Advertisement
student loans

Should All Student Debt Be Forgiven?

My favorite reform would be making the repayment of all student loans pro­portional to the borrower’s future earnings.

Q. I’m hearing proposals for the forgiveness of all student debt—an estimated $1.5 trillion—to stimulate retail spending, marriage, homeownership and entrepreneurship among the 44 million people (many of them millennials) now burdened with having to make college-loan payments. What do you think of this idea?

A. Not much. There are many things wrong with how we’ve been financing higher education in recent decades—and there are much better ways to do it—but the wholesale transfer of all this debt to the U.S. taxpayer, without regard for a borrower’s ability to repay, would be morally wrong. It would be an affront to the majority of borrowers who either have already paid off their loans or are managing them okay. And it would disproportionately benefit higher-earning borrowers.

Advertisement - Article continues below

Yes, many students over-borrowed to attend more-expensive colleges than they needed to, or to major in fields without good employment prospects—in each case, their own choices. Yes, many colleges took advantage of excessively easy student credit to jack up their tuitions and expand operating budgets.

And, yes, many for-profit colleges (some later closed by regulators) grew fat on government-guaranteed loans they arranged for unqualified applicants who got an inferior education and often didn’t graduate. This last group of borrowers can and should get their debts discharged through the classic borrower defense that they were misled and defrauded by the school.

Advertisement
Advertisement - Article continues below

But canceling all student debt isn’t the answer. My favorite reform would be making the repayment of all student loans pro­portional to the borrower’s future earnings. Monthly loan payments would be capped at, say, 10% of earnings and deducted from one’s paycheck, like income taxes and Social Security. After 25 years, the unpaid balance would be forgiven.

We should also overhaul the many public-service loan-forgiveness programs now in place. These are supposed to allow borrowers who choose certain nonprofit and/or governmental occupations, such as the military, teaching and social work, to discharge their debts, typically after 10 years of timely loan re­payment. But the rules are bizarrely complex and the outcomes often uncertain.

Advertisement

Most Popular

HSAs Get Even Better
Financial Planning

HSAs Get Even Better

Workers have more options with flexible spending accounts, too.
July 2, 2020
2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020

Recommended

How the Fed's Moves Affect You
Economic Forecasts

How the Fed's Moves Affect You

It’s pumping trillions of dollars into the economy and keeping rates near zero. Savers are sunk, but borrowers get a boost.
July 2, 2020
Tax Changes and Key Amounts for the 2020 Tax Year
tax law

Tax Changes and Key Amounts for the 2020 Tax Year

Americans are facing a long list of tax changes for the 2020 tax year...and it's never too early to start thinking about next year's return.
June 22, 2020
12 Tax Deductions and Credits That Help You Pay for College
Tax Breaks

12 Tax Deductions and Credits That Help You Pay for College

Whether you're saving for college, currently paying tuition, or dealing with student loan debt, there's probably a tax break that can help your bottom…
June 12, 2020
Milliennials Face Their Second Recession
credit & debt

Milliennials Face Their Second Recession

Forty percent of millennials say the pandemic will likely cause them to delay payments on their debts. Does that include you? Time to take action.
June 4, 2020