FORUM 1: if you take out a student loan, you should repay it | Opinion

Take a student loan, pay off the student loan. This should be the obvious basic understanding of how student loan works.

There may be times when this should not apply, but against Presidential Candidate Bernie Sanders, such times should be rare and dependent on specific circumstances.

Federal loans made up about 88% of the total volume of student loans in the 2018-19 school year. Let’s be clear about what they do: they give taxpayers money to students so that recipients can get a degree and significantly increase their lifetime earnings.

The Center on Education and the Workforce of the University of Georgetown has estimated that the typical person who finishes their formal education with a bachelor’s degree will earn approximately $ 1 million more over the course of their life than someone who gets a school diploma higher. This is a big plus, and there is no justification for taxpayers to eat the associated debt, which for 69% of graduates with 2018 debt was $ 29,800 on average.

Forgiveness of the large-scale student loan would immediately rob Peter to enrich Paul.

Such forgiveness would not only be morally wrong, it would aggravate many huge higher education problems, ranging from rampant price inflation – the more money people are able to pay, the more universities they can charge – to the arms race of services. If students don’t think they have to repay their debt, why not accept higher student fees for, say, a water park on campus?

Having said that, there are two situations in which it can be reasonable to forgive loans, especially if they are private, but perhaps also federal: when it is impossible to repay borrowers physically or financially.

The physical inability to repay is easy to predict. If someone has an accident and ends up with a disability that makes it impossible to work or work at the level of remuneration they reasonably expected, it makes sense to forgive their loans. This applies regardless of whether the loans are federal or private: if one is rendered completely unable to earn enough to repay, there is no reasonably to do.

What about financial bankruptcy? This is tougher if it doesn’t stem from an act of God. If someone spends luxuries or buys a house that is too large and is unable to repay their debts, they can file for bankruptcy, authorizing a court to create a repayment plan that can pay off. some debts. But they should really remain responsible for what they have to – since the situation was their own initiative.

In such a situation, student loans are more difficult to fulfill than other liabilities such as credit card debt. As for student debt, it has to be shown that reimbursement would create “undue suffering”, which is considered to be a high level, although it is poorly defined by law.

For federal loans, having a high standard makes sense. These loans are granted with money withdrawn by taxpayers who had no choice. Making taxpayers whole should be a top priority.

Private loans are fundamentally different in that lenders freely choose to do business with students and can profit from this activity. It is far more reasonable to make those loans non-repayable on conditions similar to other debts.

In fact, the greater the risk that a lender bears, the greater their incentive to rigorously evaluate a potential borrower’s ability to manage college work and achieve the degree that unlocks big gains. The benefit will affect aspiring borrowers, who will get an objective assessment of whether college enrollment is a good idea.

The federal government, on the other hand, does not make this assessment, happily lending millions of people who don’t finish college and struggle to pay off their debt.

Even with some justification for making bank loans more easily granted, the rules for existing loans should not be changed retroactively. A simpler bankruptcy should only apply to loans originating after reforms have been approved so that lenders can adapt their policies and conditions.

The student loan repayment policy should be consistent with basic equity – and frankly, of course – if you take out the loan, you are obliged to repay it.

In rare circumstances this may not be possible and we should consider changing things like bankruptcy laws. But the idea that one should repay one’s debts shouldn’t be in the least controversial.

Neal McCluskey he is the director of the Center for Educational Freedom of the Cato Institute. He wrote this for


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