cancelling student loans

[LivingAlmostLarge]

Do you think it'll happen? What would be the economic effect if they do? And even if they cancel student loans now, what happens in 10 more years when it runs up again?

So someone said you can easily game the system by retiring early and having no income and qualifying for student aid if you have no income. Sounds like a good plan. But I asked that if you have $5M in the bank and FIRE the doesn't it still account for $5M? Then someone pointed out that it does but if you have $5m in the bank you already won at the game why are you trying to "game" the system and get free college when you can obviously afford it. They have a point there.

So do you have to retire and live on say $1M and then qualify for FASFA aid? And if you have too much, which is what you need the earlier in FIRE you are the more you need outside of the retirement account to help bridge the gap obviously. So how does it work for FIRE and college aid?

I was thinking I'm not for cancelling student loans. But I wouldn't mind capping the interest. Like no more than 3% for everyone both public and private loans. I feel like banks should also be prevented from profiting so royally from students who get in over their head. If it were capped would banks be so interested in loaning out money willy nilly?

[bjl584]

I doubt all of them will be. It might collapse the lending industry, or at least faith in lending.
Some loans are private anyway, so they wouldn't qualify.
A major problem is that this wouldn't address the problem.
If they keep writing new loans, then this cycle never ends.
And college would be insanely expensive if it didn't matter how much it costs, since no one would have to pay it back anyways

Maybe we should be looking to revamp a system that gives out hundreds of thousands of dollars to 18 year olds who want to pursue a degree in (enter non marketable field of study here)
My GF's niece is in this boat. She is going to college out of state for a degree in film and theater studies.
I don't know what you can do with that, but the bill will be over $80K when it's all said and done.

[kork13]

Some loans are private anyway, so they wouldn't qualify.
A major problem is that this wouldn't address the problem.
If they keep writing new loans, then this cycle never ends.
And college would be insanely expensive if it didn't matter how much it costs, since no one would have to pay it back anyways

Maybe we should be looking to revamp a system that gives out hundreds of thousands of dollars to 18 year olds who want to pursue a degree in (enter non marketable field of study here)

I can't agree with you more. Writing off the balances of any amount of student loans is like the little boy with his finger plugging up the failing dike. Continuing to issue new loans at breakneck speed will only perpetuate the problem (and make it worse).

An interest rate cap could help slightly, as well as making private loans dischargeable -- both reducing banks' eagerness to loan gobs of money. I'd like to see some actual lending standards put into place, rather than the "fog a mirror" qualification that currently exists. Maybe even some form of consideration for WHAT FIELD the student is pursuing a degree into. We've discussed this topic at length previously... Bottom line, there are a great many ways to reform the US system of higher education.... None of which involve a one-time student loan debt cancellation.

BTW... Arguably, the availability of limitless cash via student loans (paired with demand for ever-nicer campuses & other frivolities) is precisely WHY colleges have become so expensive.

[Fishindude77]

In my opinion this is all just political banter for upcoming November elections, to win a few votes and distract us from all of the B.S. going on; sky high fuel prices, supply chain issues, worker shortages, crazy inflation, etc.
Really doubt that student loans will ever be forgiven on a wide scale basis as it would be horribly unfair to those that paid their loans off, or those that worked saved and paid cash for their educations. What are they going to do to be fair, reimburse everyone alive that has already paid for their college?

[myrdale]

Since student loans are so bad, what are we doing about outlawing them?

[riverwed070707]

Came to say the same as everyone else already has. I'm not against forgiveness, especially with some reasonable criteria, but I'm adamantly opposed to forgiveness without addressing the root cause of the issue. I'm dumbfounded this doesn't come up more in the debates about whether they should be wiped out.

[disneysteve]

Maybe we should be looking to revamp a system that gives out hundreds of thousands of dollars to 18 year olds

Since student loans are so bad, what are we doing about outlawing them?

I don't think student loans are bad at all. There's no way I'd be where I am today without them. But I totally agree with bjl584's point. Giving essentially a blank check to every high school grad is a recipe for disaster, and goes along with kork's point about what has fueled ever-increasing college costs.

I'd point out, though, that it really isn't the federal loans that are the main problem. The borrowing limits on those is actually quite reasonable. The big problem is the private lenders. They have essentially no limits to how much they'll let students borrow. That's where people really get into trouble.

Another problem is the for-profit schools that are largely scams. They suck people in promising them a fancy certification and job placement that never materializes leaving the students with a ton of debt and nothing to show for it.

And I purposely left off the end of the sentence from bjl584 that I quoted, the part about the field of study, because that doesn't even matter. Even if you are going into a lucrative field like engineering or medicine, the amount being borrowed is nuts. I know people who have come out of med school owing 300-400K. That's insane. That's an anchor around your neck for many years even if you're making a decent 6-figure income.

Yet another issue is that student loans aren't easily dischargeable by bankruptcy. It's not impossible but they are held to a much different standard than other debt. I think that needs to change.

[Fishindude77]

The big problem is the private lenders. They have essentially no limits to how much they'll let students borrow. That's where people really get into trouble.

This is true, however the problem wouldn't exist had not the federal government made student loans non bankruptable. These institutions are pretty much guaranteed to eventually get their money.
If the government had kept it's nose out of it, it would have forced private lenders use normal, private lending underwriting standards. Many of those kids would have never gotten the loans to start with unless they had some collateral, a co-signer, or some type of really good plan.

It also often gets said that student loans take advantage of undeveloped minds, kids that are incapable of making smart choices, etc. This does not sit right with me as anybody of that age is old enough to serve in the military and go to war, work full time, vote, etc. There are also many (non college) young adults of the same ages that borrow money for things like automobiles, etc. and they are darned sure required to pay back every dime of those loans.

[disneysteve]

This is true, however the problem wouldn't exist had not the federal government made student loans non bankruptable. These institutions are pretty much guaranteed to eventually get their money.
If the government had kept it's nose out of it, it would have forced private lenders use normal, private lending underwriting standards. Many of those kids would have never gotten the loans to start with unless they had some collateral, a co-signer, or some type of really good plan.

It also often gets said that student loans take advantage of undeveloped minds, kids that are incapable of making smart choices, etc. This does not sit right with me as anybody of that age is old enough to serve in the military and go to war, work full time, vote, etc. There are also many (non college) young adults of the same ages that borrow money for things like automobiles, etc. and they are darned sure required to pay back every dime of those loans.

I pretty much agree with you. I mentioned that bankruptcy issue being part of the problem.

I disagree about comparing student loans to a car loan. Those lenders do use standard underwriting and require proof of ability to make the payments. And if you don't, they can and do repossess the vehicle. Student loans are a whole different beast. They hand out unlimited money with no evidence that the borrower will ever be able to repay it, and there's no tangible property that serves as collateral. From the student's perspective, it's also much more abstract regarding what will happen in the future. Your car payments are due a month after you buy it. Your student loan payments don't start until years later when you think you're going to have a great job and plenty of income and that very often just isn't how it works out but at that point, it's too late and the damage is done.

[SavingBucks]

My GF's niece is in this boat. She is going to college out of state for a degree in film and theater studies.
I don't know what you can do with that, but the bill will be over $80K when it's all said and done.

DD went to college out of state wanting to major in technical theatre (part of theatre arts program). She was also interested in mechanical engineering. The deal was struck that if she majored in both it was a go. Otherwise, a local, popular university would be just fine for technical theatre since we were skeptical on the financial payback. She ended up switching one major from ME to Applied Physics and the ME became her minor. She graduated with 2 very different degrees and a minor with no loans. We figured at least our 6 figure investment would have more value. Due to Covid, the technical theatre jobs in our area were not there or paid very poorly. She is now a project engineer with a large construction company and planning to obtain a master's in Civil Engineering (ironic since Mom and Dad each have one!) and her employer has a tuition reimbursement program.

DS lives on his own and decided to go back to school about 8 years ago. Since he was low income, he was able to get his BS in Business Management from a local university through Pell Grants, etc. and graduated loan free. He went on to complete his Master's degree at the same school. We paid for that degree at an in-state cost. He has a great job with a local city government and is slated to earn 6 figures by the end of the year.

[Fishindude77]

I disagree about comparing student loans to a car loan. Those lenders do use standard underwriting and require proof of ability to make the payments. And if you don't, they can and do repossess the vehicle. Student loans are a whole different beast. They hand out unlimited money with no evidence that the borrower will ever be able to repay it, and there's no tangible property that serves as collateral. From the student's perspective, it's also much more abstract regarding what will happen in the future. Your car payments are due a month after you buy it. Your student loan payments don't start until years later when you think you're going to have a great job and plenty of income and that very often just isn't how it works out but at that point, it's too late and the damage is done.

This is pretty much what I'm getting at.
If the government had simply stayed out of things, the private lenders would have stuck with standard underwriting practices and they would not have handed out unlimited money without evidence the borrower could repay it.

[disneysteve]

This is pretty much what I'm getting at.
If the government had simply stayed out of things, the private lenders would have stuck with standard underwriting practices and they would not have handed out unlimited money without evidence the borrower could repay it.

Agreed. If it was just the Federal loans, the problem wouldn't exist because the borrowing limits on those are quite low. It's the private lenders that really caused the trouble.

[LivingAlmostLarge]

That's a good point how BK can't occur with student loans making the risk of writing them ridiculous. I also think though how much would they be loaning out if the private loans were capped at say 2% or 3%? So they can't really make a profit. A bigger issue is the rampant inflation costs of college making it ridiculous. That people are paying it and that colleges are getting away with the amounts being paid.

I also do not want the student loan forgiveness unless it's tied to criteria. I am all for tying say year for year payment for working for habitat for humanity, americorp, or some other legitimate non-profit. If they qualify even red cross or military if you were to sign up allowing those jobs to "pay" your student loans I think would be totally reasonable.

[Fishindude77]

I also think though how much would they be loaning out if the private loans were capped at say 2% or 3%? So they can't really make a profit.

Why would anybody want to make loans they couldn't make a profit on?
Keep government controls and regulations totally out of this and let the free market sort out the lending and interest rates. If loan rates were 10% parents and these students (who are adults) might think a bit more about it before borrowing.

[rennigade]

Whenever student loan topic comes up in discussion with people face to face, I always like to ask what a loan is.

Without looking it up, I'm assuming the definition of a loan is something to the extent that one party agrees to give you money now and you agree to pay it back with interest or whatever terms are agreed upon at a later date.

The bottom line is you are agreeing to pay back money you borrowed. This has nothing to do with what degree you get, how much you earn when you graduate, how insanely expensive college is. You are agreeing to pay back money you borrowed.

Why in the hell does anyone think they should be entitled to not hold up their end of the bargain? What a terrible mindset to have. Yes, I agree that school is too expensive. That's not the persons fault or problem who loaned you the money. Pay you F'n debts.