Here's another reason wiping out student debt is a bad idea: it does nothing to address the core problem (or at least what many people argue is the core problem): the rapidly increasing cost of college. Further subsidizing something does not seem like a good way to bring down its cost.
I am posting about this issue tomorrow in my Happy Wanderer Substack. I am on the left, but I oppose canceling student debt and think it should instead be treated like all other forms of debt: borrowers should be allowed to discharge student debt in bankruptcy. This simple change would remove the perverse incentives on banks and universities. Currently, banks face no risk of default, so they’re incentivized to hand out loans without doing due diligence. Similarly, universities get all the tuition money up front, so they are incentivized to keep raising tuition rather than finding sensible ways to economize.
Giving student borrowers access to bankruptcy would put some of the risk of student debt where it belongs--on the banks and the universities--and help to end rising tuition and credential inflation.
I'm in a part time online grad program. It's pretty cheap -- only about $10k for the entire program -- so I've been paying tuition in cash each semester. This week I applied for the max Grad Plus loan the school offers for the program just in case Biden decides to cancel it.
Part of me would feel a little bad if I got a free $10k from the government even though I absolutely don't need it, but you can't blame people too much for responding to incentives.
Great nuance as always Mr. Barro. At the core of it all, student debt forgiveness doesn't solve the actual problem and only rewards a small % of possible voters while alienating a larger percentage of the voter demographic. That said if student loan interest rates were capped or tied to the rate of inflation that would be a great start. Maybe a small forgiveness or a tax credit was given to some borrowers and they actually have a plan for a date for when repayments would start I believe it would go a long way.
Agreed with everything related to the gas tax holiday. It seems like they are trying to take the time to make a right decision, but I hope it is comprehensive and all encompassing and not a half assed solution that is unpopular with voters and also doesn't' address the root cause of issues.
Really looking forward to the student debt discussion.
I've heard from some that they believe ending the pause on payments will have such a disinflationary effect it will cause our economy to continue to shrink and certainly cause a recession. What do you think about that idea?
Without trying to attribute any value for or against the gas tax holiday, I’ll approach it from an optic’s perspective: Is there a general concern from the administration that they’d enact it, shout it from the rafters, no one notices (after all, gas price fluctuations in recent months make it difficult to identify specific factors at a given time), and they suffer the aftereffect of a deficit hit later on that makes them look fiscally irresponsible?
Given the volatility of inflation and gas prices, I personally don’t see the value of the move politically. It seems way too likely to get drowned out or ignored as lacking impact on the greater financial factors the public is facing, and it will potentially be labeled as a gimmick that drove up debt.
Here's another reason wiping out student debt is a bad idea: it does nothing to address the core problem (or at least what many people argue is the core problem): the rapidly increasing cost of college. Further subsidizing something does not seem like a good way to bring down its cost.
I am posting about this issue tomorrow in my Happy Wanderer Substack. I am on the left, but I oppose canceling student debt and think it should instead be treated like all other forms of debt: borrowers should be allowed to discharge student debt in bankruptcy. This simple change would remove the perverse incentives on banks and universities. Currently, banks face no risk of default, so they’re incentivized to hand out loans without doing due diligence. Similarly, universities get all the tuition money up front, so they are incentivized to keep raising tuition rather than finding sensible ways to economize.
Giving student borrowers access to bankruptcy would put some of the risk of student debt where it belongs--on the banks and the universities--and help to end rising tuition and credential inflation.
I'm in a part time online grad program. It's pretty cheap -- only about $10k for the entire program -- so I've been paying tuition in cash each semester. This week I applied for the max Grad Plus loan the school offers for the program just in case Biden decides to cancel it.
Part of me would feel a little bad if I got a free $10k from the government even though I absolutely don't need it, but you can't blame people too much for responding to incentives.
Great nuance as always Mr. Barro. At the core of it all, student debt forgiveness doesn't solve the actual problem and only rewards a small % of possible voters while alienating a larger percentage of the voter demographic. That said if student loan interest rates were capped or tied to the rate of inflation that would be a great start. Maybe a small forgiveness or a tax credit was given to some borrowers and they actually have a plan for a date for when repayments would start I believe it would go a long way.
Agreed with everything related to the gas tax holiday. It seems like they are trying to take the time to make a right decision, but I hope it is comprehensive and all encompassing and not a half assed solution that is unpopular with voters and also doesn't' address the root cause of issues.
Really looking forward to the student debt discussion.
I've heard from some that they believe ending the pause on payments will have such a disinflationary effect it will cause our economy to continue to shrink and certainly cause a recession. What do you think about that idea?
Without trying to attribute any value for or against the gas tax holiday, I’ll approach it from an optic’s perspective: Is there a general concern from the administration that they’d enact it, shout it from the rafters, no one notices (after all, gas price fluctuations in recent months make it difficult to identify specific factors at a given time), and they suffer the aftereffect of a deficit hit later on that makes them look fiscally irresponsible?
Given the volatility of inflation and gas prices, I personally don’t see the value of the move politically. It seems way too likely to get drowned out or ignored as lacking impact on the greater financial factors the public is facing, and it will potentially be labeled as a gimmick that drove up debt.
Did I miss a Friday post last week?