Economic Stimulus: Student Loan Forgiveness?

[Scanner]

From a personal standpoint, if we were to forgive the principal off of your student loans, would it make much of a difference in your spending patterns? If you don't have any student loans, think back to when you did.

BTW, I was asked by MoveOn to sign this petition but I did not, becuase in good conscience, I paid my student loans off and am uncomfortable with someone getting something for nothing. There should at least be a way to pay them back through work on our infrastructure, perhaps a "Conservation Corps.", if the Righties didn't pitch 67 coniptions over such a Left Wing suggestion.

That being said, that being said. . .I do have to wonder compared to giving tax breaks to a few billionaires and multi-millionaries, on hopes that on a whim they may "create jobs", I think this would have more of an impact honestly, because it frees up discretionary income.

I know the Freak-o-Nomics guy says no. . .the tradeoff in the amount spent for the amount returned would not make good economic sense. That indeed may be true. Student loan debt is 1 trillion in the US right now according to Fox News. But I just don't know what's politically motivated any longer and what independent economists say is good policy or not.

STUDENT DEBT: America's Next Bubble? | Fox News

[Scanner]

BTW, if I were to answer as honestly as I can, 15 years ago, when I had student loan debt, I owed 53K and paid about $650/month.

I can answer confidently that yes, that would have affected my consumption pattern. . .not sure exactly how - maybe would have saved a little more, spent a little more, would have invested more in my business, perhaps gotten a nicer home. . .

This topic does remind me of a funny Onion article:

New Legislation Would Shut Down U.S. Education System, Give Each American Student $3,000 To Start Own Small Business | The Onion - America's Finest News Source

[bjl584]

I currently have about 42K in student loan debt. If it were forgiven through some means it would most likely effect my spending and saving patterns. Probably not alot, but I could use an extra $300 a month as much as the next guy. But, would there be a moral hazard to doing something like this? Like the people that bought too much house, opened up a HELOC for 125% of the house's value, wrote out a check to themselves for cash, and then headed to splitsville. Would anyone care about or value higher education if it was free? Would it matter anymore on your resume that you had a degree? Would a college have any incentive to offer quaility education if no one was going to pay for it?

[disneysteve]

No way would I sign that petition, and I'd be sure to let them know why. I busted my butt and scrimped on everything to get my loans paid off. Why should someone else get a free ride? If folks are unemployed, then create some kind of job corps. Let people work off their debt through community service rather than sitting around playing Wii all day. There are tons of people in need out there who could use help.

So no, I would be totally opposed to just an outright debt forgiveness plan.

[Scanner]

Well, that's what I kind of wanted to avoid - the moral dimensions of this proposal, because for some reason, it strikes people as more morally acceptable to give out a tax break to a solar panel company supposedly making jobs (even though there is usually no accountablity on that), then it does to a bunch of new grads saddled with debt.

Morality aside, I wonder what would have the biggest impact economically.

[disneysteve]

Originally Posted by Scanner

From a personal standpoint, if we were to forgive the principal off of your student loans, would it make much of a difference in your spending patterns? If you don't have any student loans, think back to when you did.

Just to focus on the actual question, of course it would have made a difference. I was paying as much as $1,200/month on my student loans. Obviously, having that cash in my pocket instead would have impacted my spending patterns.

That said, I would still be completely opposed to such a plan.

[greenskeeper]

If we start with student loans then where does it stop? credit card debt? auto loan debt? mortgages?

Pay the piper and move on.

I payed off my student loans within 4 years of graduating.

[bjl584]

Originally Posted by Scanner

Well, that's what I kind of wanted to avoid - the moral dimensions of this proposal, because for some reason, it strikes people as more morally acceptable to give out a tax break to a solar panel company supposedly making jobs (even though there is usually no accountablity on that), then it does to a bunch of new grads saddled with debt.

Morality aside, I wonder what would have the biggest impact economically.

I wonder if it would matter? My thoughts are this. If everyone that came out of college was debt free (student loan debt free) would it give them a head start in life? Or would it encourage them or allow them to just rack up debt someplace else? A new car maybe? Credit cards perhaps? It would probably help some people, but I have a feeling a lot of them might just end up accumulating debt some other way and not be much better off.

[disneysteve]

Originally Posted by bjl584

I wonder if it would matter? My thoughts are this. If everyone that came out of college was debt free (student loan debt free) would it give them a head start in life? Or would it encourage them or allow them to just rack up debt someplace else? A new car maybe? Credit cards perhaps?

I think that's exactly Scanner's point. Would it increase personal spending which, in turn, would benefit the economy since our economy is highly dependent on consumer spending. I think the answer to that is yes. Some people would save more but most would spend more - buy a nicer car, buy a bigger house, travel more, eat out more, whatever. I'm quite sure that if I had been student loan free in 1994 when we bought our house, we would have spent more on the house. The fact that I was paying $800-1,200/month on loan payments had a major impact on how much house we bought.

[GREENBACK]

I graduated with virtually nothing owed due to working extremely hard to finance my education. It took me twice as long to graduate as the average student because I didn't want a pile of debt with no job certainty upon graduation.

My spending patterns weren't influenced much by money owed because I didn't owe much. With that said, I'm against bailing anyone or any corporation out. I believe that you should be allowed to fail and recover on your own. Maybe we as a country will recover more slowly but I think we'll recover much better when everyone is held to the highest standard in terms of being responsible for the debts that are their own doing.

I'm sick of people whining about mortgage debt and student loan debt. You created it, now work your a$$ off and pay for it.

[disneysteve]

Originally Posted by GREENBACK

I'm sick of people whining about mortgage debt and student loan debt. You created it

Exactly. I don't get when people complain about a problem that they caused themselves. That is completely different, for example, than complaining about the rising cost of health insurance because we've got no control over that. The premiums just go up and up and up and there is nothing I can do about it. But how much I borrowed for school or how much we borrowed to buy our home was completely our own decision.

[kork13]

My issue with unilateral student loan forgiveness is that while it would be an outstanding benefit to alot of people, the timing would be completely arbitrary, and tremendously unfair to everyone else who worked their butts off to pay their loans ASAP, or those who did everything they could to never even take out student loans, or those who never even went to college at all. It rewards a) the people who never tried to pay them down quickly; or b) people who just graduated and haven't had to work at all toward paying them down. Would it be nice? Sure. But for the same inordinate amount of money involved in forgiving everyone's student loans, much more could be done that could benefit the entire population -- like a national program for putting people to work on public service, development, or construction projects. (not to say that's the answer by any means, but rather just as an example of SOMETHING that would be better than targeting a specific group of people).

I personally don't think you can (or at least should) separate financial questions from the moral issues that they also involve. Focus efforts on valid, acceptable policies rather than wasting time on an idea that's morally reprehensible.

[Like2Plan]

I graduated college with no loans, but my DH had student loans which carried on through our first few years of marriage. Way back then, the payment was about equivalent to a car payment. Would it have made more money available to spend--sure. (Duh!)
But, who is going to pay for these loans? They don't magically disappear. So, I would be opposed to this legislation if it meant an outright grant. Scanner, I do like your idea of conservation corps.

[kork13]

Originally Posted by bjl584

I wonder if it would matter? My thoughts are this. If everyone that came out of college was debt free (student loan debt free) would it give them a head start in life? Or would it encourage them or allow them to just rack up debt someplace else? A new car maybe? Credit cards perhaps? It would probably help some people, but I have a feeling a lot of them might just end up accumulating debt some other way and not be much better off.

I was lucky enough to do just that -- I went to a service academy, and came out of college with ZERO student loans, as did every single one of my classmates, as did every other person who has ever graduated from the service academies. Personally, I do think it gives somebody a head start, if they're smart enough to take advantage of it. Most of my classmates immediately began saving for retirement, investing, and seeing after their financial futures. Perhaps that works simply because responsibility is hammered into us (literally?)... but still, I think everyone has to work for their education. Even for us, we go to a military school for 4 years, then owe no less than 5 years of military service. Getting your education handed to you with no effort on your part basically gives people a sense of entitlement (that is already outrageously powerful in our country...thus the huge support for this idea).

One point worth mentioning in this discussion... There actually is a federal student loan forgiveness program. If anyone teaches in a qualifying school (95% of schools do), works as a federal/public servant, or does a couple other things (don't remember all of the options) for 10 years after graduating college while staying in good standing with their student loans, any remaining balance can be forgiven at the 10 year mark. I don't know the details, but a friend of mine is in the process of taking advantage of that option. The difference here: you earn the loan forgiveness by working for the benefit of the country and responsibly managing your debt.

[disneysteve]

Originally Posted by kork13

There actually is a federal student loan forgiveness program. If anyone teaches in a qualifying school (95% of schools do), works as a federal/public servant, or does a couple other things (don't remember all of the options) for 10 years after graduating college while staying in good standing with their student loans, any remaining balance can be forgiven at the 10 year mark.

Of course, you should have had your loans repaid by the 10-year mark so I'm not sure how helpful that is, unless you are able to defer payments during that time.

I tried to apply for a student loan repayment program when I took my current job because I practice in a medically-underserved community. The problem is the repayment plan only works if you take a job there right out of med school and I had already been in practice for 7 years at that point so I wasn't eligible. I think that is pretty dumb because if the point is to attract doctors to underserved areas, what difference does it make if it is someone fresh out of school or not? And wouldn't you rather have an experienced doctor working there than someone who barely knows what they're doing?

[maat55]

Get the XXXX government out of student loans. Problem solved. People that truly want an education will get them, the rest will learn a trade.

[bjl584]

Here is a thought. What if a four year degree were "free", the way that a highschool diploma is? The only college people would have to pay for out of their own pocket would be Masters Degrees, Doctorates, etc.? I believe that some European countries do something like this. What are its effects on society and on an individuals finances? I don't know, but looking at a country that has a setup like this may answer the question that was originally posed.

[BuckyBadger]

Originally Posted by bjl584

Here is a thought. What if a four year degree were "free", the way that a highschool diploma is? The only college people would have to pay for out of their own pocket would be Masters Degrees, Doctorates, etc.? I believe that some European countries do something like this. What are its effects on society and on an individuals finances? I don't know, but looking at a country that has a setup like this may answer the question that was originally posed.

Local taxes would double at least. It would lead to a mass exodus of childless people from places with high school taxes. I grew up in a place that had one of the best high schools in the country -- and local taxes to support it. The day I graduated my parents started looking for a condo in a nearby town where the school taxes were a third of what they were where I grew up.

That four year degree isn't going to be "free" any more than public school is "free." The taxpayers are paying for it one way or another.

[disneysteve]

Originally Posted by BuckyBadger

Local taxes would double at least. It would lead to a mass exodus of childless people from places with high school taxes. I grew up in a place that had one of the best high schools in the country -- and local taxes to support it. The day I graduated my parents started looking for a condo in a nearby town where the school taxes were a third of what they were where I grew up.

That four year degree isn't going to be "free" any more than public school is "free." The taxpayers are paying for it one way or another.

It always saddens me when all of the empty-nesters complain about local taxes. "I don't have a kid in school any more. Why should I have to pay for it?" The answer is very simple: Those who came before you paid their taxes so that your kids could have a good education. Now it's your turn to give back to the community. What's in it for you? Living in a town with good schools and high-achieving kids rather than a bunch of juvenile delinquents hanging out on the street corners smoking and doing drugs.

[BuckyBadger]

Originally Posted by disneysteve

It always saddens me when all of the empty-nesters complain about local taxes. "I don't have a kid in school any more. Why should I have to pay for it?" The answer is very simple: Those who came before you paid their taxes so that your kids could have a good education. Now it's your turn to give back to the community. What's in it for you? Living in a town with good schools and high-achieving kids rather than a bunch of juvenile delinquents hanging out on the street corners smoking and doing drugs.

I'm not sure that I agree with you. The people who bought our old house had three kids. If my parent's HADN'T moved out, those three kids wouldn't have been able to move in and go to a great school. If the empty nesters didn't move OUT, people with kids couldn't move IN. It was an established community. They weren't building any more houses. If you wanted in someone else had to move out.