econscius

Occupy Wall Street’s Forgiving Student Loans Is An Unforgiveably Bad Idea

In College Education, Loan Forgiveness, Occupy Wall Street Protests, Political Rhetoric, Student Loans on October 26, 2011 at 12:36 am

 

University of Chicago Quadrangle, photo by author

One “Occupy Wall Street” idea is across-the-board student loan forgiveness. [1]

It is one thing to offer temporary forbearance or deferment when someone is unemployed, but forbearance is already available to the unemployed. [2]  The “Occupy” concept is a totally different idea of total debt forgiveness.

How bad an idea is a blanket erasure of student debt?  Let us look:

(1) People with college degrees earn ~75% more than people without degrees. [3]   Loan forgiveness means asking lower-income people to write off loans made to their more affluent neighbors.

(2) The Census Bureau reports a mere 28% of Americans have college degree. [4]  Not all graduates have student loans, either.  A very small slice of the population would be receiving a windfall from the rest.

(3) The unemployment rate for people with a college degree is half the rate of the non-college educated. [3]

(4) There is a correlation between the cost of an education and the prestige of the offering institution. Degrees from Columbia or University of Chicago are much more expensive than those from smaller privates or directional state colleges.  The University of Chicago will set you back $56,640 a year (full disclosure:  there are several Chicago alums in my family, including me) and the Ivy League’s Columbia University runs $43,815 in tuition and fees alone. [5]   University of Chicago and Columbia graduates also earn more

A mass forgiveness would mean the greatest benefit would accrue to those who financed educations from the costliest (and most prestigious) schools who, on average, will earn more in their careers.  Thanks, but no thanks.

(5) Grants and tuition reductions are widely available to lower-income graduates, so those who take on the most debts generally will not be “poor”.

(6) The programs least likely to offer grants and tuition breaks are professional degree programs.  It also is true people with Masters and Doctorate degrees will necessarily have spent more years in college and take on more debt than an undergraduate.  As a result, many MBAs, doctors and lawyers graduate with huge, even 6-figure, student loans.  I personally took on a serious amount of student loan debt for my MBA.  Any mass forgiveness would disproportionately benefit those with advanced degrees:  lawyers, doctors, professors and MBAs, meaning many of the richest Americans.  The Top 1% of earners is disproportionately doctors, lawyers and business executives, many of whom hold MBAs. [6]  This is quite ironic, indeed, since Occupy Wall Street is so focused on the Top 1%.

(7)  Any mass forgiveness would be extraordinarily expensive at $1 trillion [7] and the federal budget is already deeply in the red. 

(8) It is good for people, who can, to foot some of the cost of their education. I believe things you pay for can be more meaningful. I also am certain a mass forgiveness would send a message of “don’t worry about the cost of college, have fun” to current students. College is fun, but it should not be perceived as free, lest people take even longer to graduate.

(9) A mass forgiveness would be very unfair even amongst college grads. A doctor who graduated in 2000 and lived simply so she could pay off her loans by 2010 would receive no benefit at all, while her profligate classmate who made minimum payments in preference of BMW’s and European trips might enjoy a $100,000 benefit. People who completed school in the 1970s, 1980s or 1990s would receive little to nothing in benefit because their student loans are already paid off, while those who happened to have graduated in recent years would benefit greatly.   Forgiveness is no panacea for all young people, either.  People starting college today would receive no benefit at all.

(10) Lastly, some argue a mass forgiveness would be a huge economic stimulus. [8]  A mass forgiveness would actually be a very inefficient stimulus because the loans are repaid over many years, even decades.  A doctor who was suddenly relieved of all debts would have some extra spending money and could look forward to a lighter burden in the years ahead, but the fact is only a tiny fraction of the total loan is payable in the present.  A 10 year loan with level payments has a mere 1/120th impact this month.

Student loan forgiveness is an idea that might sound good as a populist sound bite but would be patently unfair, concentrate the benefits amongst the rich and soon-to-be-rich, and would be extremely expensive.

Big Loans, Big Future Salaries. MBA Graduates, University of Chicago. Photo from author.

[1] http://www.cnbc.com/id/44879455

[2] http://studentaid.ed.gov/students/publications/student_guide/2009-2010/english/postponeloanpayment.htm

[3] http://www.nytimes.com/2010/09/21/education/21college.html

[4] http://chronicle.com/article/Adults-With-College-Degrees-in/126026/

[5] http://www.forbes.com/2010/10/04/americas-most-expensive-colleges-business-most-expensive-colleges.html

[6] http://economix.blogs.nytimes.com/2011/10/17/the-top-1-executives-doctors-and-bankers/

[7] http://www.usatoday.com/money/perfi/college/story/2011-10-19/student-loan-debt/50818676/1

[8] http://www.cnsnews.com/news/article/educated-liberals-say-forgiveness-student-loans-would-stimulate-economy

Johns Hopkins University photo from Wikipedia Commons.

Comments are welcome below.

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  1. […] But I see no reason whatsoever, as a gainfully employed middle class person, to even consider foisting the loans off on other taxpayers (many of whom lack a college degree and, on average, earn a lot less than we the 28% who are college educated [see https://econscius.wordpress.com/2011/10/26/forgiving-student-loans-would-mostly-help-the-most-affluen…]). […]

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