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    3 Unintended Consequences of Student Loan 'Forgiveness'

    In the end, there are three big winners in this scheme: universities, politicians, and students who took out gargantuan loans and have not yet repaid them. But debt forgiveness would set in motion unintended consequences that would persist for generations.

    3 Unintended Consequences of Student Loan 'Forgiveness'

    The big losers of student debt forgiveness are future students and taxpayers.

    Thursday, January 28, 2021

    Image Credit: Kit from Pittsburgh, USA, CC BY 2.0 , via Wikimedia Commons

    Antony Davies

    James R. Harrigan

    Politics Student Loans Student Loan Debt Debt Forgiveness Higher Education College Unintended Consequences prices Tuition

    Leer en Español

    Given American voters’ penchant for delivering divided government, it might seem strange that Democrats were able to wrest control of the White House and both houses of Congress in the 2020 election. And while there will clearly be a power-sharing agreement in the Senate, the Democrats find themselves in an enviable position, one that they have used to great effect in the past.

    The last time a Democratic President had majorities in both houses of Congress, we saw Barack Obama take control of the legislative agenda to push the Affordable Care Act through. The ACA passed with the vote of only one Republican, Ánh Quang “Joseph” Cao, in the House (though the Democrats didn’t need his vote), and without any Republican support in the Senate. Not often does one party dominate the political landscape such that it can pass legislation at will, but the few examples that exist provide a telling look at what a united government might be expected to yield in our own time.

    Next year’s crop of new students will—understandably—demand that their loans be forgiven too.

    We have seen a number of big-ticket pieces of legislation since 1935, laws that have changed the very fabric of American political life by empowering the federal government well beyond its constitutional limitations. In addition to the ACA in 2010, Social Security (1935) and Medicare (1965) were also implemented when Democrats had control of both the White House and Congress.

    Given the results of the recent election, it should come as no surprise that we’re poised for the next big expansion: student debt forgiveness, a promise Joe Biden made frequently as he campaigned for the presidency. Like the big ideas that came before it, this idea will cost us more than we can afford from day one, and far more than its proponents will admit. Biden’s plan as currently envisioned would cost over $300 billion. But that’s just this year. The plan will set in motion unintended consequences that will doubtlessly persist for generations.

    Colleges and universities will respond to this new reality by raising tuition commensurately.

    First, next year’s crop of new students will—understandably—demand that their loans be forgiven too. And so will those of the year after that, and so on. This program will quickly become a sort of college UBI, where the government just hands out $10,000 to every college student. Some argue that if this results in a better educated populace, then it’s worth the cost. But it won’t result in a better educated populace; it will result in a whole bunch of students majoring in things the market doesn’t value, and another batch simply taking a four-year vacation on the taxpayer’s dime. Heretofore, graduates knew they needed marketable skills in order to repay their college loans. But when student loans are forgiven as a matter of course, graduates bear no cost for wasting our collective resources by studying things the market doesn’t value, or by not studying at all.

    Second, colleges and universities will respond to this new reality by raising tuition commensurately. Tuition and fees were a pretty constant 18 to 19 percent of family income from the 1960s until 1978. In 1965, the federal government started guaranteeing student loans. In 1973, Congress established Sallie Mae and charged it with providing subsidized students loans. And by 1978, tuition and fees had started a steady march to 45 percent of family income today. When the government makes it less painful for students to borrow, whether by guaranteeing, subsidizing, or forgiving loans, it takes away some of the pain of student borrowing, which makes it easier for colleges and universities to raise tuition.

    Data sources: Federal Reserve Bank of St. Louis, National Center for Education Statistics.

    Third, expect many taxpayers to cry foul. Homeowners will quite sensibly wonder why the government is not forgiving their mortgages. After all, student loans add up to about $1.4 trillion, while American mortgages total more than $16 trillion. If relieving students from the burden of their debts is a good idea, it should be an even better idea to relieve homeowners of theirs.

    Biden’s plan as currently envisioned would cost over $300 billion. But that’s just this year.

    What about students who worked multiple jobs or attended less prestigious schools so they could avoid going into debt? Why aren’t they being rewarded? What about students who diligently paid off their debt and are now debt free? Will they receive nothing? What about, fantastically, people in the trades? Is it reasonable to charge people—via the higher taxes loan forgiveness will bring—who did not go to college to subsidize those who do? Regardless of the answers to these questions, implementing this plan will be fraught with difficulty.

    Source : fee.org

    An Unintended Consequence of Student

    Will young Americans volunteer for the armed forces in adequate numbers?

    Opinion Letters

    An Unintended Consequence of Student-Debt Relief

    An Unintended Consequence of Student-Debt Relief Will young Americans volunteer for the armed forces in adequate numbers?

    A military recruitment center in New York, Sept. 4, 2020.

    Photo: Spencer Platt/Getty Images

    April 13, 2022 12:55 pm ET

    SHARE TEXT 18

    As President Biden delays the collection of federal student loans, we need to consider the effect that loan forgiveness and federally subsidized college might have on the U.S. military (“Student Debt Freeze Gets a New Extension,” U.S. News, April 7). When I worked at Navy boot camp, an overwhelming majority of recruits listed paying for college as their primary motivator for joining the Navy. If young Americans can access free college without having to earn the GI Bill or sign up for follow-on military service, will they volunteer for the armed forces in adequate numbers?

    Eric Leis

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    3 Unintended Consequences of Student Loan Forgiveness

    The big losers of student debt forgiveness are future students and taxpayers.

    NEWS

    3 Unintended Consequences of Student Loan Forgiveness

    The big losers of student debt forgiveness are future students and taxpayers.

    FEE 02.07.21 4 MINUTE READ [Leer en español]

    By Antony Davies and James Harrigan

    Given American voters’ penchant for delivering divided government, it might seem strange that Democrats were able to wrest control of the White House and both houses of Congress in the 2020 election. And while there will clearly be a power-sharing agreement in the Senate, the Democrats find themselves in an enviable position, one that they have used to great effect in the past.

    The last time a Democratic President had majorities in both houses of Congress, we saw Barack Obama take control of the legislative agenda to push the Affordable Care Act through. The ACA passed with the vote of only one Republican, Ánh Quang “Joseph” Cao, in the House (though the Democrats didn’t need his vote), and without any Republican support in the Senate. Not often does one party dominate the political landscape such that it can pass legislation at will, but the few examples that exist provide a telling look at what a united government might be expected to yield in our own time.

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    We have seen a number of big-ticket pieces of legislation since 1935, laws that have changed the very fabric of American political life by empowering the federal government well beyond its constitutional limitations. In addition to the ACA in 2010, Social Security (1935) and Medicare (1965) were also implemented when Democrats had control of both the White House and Congress.

    Given the results of the recent election, it should come as no surprise that we’re poised for the next big expansion: student loan forgiveness, a promise Joe Biden made frequently as he campaigned for the presidency. Like the big ideas that came before it, this idea will cost us more than we can afford from day one, and far more than its proponents will admit. Biden’s plan as currently envisioned would cost over $300 billion. But that’s just this year. The plan will set in motion unintended consequences that will doubtlessly persist for generations.

    First, next year’s crop of new students will—understandably—demand that their loans be forgiven too. And so will those of the year after that, and so on. This program will quickly become a sort of college UBI, where the government just hands out $10,000 to every college student. Some argue that if this results in a better educated populace, then it’s worth the cost.

    But it won’t result in a better educated populace; it will result in a whole bunch of students majoring in things the market doesn’t value, and another batch simply taking a four-year vacation on the taxpayer’s dime. Heretofore, graduates knew they needed marketable skills in order to repay their college loans. But when student loans are forgiven as a matter of course, graduates bear no cost for wasting our collective resources by studying things the market doesn’t value, or by not studying at all.

    Second, colleges and universities will respond to this new reality by raising tuition commensurately. Tuition and fees were a pretty constant 18 to 19 percent of family income from the 1960s until 1978. In 1965, the federal government started guaranteeing student loans. In 1973, Congress established Sallie Mae and charged it with providing subsidized student loans. And by 1978, tuition and fees had started a steady march to 45 percent of family income today. When the government makes it less painful for students to borrow, whether by guaranteeing, subsidizing, or forgiving loans, it takes away some of the pain of student borrowing, which makes it easier for colleges and universities to raise tuition.

    Data sources: Federal Reserve Bank of St. Louis, National Center for Education Statistics.

    Third, expect many taxpayers to cry foul. Homeowners will quite sensibly wonder why the government is not forgiving their mortgages. After all, student loans add up to about $1.4 trillion, while American mortgages total more than $16 trillion. If relieving students from the burden of their debts is a good idea, it should be an even better idea to relieve homeowners of theirs.

    What about students who worked multiple jobs or attended less prestigious schools so they could avoid going into debt? Why aren’t they being rewarded? What about students who diligently paid off their debt and are now debt-free? Will they receive nothing? What about, fantastically, people in the trades? Is it reasonable to charge people—via the higher taxes loan forgiveness will bring—who did not go to college to subsidize those who do? Regardless of the answers to these questions, implementing this plan will be fraught with difficulty.

    Source : elamerican.com

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