profs earned $1500 a year, couldn’t even afford clothes and were essentially all treated as fuzzy headed nerds who did nothing. Looking at what those people sacrificed to better their world and those of their students, we should be ashamed. Now, to save money, we are cutting back on faculty (currently, less than half of all college faculty are terminally qualified in the field in which they teach will never be tenured regular faculty). College is not a place to go to be “taught” nor a place to be trained for the worst job one will ever have, the first one. It is a place where one goes to learn how to learn, to begin the process of self-development, turning themselves into a personal startup company with a tool kit of intellectual assets that suits their needs, helps them develop a sustainable competitive advantage in the marketplace, and achieve whatever personal goals they set. Done right college is hard! That’s why people just there to mess around don’t make it, of if they scrape by, can’t pay off their loans or seem to get ahead. A former colleague of mine has started 13 successful companies, sold them all and moved on. He started as economist and is now an 82 year old self-taught nano-chemist and inventor with a number of patents and an amazing set of products that will likely change everyone’s life. He is financed by that self-developed VC student of mine. Together they will become even more wealthy, though my friend will probably donate much of what he earns to those in need.

    If you don’t like what college can do for a person who works hard, you probably don’t get it and have no skin in this argument. To gain from the higher educational experience requires serious discipline, hard work, and a strong innate desire to better one’s self, no matter the cost. If not enough people feel this way, down the road we are all doomed. The COVID vaccine was not developed in less than a year by people who regularly cut class, got drunk or high whenever they could, and played with social media all day … thank God.

    1. Not everyone can follow that path or they’d already be there. There’s more to the success you write about than just hard work. The higher education system may have had its issues in the past, but it’s never been broken this badly – both for students and teachers, not all but for way too many.

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