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Against Loan Forgiveness

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This White House petition just came to our attention resulting in a massive headdesk:

The Presidents proposed 2015 Budget includes a provision that will change the Public Interest Loan Forgiveness (PILF) program by capping overall forgiveness to $57,500. This change only hurts the hard working employees who work by serving their community often in low-wage jobs. These individuals' student loan amounts often exceed the cap as they consist of people with more than a college degree: Social Workers, Speech Pathologists, Lawyers, etc. These dedicated public servants chose to work for the public good with the added promise that their dedicated service of 10 years would be rewarded with complete loan forgiveness, only to have the rug pulled out from underneath them by a misstep by the administration. Please sign this petition and support those who work to help you.

This is just another case of special snowflake syndrome, but not the way you think. The people calling for loan forgiveness are absolutely right that education is way too expensive and if you have to use debt to finance your education you'd be unable to take low paying public interest jobs. They're not asking for loan forgiveness because of a sense of entitlement, they're asking for it because they want to be public servants and they don't see any other way of doing it with their debt loads.

It's special snowflake syndrome because it fails to ask a very simple question: How does this affect other people?

Loan forgiveness programs present the college-bound with a very enticing narrative: Either you'll make a lot of money in the private sector and your loans won't be a problem, or if you don't get such a job you can go into the public sector and your loans won't be a problem. Either way you do not need to care about how large your loans are. And when customers don't care how much they have to pay, prices skyrocket.

And that royally fucks things up for the folks starting college after you. Tuition keeps rising and when they enter the workforce fewer of those private sector jobs will cover their debt. That increases competition for public interest programs and that competition means there's too many high-debt grads for the number of jobs. Now you've got people with huge debtloads who can't pay them off.

Just to kick the folks behind you in line while they're already down, the more of your loans that you get forgiven, the less money there is to go around for everything else, and the less popular these forgiveness programs become, making it increasingly likely that we'll have to either lower the amount available or get rid of the forgiveness entirely.

 

The better alternative to loan forgiveness is increased wages. If your job pays (after taxes) $30,000 and gives you $10,000 in loan forgiveness that's exactly the same as paying you $40k and letting you give the bank $10k. Bank gets paid the same and you have the same money left over.

What's different though are the incentives. If you're going to be making $40k no matter how high your loans are, you're going to seriously consider keeping them low. Price competition among universities helps to bring down the cost for everyone, so bam, you've already done a tremendous public service even before you've graduated.

Funneling the money into salaries also allows public sector jobs to attract better employees. By having so much of the compensation tied up in loan forgiveness the jobs attract people with lots of debt while people with high debt will tend to look elsewhere. Now this is just going to be a general trend, but we're willing to bet that people who graduate with little debt are more likely to be desirable employees. People who got scholarships tend to be pretty bright, people who worked to pay their way have experience, and people whose parents paid out of pocket have parents who can donate to the public interest organizations their kids are working for (and have friends that can be hit up for donations as well).

So, people with debt aren't any worse off, people without debt are better off, there's an incentive to keep your costs under control so you're better off, and keeping costs under control helps everyone else. Who's hurt by this? People with above average debt. If the money is moved into salaries, people aren't being compensated based on their debt, so people with a ton of debt are now worse off. ...Tough? It's certainly not a perfect system, and governing means making choices, picking winners and losers. Sure there will be some losers, people who were previously winners in the system, but the current plan of debt forgiveness just makes the entire game stink.


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