I don't totally oppose student debt forgiveness but I am not ready to support any proposal I have heard.
I think the debt forgiveness needs to be done soon and done in a way that breaks the cycle.
Right now I fear the talk of forgiveness is incentivizing students to borrow every penny they can on the chance it will be forgiven. If education funding reform and some sort of controls on universities is not put in place prior to the debt forgiveness it needs to be part of the package or follow almost immediately.
The student debt crisis is something that banks, colleges and universities created. They have benefited greatly from this and forgiveness rewards them and the banks for the scam. I consider students and their parents duped victims with a touch of Stockholm syndrome. They need help, some of them should get debt relief, I would even support relief that benefits a few people who have plenty of money and don't need it. I won't hold up help for those that need it just because it will be a windfall for a few but I am not going to support a blank check, it needs it screen out most who don't need it.
Understand, I feel nobody is owed this relief but I feel it is something we should do. We need to fix the broken system too. I am not sure we should forgive the debts of people who went to private colleges and universities. Why should we forgive the debts of people who went to Harvard, Yale, Notre Dame, etc.
I worry about the moral hazard of all forms of debt relief not just student debt. Credit card default write off, car repos, bankruptcy, foreclosure, eviction. I feel that almost all forms of debt relief let people renege on a promise they made in a way that has too little consequences. This creates a perverse incentive, leading to people making promises they don't feel obligated to make good.
Another perverse incentive is this creates a situation where lenders aren't even all that concerned about recouping their principal, they are more focused on fees and interest. If the interest rate spread is high enough and the borrower pays for long enough you don't need to get back the principal to make a huge profit. Origination fees and late fees are just icing on the cake.
If defaulting on a loan put you in debtors prison then fewer people would borrow money. It would force banks to lower interest rates and offer better terms. Taking on debt has become to casual a thing. People don't seem to understand that even in our loose money environment, when default hardly has consequences that debt is still a trap. I don't know if this is some scheme the bankers and elites cooked up but it certainly benefits them.
It benefits me too. Your credit card interest and fees pays for my cash back and my privilege of floating thousands of dollars of spending in perpetuity without a penny of interest.
Basically I get about a $5,000 perpetual loan without paying any interest, I don't need that but they give it to me to be my transaction processer, they charge those who provide my goods and services to process those transactions. The system is perverse and unfair, People like me, upper middle class and the rich, benefit even though we don't need the benefit.
Lets hope at least some minor fixes are worked out and proper student debt relief is coming soon.
TEK
