Are federal student loans even “loans?” » From forbearance to forgiveness to taxpayers’ expenses. Fairer: Authorize bankruptcy
The educational and industrial complex laughs all the way to the bank.
By Wolf Richter for WOLF STREET.
One person’s loan is another person’s asset. If the loan is cancelled, the property is destroyed. It’s like that.
No one is making payments on government-backed student loans anymore, after two years of forever indulgences, countless campaign promises of forgiveness, various targeted forgiveness programs already in place, and now the big problem, the program of general forgiveness being abolished.
Total outstanding student loans, assuming they are still “loans,” remained at $1.59 trillion in the second quarter compared to the first quarter, according to the New York Fed. Household debt and credit report. They have been relatively stable since the first quarter of 2020, as new loans have been added, while hardly anyone has made payments, and the many rebate programs reduce the count on the other side.
Federal student loans.
Federal student loans account for about $1.3 trillion of that $1.59 trillion total in student loans, according to a separate report of the New York Fed. The rest is made up of Federal Family Education Loans (FFEL) held by commercial banks and private loans.
These are the $1.3 trillion in federal loans that were all moved into permanent forbearance in the spring of 2020, and are now due for forgiveness.
The median federal student loan balance is $18,773, which means that half of federal student loan balances are below $18,773 and half are above.
The outliers everyone is talking about, the loan balances of $150,000 and $200,000, were accrued by a small percentage of borrowers going to law school, medical school, etc., whose most now have well-paying careers and do not need loans. sorry at all.
Delinquencies “resolved” forever.
The amount of student loans past due for 30 days or more has fallen from the official 9.4% of total pre-pandemic balances to just 1%.
For federal student loans, the delinquency rate is 0%. All were automatically enrolled in forbearance programs in the spring of 2020, which have been renewed many times and are still in effect. When a loan is forborne, it is reclassified as ‘open’, not ‘overdue’, regardless of the payment status.
FEEL and private student loans, which were not enrolled in forbearance programs, accounted for all of the defaulted loans.
Student loan forgiveness and cancellation.
In addition to the list of existing student loan forgiveness programs – public service loan forgiveness, teacher loan forgiveness, closed school leave, and others – there is now forgiveness when students feel the complex educational-industrial fucked them.
So last Thursday, a federal judge granted preliminary approval for a settlement that would forgive $6 billion in student loans from more than 200,000 students who said they were defrauded at 153 mostly for-profit colleges.
Few of these schools have been held accountable. So it’s the taxpayers who will pay the $6 billion, not the educational-industrial complex that has gotten the $6 billion over the years, laughing all the way to the bank.
And the big problem, a general forgiveness program is currently being developed by the administration. The proposal started with $10,000 discount per borrower. But this taxpayer greed leaves many voters deeply frustrated, and the anger boils over, putting politicians under pressure to buy more votes, or buy back the same votes, by increasing the amount of the rebate to perhaps $50,000. with income caps.
Then the automatic loan forgiveness… Just kidding, sort of.
The average transaction price for new vehicles is nearly $46,000 and the average advertised price for used vehicles is $28,000.
By comparison, the median government-backed student loan is $18,773. Just another consumer loan. It’s not the end of the world to have to pay $200 a month for 10 years – and salary increases and inflation over 10 years will reduce that burden.
And if people can’t even make a $200 payment, they can’t make a $400 or $800 payment on an auto loan either. So when are we going to buy votes with promises of car loan forgiveness?
It is unfair that people who buy a car because they have to drive to work have to pay back those loans. We need a general car loan discount. The government could simply buy out all outstanding auto loans and then forgive them, up to $50,000 each, perhaps with certain income caps, such as $250,000 per individual and $500,000 per married couple filing jointly.
Think of it this way: it would be a huge boost to the economy because instead of paying for the car, these people could spend their money on other things.
It ain’t fair, but fairness ain’t got nothing to do with it.
The government (taxpayers) financed these student loans by borrowing from the Treasury bill market. He then handed over this borrowed money to the educational and industrial complex via the students, expecting to be repaid most of the money, plus interest, by the borrowers after they started working. Their payments would have helped the government pay off debt incurred to fund student loans. But it’s over. Going forward, the taxpayer repays the borrower’s loan.
In other words, the server that would have liked to go to college but couldn’t afford it now has to pay off the student loans of software engineers who went to college. It’s not fair, but fairness has nothing to do with it. It’s about buying votes. And they hope the server can’t figure that out.
Let the bankruptcy courts decide what is unloaded and how much borrowers have to pay each month.
Borrowers cannot currently obtain discharge of their student loans in the bankruptcy court system. But they found something much more attractive to get rid of their debts: politicians willing to buy votes with other people’s money, namely with taxpayers’ money.
But it doesn’t have to be that way. These same politicians could change the law to allow the release of student loans in bankruptcy courts.
So it would be a judge deciding how much that Stanford-graded coder can pay each month for the next 10 years, and how much that OSU-graded teacher can pay each month. And the judge can then acquit the rest that cannot be paid. Personal bankruptcy has operated this way since the Bankruptcy Reform Act of 2005. In personal bankruptcy filings, people cannot simply walk away from all of their debts.
Student loan borrowers would then consider whether to resist and make the payments; or declare bankruptcy, get the spot on the credit report, get a portion of student loans canceled, if any, and make payments under a court order for many years.
This system is already in place for personal bankruptcies. It’s not perfect, but it works. And that would relieve borrowers who really can’t pay. And that would be a lot fairer to everyone, including the waiter who can’t afford to go to college and doesn’t really want to pay off the student loans other people have taken out to get their degrees .
Do you like to read WOLF STREET and want to support it? You use ad blockers – I completely understand why – but you want to support the site? You can donate. I greatly appreciate it. Click on the mug of beer and iced tea to find out how:
Would you like to be notified by e-mail when WOLF STREET publishes a new article? Register here.