Student Loan Forgiveness and Economic Stimulation

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Credit: rhl.org

Rising tuition costs are weighing down college students. Financial aid such as grants, scholarships and loans are available for students who apply and receive the awards. However, the “free” money given to pay for college is sometimes not enough and students turn to loans to cover the ever rising costs. Relieving student debt has consistently reached the political debate and the Student Loan Forgiveness Act continues the debate.

Rep. Hansen Clarke of Michigan authored the Student Loan Forgiveness Act of 2012 (H.R. 4170). The main provision of the bill is the 10/10 Repayment Plan, which caps monthly payments at 10% of the debtors’ discretionary income. If payments are made for 10 years, then loan forgiveness can be granted. One stipulation is that the forgiveness must not exceed $45,520 plus its interest. The bill will also freeze federal student loan interest rates at 3.4 percent. President Barack Obama has recently extended the interest rate cap for another year. US News made a detailed analysis of the bill.

Rep. Hansen Clarke himself drew a comparison to the housing market crisis,

Students who studied hard, played by the rules, and are now desperate to find work are being denied basic opportunities and are, accordingly, falling behind on payments. They are finding that their degrees, like homes at the height of the real estate bubble, were vastly mispriced assets that are now hard to finance.

John Shinal of the Wall Street Journal’s Market Watch advocates student loan forgiveness as a way to stimulate the economy. The relief would be comparable to a tax cut, where the increased money in people’s pockets will stimulate the economy. Shinal acknowledges that its effectiveness relies on consumer spending. The spending would bring a struggling economy back to its feet and open up more jobs, which are jobs graduates can excel in. This logic is not ground-breaking or new. However, he takes the perspective of a stock investor and makes the comparison of student loan forgiveness to bailing out major banks.

It’s worth pointing out that students who are working but can’t pay their loan bills are no more at fault for their predicament than all the investment managers at commercial banks that bought toxic derivatives from Wall Street. If those banks deserved a bailout by the U.S. taxpayer, surely the young people of America who’ve earned a college degree deserve the same consideration.

Student debt is not just a problem in the United States. Chilean students have taken an aggressive stance for their education. The National Turk compiled protests and riots in an article, concluding 3 buses were burned and 49 police officers were injured. The article states,

Student leaders want to change the tax system so the rich pay more. They also want the state back in control of the mostly privatized public universities to ensure quality. They say change will come only when the private sector is regulated and education is no longer a for-profit business.

Total student debt in the United States is at around $900 billion. Just seven years ago, that number was $360 billion. The rise in total student debt grew at a faster rate that mortgage balances from 1999 to 2006.

Pursuing higher education may lose its appeal considering its concurrent burdens. In a struggling economy where jobs are scarce and student debt is high, perhaps something must be done to assist our successful students.

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  1. http://www.lebanon-vc.de/index.php?do=/blog/43419/factors-of-a-dependable-net-to-play-juegos-around-the-net I am regular reader, how are you everybody? This post posted at this website is actually good.
  2. Justin Buell I'm a student, and the only reason I need financial aid is because government backed loans have driven up the price of education.
  3. Steve Arnold Hell no; you get a loan, you re pay it.
  4. Bonnie Sneed There are plenty of ways to get through college - especially undergrad - with no loans, or little debt. Maybe it isn't the best idea to go out for the "Ferrari" of education when you are only willing to pay for a Chevy. Honestly, the Chevy will get you there. Let's start admitting that we have choices, and often, what we are paying for is perception, not product. And the "most likely to succeed" are the ones who work while they are also going to college, because they demonstrate an ability to prioritize, and a dedication to their own future.
  5. Rich Harrity Maybe everybody who cant seem to pay mortgages and credit card bills and student loans back shouldnt be allowed to vote? They havent made one other good choice their whole life and they are unlikely to have any useful input in the presidential election. Lets not forget all the welfare recipients (mostly the same group)--who cares what they think---just another vote paid for by bleeding heart liberal democrats trying to save the world with the extra money left over after the working man actually pays back his college loans, mortgages, and credit card bills--now we can add mandatory health care.
  6. Laura Sheeley My son has student loans - shopping for an education is no different than shopping for anything else - "Buyer Beware". Loan forgiveness is ridiculous - if the education is expensive, the future benefits that follow should be enough to pay the loan. Granted, these are economic hard times - however, that said, don't bite off more than one can chew. Default on anything is just bad character - and choice's made. Our family will pull together if there is an issue of repayment, when the time comes. Big government needs to GO.
  7. Doug Sargent No, no ne made these people sign for the loans! If forgiven, then fogive the others their mortgage debt; what's the difference? Where's the perssonal acountbability?
  8. Johnny Ritchie No.
  9. Kyle Jones "The only reason why there are those against it is because the do not want the economy in a healthy state unless a republican wins" @jaime frausto avila Oh, you're so right. Except for the number of opinions shared on this post that are NOT the "only reason" you provided.
  10. Socialmedic What Luxuries? At Harvard I lived in a one room dorm with a bath and kitchen down the hall. I don't know ANYONE who makes 6 figures who lives in a studio apartment with no kitchen or bathroom. I never heard the end about how I was living high on the hog but I promise you the food that served in the canteen didn't include wine, cheese and caviar. I had zero expendable budget outside of my books and supplies expenses and I can count the number of times I went out over the four years I was there on ONE hand. My loans are now at 150 grand. I have been unable to marry, to have children, much less to buy a house, or a car ... and now I am past menopause and will never have children. The business I started a few years ago is on hold because I had to maintain a half time status in school to keep myself out of default and still see no reasonable job prospects. Every day since I left graduate school 15 years ago begins with thinking about killing myself, every day I have to fight for a reason to live because I have nothing. I am an idiot for pursuing my dream and God knows I am being punished for it now. I don't know what love is other than the love I get from my dog and never will. My entire life has passed me by trying to get my education. The price included forfeiting my human rights. The disease is a society that is so jealous of anyone who tries to succeed it only rewards people who are born rich. 150 grand is a drop in a bucket to a lot of people in this country. It could mean the difference between living and dying to people like me. But who cares? Nobody.
28 comments
Justin Buell
Justin Buell

I'm a student, and the only reason I need financial aid is because government backed loans have driven up the price of education.

Bonnie Sneed
Bonnie Sneed

There are plenty of ways to get through college - especially undergrad - with no loans, or little debt. Maybe it isn't the best idea to go out for the "Ferrari" of education when you are only willing to pay for a Chevy. Honestly, the Chevy will get you there. Let's start admitting that we have choices, and often, what we are paying for is perception, not product. And the "most likely to succeed" are the ones who work while they are also going to college, because they demonstrate an ability to prioritize, and a dedication to their own future.

Rich Harrity
Rich Harrity

Maybe everybody who cant seem to pay mortgages and credit card bills and student loans back shouldnt be allowed to vote? They havent made one other good choice their whole life and they are unlikely to have any useful input in the presidential election. Lets not forget all the welfare recipients (mostly the same group)--who cares what they think---just another vote paid for by bleeding heart liberal democrats trying to save the world with the extra money left over after the working man actually pays back his college loans, mortgages, and credit card bills--now we can add mandatory health care.

Laura Sheeley
Laura Sheeley

My son has student loans - shopping for an education is no different than shopping for anything else - "Buyer Beware".

Loan forgiveness is ridiculous - if the education is expensive, the future benefits that follow should be enough to pay the loan.

Granted, these are economic hard times - however, that said, don't bite off more than one can chew.

Default on anything is just bad character - and choice's made.

Our family will pull together if there is an issue of repayment, when the time comes.

Big government needs to GO.

Doug Sargent
Doug Sargent

No, no ne made these people sign for the loans! If forgiven, then fogive the others their mortgage debt; what's the difference? Where's the perssonal acountbability?

Kyle Jones
Kyle Jones

"The only reason why there are those against it is because the do not want the economy in a healthy state unless a republican wins"

@jaime frausto avila

Oh, you're so right. Except for the number of opinions shared on this post that are NOT the "only reason" you provided.

Judy Ferro
Judy Ferro

I think it should be a percentage so they have incentive not to borrow more than they need. When I worked at a college during the 1980s, it seemed none of the lawyers were paying--they'd learned all sorts of legal tricks. Yes, having $50,000 in student loan debt limits ones economic participation--and makes it necessary to get out of states like Idaho.

George Bennett
George Bennett

This is a 'Liberal Joke' right?? What a scam! How bout some jobs & the balls to pay your debts? :-(

Kevin Whitbeck
Kevin Whitbeck

No absolutely not! What a great lesson don't pay your debts!

Jaime Frausto Avila
Jaime Frausto Avila

I think you people are missing the bigger picture. If a student were to pay the majority if the federal loan, and them get the rest forgiven, then that would give them a tremendous incentive to spend and stimulate the economy. If you are a small business owner, this is a huge benefit because if the increase in potential profit. Tell me that's not the case?!? The only reason why there are those against it is because the do not want the economy in a healthy state unless a republican wins. As Americans, we should look past that and allow the spending if people power to get us out of the current recession.

Nancy DeBerry
Nancy DeBerry

Forgive loans with an agreement of community service; and there's plenty to be done in every local community on weekends. Add to that the dire need to completely revamp the university system by not making students take courses that are completely unrelated to their majors. Stop allowing universities to be profit-making ventures through Division I athletics while the true meaning for their existance has been all but lost.

Eric Hutchins
Eric Hutchins

I'm against corporate welfare in all its forms, including welfare for colleges and universities. The only way to get skyrocketing college costs under control is to align supply and demand by cutting off the easy money, so that both college and student are forced to prioritize education based on available resources and expected returns. The moral hazard created by debt forgiveness merely removes accountability from both parties to the transaction.

Mark Pfiester
Mark Pfiester

Are you kidding? Spend the money, pay it back! What's next, allowing students to shop at a local mall and not pay for designer clothes??? Come on, wise up!

Gene Hinson
Gene Hinson

Students don't have monetary influence in Washington like the banks.So Make the peasants pay...

Patricia Mackie
Patricia Mackie

I get the argument for the case of the student, but I think this plan just motivates the universities to continue to charge way to much for higher education. Colleges have become luxury resorts in most cases, setting up students not only with debt they will never be able to repay but also setting them up with unrealistic expectation for their lifestyle after college. In order to afford the luxuries included in some college tuition packages you would easily have to make way over 6 figures, that's just insane, and then you want to forgive the debt so that no one ever holds the universities responsible?

Kathy Jones
Kathy Jones

So who then is going to pay for this? and everytime I turn around they are giving the administration in the college some. Very nice raise. So we basically are also going to pay for all of this with zero input by the tax payer.

Ben Marcus
Ben Marcus

Your first two years of higher education should be included in the standard k-12 curriculum and should be free for students as long as they maintain base standards. It's the only way we'll be able to have the number of trained people necessary to support the new and future manufacturing trends.

Robert Schmid
Robert Schmid

I've been paying my loans for 15 years. I calculate that they have been paid PLUS 50% interest. You want me to create jobs? Forgive my student loans so I can use the money to hire help.

Mike Dodson
Mike Dodson

Why should student loans be forgiven? Who's voing to pay the loans off.......the taxpayers ahakn?

Donny Zaltzberg
Donny Zaltzberg

banks got bail out after perfectly planning the 2008 crash, and no one called them communist's. Not to mention at the very least the loan procedures should be changed so the company loaning you the money CAN NO LONGER LEGALLY LIE TO YOU. At the very least

Taíno Vázquez
Taíno Vázquez

The debt has grown almost three-fold from 7 years ago!

Amanda Le
Amanda Le

Forgiving loans seems like a minor solution to the bigger problem; availability of jobs for graduates and credential inflation.

Socialmedic
Socialmedic

What Luxuries? At Harvard I lived in a one room dorm with a bath and kitchen down the hall. I don't know ANYONE who makes 6 figures who lives in a studio apartment with no kitchen or bathroom. I never heard the end about how I was living high on the hog but I promise you the food that served in the canteen didn't include wine, cheese and caviar. I had zero expendable budget outside of my books and supplies expenses and I can count the number of times I went out over the four years I was there on ONE hand. My loans are now at 150 grand. I have been unable to marry, to have children, much less to buy a house, or a car ... and now I am past menopause and will never have children. The business I started a few years ago is on hold because I had to maintain a half time status in school to keep myself out of default and still see no reasonable job prospects. Every day since I left graduate school 15 years ago begins with thinking about killing myself, every day I have to fight for a reason to live because I have nothing. I am an idiot for pursuing my dream and God knows I am being punished for it now. I don't know what love is other than the love I get from my dog and never will. My entire life has passed me by trying to get my education. The price included forfeiting my human rights. The disease is a society that is so jealous of anyone who tries to succeed it only rewards people who are born rich. 150 grand is a drop in a bucket to a lot of people in this country. It could mean the difference between living and dying to people like me. But who cares? Nobody.