Forum Post: Student Loan Forgiveness: Something to consider
Posted 13 years ago on Oct. 16, 2011, 12:45 a.m. EST by acuity
(8)
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I understand where many of you are coming from and we are in an unfortunate situation. However, student loan forgiveness would undoubtedly engender moral hazard. In the same way that depository insurance and bailouts in the past have created moral hazard, (in the form of banks and financial institutions taking on greater risk) by forgiving student loans, or any kind of consumer loan, one would be encouraging consumers to increase their debt load in the future and discouraging them from making responsible borrowing decisions. You may individually say that you would not take on increased debt in the future, but moral hazard does generally create this kind of problem. Also, those who did engage in responsible borrowing to cover the costs of their education, may feel that they are being indirectly punished for making prudent decisions and this could also create moral hazard. These are important things to consider.
On a personal note, (I do feel it is important to reveal one's biases) I am graduating from college in the Spring of 2012 without any college debt. I go to a state university despite the fact that I got into an Ivy League school (because of the cheaper tuition), and got a full scholarship because I worked my ass off in high school to ensure that I would never have to take out a student loan. I work 3 jobs and it has been very tough. The temptation to take out student loans has been strong because it would make my life easier right now but I know that the most intelligent decision is to work my hardest to make sure that my future financial position is stable. Basically, I'm just trying to say that I've worked my ass off to get to where I am today. I have made tough responsible decisions, and I kind of look at student loan forgiveness as a slap in the face. The fact that if I had made irresponsible decisions I would be in a better position than I am now in terms of a better degree, better mental health (I rarely sleep) and no loans just feels plain wrong. I would feel cheated.
Note: The main point I am trying to make is that moral hazard created by student loan forgiveness or any kind of consumer debt forgiveness is a serious problem and is something that should be considered. Even more generally, there are serious implications to a lot of the proposals of Occupy Wall Street that are going ignored. I do generally embrace the ideals of the Occupy Wall Street movement and believe that this is important. However, a lot of these posts lack pragmatism and insight, and it's important that if you believe in this cause that you are doing everything within your power to educate yourself on these issues, and not just finding research, statistics, or articles that support your own opinions. If we ignore the problems within our own arguments, then we are not really making our position any stronger. If we understand them and address them, that's what is going to give the Occupy Wall Street movement serious staying power.
There is an inherent belief that we are a rational society. We drive on the right side of the road knowing and expecting the other drivers to do the same. It seems to be the rational thing to do. We do this on an individual basis, without the group mindset or herd mentality. It keeps us alive and safe.
We are provided with the tools at a young age to know the difference between right and wrong. Most of us find our own personal moral compass at a young age. It's the child who stands up to the bully at school or simply the one who loans a piece of paper to another, without the expectation that the other person will do something for them in return.
My concern is not that we would be creating a moral hazard at all with student debt forgiveness. My moral compass, my inherent belief in a rational society tells me that I am my brothers keeper. I know if my friend cannot own a home and struggles every day to put food on the table , that by giving him food or shelter, I am giving him relief. I expect nothing in return for this other than I know it's the right thing to do.
So if someone feels that it's some sort of moral hazard to help your brother or sister, friend or neighbor when you see them in trouble, then it's your own moral compass that you need to address.
Of course, if you default on your government backed student loan, you are placing the burden of paying for your education on your brother. Your fellow citizens will have to pick up the tab, and they are also struggling.
It's not 'doing the right thing' if you hold a gun to someone's head and force them to help you.
If I lost my home in a natural disaster not only would I expect the government to come to my aid ,I know my neighbors would come too, without being forced to come to help me. They would want to help. So if you feel you are being forced to help then it's because your moral compass doesn't believe that helping someone else does anything for you. So in essence it's all about your own needs and you simply don't care about anyone else. But I do believe if you were in trouble, you would want people to come to your assistance.
If I lost my home in a natural disaster, I would expect my insurance company, to whom I pay premiums, to come to my aid.
My neighbors would come and help me, too, because we have good relationships and always help each other (contrary to your unwarranted assertions that I don't care about anyone else).
If, however, my neighbor lost all his money at the track, and then came to my house with a gun demanding that I 'help him out', yes, I would take exception to that. It's not a matter of my 'feeling' that I am being forced, I actually AM being forced. This is exactly the situation with student loan amnesty. If you default, the government will force me, via taxation, to bail you out.
So I guess to you it's about money, and the dollars and cents of it all since that is what you are referencing. It's not about morals or ethics or right or wrong. Don't confuse the two. They are really quite different from each other.
I believe that it is immoral to take things that do not belong to you.
Do you think that way on April 15th too ?
I vote to elect representatives to represent me. In doing so, I give them the authority to enact tax legislation and therefor consent to be taxed. If/when I disagree with their actions, I vote for someone else, and/or protest, and/or write them letters. These are my duties and responsibilities as a citizen.
You "think" your representatives are going to represent you. I hoped that mine would too. That's how it is supposed to work in our rational society but the system is broken. I hope it can be fixed before it's too late.
Wall Street now is your new government.
As an American Citizen I know I have a moral right and obligation to fix the system in a legal and determined way. Every single person at every Occupy location is an American Citizen with the same rights and duties and responsibilities that you have. Every single one.
You'll get no argument form me on these points. I agree that our representatives no longer represent the people, because they have been thoroughly corrupted by corporate interests.
You asked me, however, if I 'felt that way on April 15th", which I took to mean, "do you feel taxation is the government taking something that does not belong to them". That is the question I was answering. If I misunderstood you, please clarify.
I just wanted to see what you thought about April 15th. See, we don't just think it's another day, we know it's tax day. So you said immoral and I said April 15th and you immediately knew how to answer. ;)
I have no idea what point you are trying to prove.
Moral hazzard? How's this for moral hazzard: Most of an entire generation of the country's best and brightest sold into debt bondage that shackles them for life. Can you imagine such a situation? Actually, you don't have to. We have it right now, and this country is toast unless something radical is done about it.
How have those Duke boys been doing, anyway?
They sold themselves. Willingly and with abandon.
I am Very happy that you were able to achieve success in college without obtaining student loans. I wish I were in your shoes at the time I attended college. I was employed, attended school during the day worked nights and played in a local band to help pay my way...I also was a father of two kids that required more than what I was able to do at that time...Student loans helped my situation...but has become a burden that I or my wife can no longer handle. The promise of jobs, which at 23, every one was telling me that, "It's ok" "we place 85-90% of our graduates in jobs that start out at 60-70 thousand a year...I worked hard, became the outstanding student recognized by my state in my field only to graduate with a job that started at $24000...It all went down hill from there. Right or wrong the carrot was dangled in front of me all the way through...now I still work hard but have defaulted on my loans...want to pay them back so I rehabilitated them and am unfortunately back to heading toward a second default...Just not enough income to cover the cost. This is my personal story...add to that my wife's loans as a teacher, taking all the hits they have taken, and we find ourselves in a desperate situation. I'm proud of what I do...I am innovative and resourceful...I want to re-pay but need help in doing so, I don't want a free ride and never have...but I do want a retirement...I do want a savings...I do want a home...I don't want my kids to ever find themselves in this situation...all for higher learning at the expense of the middle class and their families.
I know so many, including my wife and myself, in this exact same situation. Tuition has risen at least 12% per year at my school. Now, in my last year it is almost 50% more than when I started. My wife is graduating this semester and is taking a job paying $13 hr less than what she had before going back to school. I am already terrified of the loan repayment demands that will soon be in the mail...
Well said. I know so many people that are putting off buying a condo, or house, or a car- all due to their student loans. Especially the private (commercial) loans- they charge crazy interest and fees. Something has to be done- now. Here we are working to make America a better place, and we are suffering for it.
Instead of occupying Wall Street, should some start occupying the cost of higher education? The saying used to be "If you think higher education is expensive, try ignorance." Unfortunately, I think that colleges have taken that mantra to the extreme, feeling a sense of entitlement to continued increases. At the same time, public k-12 schools get somewhat of a limited amount.
Should you be able to sue them for false advertising or high-pressure tactics used by scams? In some ways, you may have been scammed. Then again, most would say that you should have done more research on the salary ranges for your profession in your area.
Student loan forgiveness would stimulate the economy. Even the best economists believe that Private (commercial) loans, especially, have been ripping off students for years. This bubble is causing the economy to 'swell' in one area, while other areas are suffering. Student loans should at least be dischargeable.
Your thinking is noble but flawed. Students were duped. Told they had to have a college education in order to succeed in life. They sacrificed and their parents sacrificed in order to provide that education. If necessary, loans were taken out. Fast forward: pretty diplomas, NO JOBS, MENIAL JOBS, BAD ECONOMY. COMPOUND INTEREST. ZERO ROOM FOR ERROR. Guess what? Lots of struggling people. Unable to support themselves and their families. Depressed. Anxious. Hopeless. Worried about the future. Disillusioned. Is that going to help America get through this tough spot and prosper? Schools are way overpriced anyways. Then to add insult to injury, compound that interest and make people pay double or triple the original inflated cost. It's time for a clean slate and loan reform. FORGIVE STUDENT LOAN DEBT. It's truly the only chance for millions to survive and thrive.
You want lower tuition costs? Get the federal gov't out of the student lending business. We wouldn't have skyrocketing tuition costs if the fed wasn't pouring money into the system.
You want lower tuition costs? Get the federal gov't out of the student lending business. We wouldn't have skyrocketing tuition costs if the fed wasn't pouring money into the system.
Join the military and participate willfully in socialism. See the world and have your college paid for. Worked for me.
this is the result of the government 100% guaranteeing student loans, and not allowing the debt to be discharged during bankruptcy. student loans are practically like bad/dumb banks lending out money to any and everyone to satisfy any demand, which would make any bank fail. except instead of failing, the government bails them out every day. why would we expect prices in this situation to do anything but rise?
I would say if Student Loans were taken out frivolously that you are right. But in my experience, people don't take out Student Loans frivolously. Most people who have student loans wouldn't dream of taking out loans for anything else... I graduated with a perfect record from High School but still managed to end up taking out student loans and I worked while in school. What you went through is extremely amazing for your character and the type of person you are. I am proud that America can still produce people who work extremely hard in order to succeed. I understand your point, but I think that perhaps student loans are a little different than other types of loans.
Hi - I would just like to point out that we already have a student loan forgiveness program for virtually anyone who works for a government or non-profit agency. It's called "Public Student Loan Forgiveness." You should look it up. This program could easily be expanded to include people with low incomes who are employed full-time. People like me. Consider that my full-time professional income is so low that the company who administers my student loans has put me on "low income forbearance." So essentially, the government is not getting any money back from me anyway because I do not earn enough to pay them back, however, I am still being charged interest so my balance continues to grow. I was a great student who came from a very low income family. I think it's unfair for you to categorize all of us as "poor decision" makers just because we did not get full ride scholarships. As a first generation college student of a single mom, I thought I was making great decisions by going to college and earning high honors. Student loans were the only way I could do that because I also had to support myself by working, sometimes three jobs and while volunteering for professional experience. I think that when you get out of school and see what the job climate is really like you might have a little more compassion for people like me.
Student loans were designed to keep you in burden for life!
The moral hazard involved with Student loans is in the grand gift they have been to the banking sector. Another of the tremendously Republican accomplishments of the Democrats- in this case the Fabulous Clintons- as they forever and continue list further and further to the right in order to be taken seriously by the Business Right funding elite plutocrats who have hijacked our democracy.
Massive increases in the cost of education at the same time that institutions of higher learning have become holding facilities for people the economy can't provide decent jobs for (along with the fine institutions of the Prison Indusrial Complex) will in effect eventually cause so much default on student loans that another major economic bubble will burst. But this time we already know the banks will be bailed out because the Federally Guaranteed Loan heist wrote it into the law in advance. Yeah free markets. And how about those brave new risk takers in the banks.
The moral hazard involved with Student loans is in the grand gift they have been to the banking sector. Another of the tremendously Republican accomplishments of the Democrats- in this case the Fabulous Clintons- as they forever and continue list further and further to the right in order to be taken seriously by the Business Right funding elite plutocrats who have hijacked our democracy.
Massive increases in the cost of education at the same time that institutions of higher learning have become holding facilities for people the economy can't provide decent jobs for (along with the fine institutions of the Prison Indusrial Complex) will in effect eventually cause so much default on student loans that another major economic bubble will burst. But this time we already know the banks will be bailed out because the Federally Guaranteed Loan heist wrote it into the law in advance. Yeah free markets. And how about those brave new risk takers in the banks.
How would you feel about education based on love and abundance? http://books.google.com/books?id=96RtlHk0CJIC&pg=PA101#v=onepage&q&f=false
Occupy your motherland! http://www.petitiononline.com/SoLMag/petition.html
What are you worried about can't get blood from a stone
Really? Why is it that the big banks didn't have any moral issues on asking and receiving a bail out? Oh I know, because corporations are not people. However, the PEOPLE have to pay for the corporations greed, therefore there is a connection. Did you make a stand to the big banks about NOT accepting the bail out? Serious staying power?? You're a joke. WE are The People!!
Thank you for your comment and your honesty. Like you, I have worked hard toward attaining a degree from a higher education institution (actually, two degrees). I never have received scholarships as of yet (though I have applied for many in the past), but I compensated for this lack of funding by completing my general education requirements at community colleges while working full-time. Because I lived in California, I was unable to find an "affordable" in-state college or university for the programs I wished to be enrolled in due to increased tuition hikes and the cutting of many classes. Thus, I decided to go to a university that was in Oregon with a low annual increase in tuition. I work two jobs in order to bring down my costs and have studied abroad twice in countries with subsidized higher education in order to save money. However, despite my careful planning and enrollment in a competitive and needed program, I still had to take out loans.
My parents, not having gone to college themselves, decided that I should take out a private student loan for my first year with the hopes that my credit rating could be augmented. However, they were not aware that the loan was to be paid right when I began my studies and that the interest on the loan would be increased. The terms also were changed so that I could not defer despite financial hardship or, as I found out later, if I joined the Peace Corps. Because private student loans are not treated or regulated like other loans, there really was little my parents and I could do about it. I am considering paying a large amount of that loan off with reimbursements from my federal loans (given that paying off those loans would be much more manageable) and perhaps taking out a low-interest loan from a credit union that can be deferred to cancel out that loan.
Nobody should have to go through such nonsense for something as important and invaluable as an education. The elephant in the room, of course, is the rising tuition costs which needs to be dealt with accordingly. However, the immense amount one has to pay for an education does not grant private loan providers the ability to operate beyond regulation. I would be happy if the interest rates alone would be decreased or eliminated. On the other hand, I feel that the amount of debt accrued is unsustainable and already is threatening the United States of America's competitiveness in the global market and its income equality (refer to the OECD report on the issue). Thus, I feel that all private student loan debt should be forgiven. Federal debt could be forgiven through work incentives that can be created through a New Deal-esque job scheme. After so much work in a community in the United States of America while given a living wage, the federal debt could be forgiven. However, this plan will only be successful if tuition rates are brought back down to an affordable level for future students. It could be a viable compromise, but I doubt Congress would even consider such a plan in today's economic climate.
Hey Green Warden, don't know if you know about this, but there's already a loan forgiveness program like you describe except right now it is only available to government workers and folks working for non-profits...which doesn't include me :( But might help you: http://www.finaid.org/loans/publicservice.phtml
I know of this program but feel it is too limited. Thank you, though!
I'm more worried that student loan forgiveness is another bail out for the banks. If the government forced the banks to forgive the debt, the banks would insist that the government cover the loans for them.
"one would be encouraging consumers to increase their debt load in the future and discouraging them from making responsible borrowing decisions"
This is already happening. Large loans have been given out freely to anyone who wants them, regardless of credit score or income potential. As a result of the constant flow of free money, tuition has been skyrocketing for years. Banks give out the loans risk-free, with the government guaranteeing the loan if the borrower defaults. That means our tax dollars are already going to bail out loan defaults, which are on the rise. The difference is that the money is going to the banks, not the borrowers, who will continue to be on the hook for the rest of their lives. There is no incentive to lower tuition rates or loans, since the banks and educational systems are not the ones being hurt. They will continue encouraging consumers to increase their debt loads, holding the carrot of the American Dream, because they have no reason to stop. It's nice that you could work hard and get scholarships. I'm willing to bet that you had some advantages in life that allowed you to do so well. Regardless, not everyone can win a scholarship. Do you think the American Dream should be available only to those select few who make it to the top of their classes and can work 70 hour weeks? If we had been using that as a rule of thumb all along, it would wipe out a large majority of our current workforce. It's not a socially sustainable idea.
The fact is, our parents were able to realistically work their way through school, raise families, purchase homes, save money, take vacations, etc. For most of the current generation, that dream is no longer viable, partly due to unemployment, but largely due to massive student loan debt. The total student loan debt in this country will exceed $1 trillion this year. Families that would be doing fine are living below poverty level because of their student loan debts. Many of those people were misled by the institutions they attended and didn't know what they were getting themselves into. Just like the housing crisis, student loans are another way we are being scammed and shafted by the banking system. Also like the housing crisis, it is a bubble about to burst. Actually, the student loan bubble is much larger than the housing bubble ever was, and when it bursts, it's going to be ugly for everyone, not just those with loans. THAT is why student loan forgiveness is a good idea. I agree that it should not be done lightly and without further examination of potential consequences and ideas for long-term fixes. But that is not a reason to dismiss the idea entirely.
Student loan forgiveness would stimulate the economy. Even the best economists believe that Private (commercial) loans, especially, have been ripping off students for years. This bubble is causing the economy to 'swell' in one area, while other areas are suffering.
Student loans should at least be dischargeable.
Aren't you special, young ,educated a real go-getter. People who borrowed money should be more like you. In fact I am going to go back in time right now and not borrow any money, Youth is lost on the young and that's a shame. One thing you should have learned in college is empathy. There are people involved with the FORGIVE STUDENT LOAN debt movement who lived above their means. Perhaps some ate out at restaurants occasionally instead of eating Ramen noodles every night. Surely there are single mothers with kids (non traditional students) who borrowed money and never should have tried to improve their lot in life for their children. Perhaps an accident when in grad school. This notion that people who borrowed money to improve themselves are not as intelligent as you is arrogant, self aggrandizing and preposterous. For you to take it as a personal affront when it does not concern you is suspect to say the least. If you truly "generally embrace the ideals of OWS" why aren't you posting in support of those positions? You are a negative nelly trying to undermine the STUDENT LOAN DEBT FORGIVENESS movement which is a part of the OWS, I want to write more be more eloquent but I'm shooting from the hip free association style and I have to go to work. Surely a frugal, logical and pragmatic person like you knows that usury is wrong.
Instead of being bitter toward the poster, you should be protesting the instituions that charge the outrageous rates. None of the staff are financially hurting. Look into the perks some of the slobs get. If you want student loan forgiveness, FILE BANKRUPTCY. That way it is on your record. To be forgiven is screwing over the next generation of students, our children. The education system has been unscrutinized on its business practices for too long. More should be reported on how they handle the finances.
Gjetson, two points to consider:
Because of the bankruptcy reform bill of 2005, one cannot discharge private student loans when declaring bankruptcy. Federal student loans can be discharged, but only under "undue hardship," which is very difficult to meet in any jurisdiction.
Since student loans are guaranteed by the government, the banks are removed from the issue. When a student defaults on a loan, it's already coming out of all our tax dollars. So, essentially, we all are already paying for the problem and so will future generations unless something pragmatic and effective is done to quell the issue.
If we forgave everyone's student loan debt, the unlikely moral hazard would be that everyone would run out and go get another degree. What's the problem? More likely, they'll just use that money to pay their other debts and bills.
What about the people who do not have student debt? How fair is for someone to get a degree that cost 100k while others receive no benefit? how about just give every US citizen 100k and let them do what they want, talk about setting the economy on fire. I would buy stock in 22" wheel manufacturers, that's for sure.