Your Student Loan Shall Not Be Forgiven
MAY 03, 2013 by ANDREW HEATON
There’s a decent chance you know a recent graduate with a student loan balance that makes Greece look tight-fisted. That graduate might occasionally jabber on about “student loan forgiveness,” which is a popular notion among people with large student loans.
The concept behind forgiveness is that college graduates are sweating debt through their pores like vodka, so the government ought to swoop in and write them a check. This plan sounds pretty swell if you’re a recent graduate, but if you’re some kind of weirdo who pays income tax it means you get to foot that bill. So watch out.
One such proposal presently in embryonic form is H.R. 1330, The Student Loan Fairness Act. This particular scheme would create a new “10-10” standard for student loan repayment, in which individuals would repay one-tenth of their disposable income for 10 years, after which their debt would be forgiven.
You’ll notice that representatives usually come up with similar token gestures in order to make graduates appear to be seriously contributing to their loans. For instance, a congressman might suggest that an alumnus periodically toss fistfuls of loose change at their bursar, or set up a “repayment fund” by hoarding pennies in the ashtray of their car. Then at some point, as in H.R. 1330, Uncle Sam steps in and waives their debt away. Their onerous student loan is “forgiven.”
In the world of finance, “debt forgiveness” is not the same thing as regular forgiveness, wherein the aggrieved party absolves you of guilt but secretly nurses a grudge. “Debt forgiveness” simply means someone else pays your debt instead of you. Your tuition bill does not magically disappear, but is rather transferred via legal mechanisms to another shmuck. The federal government steps in to magnanimously fork over the remainder of your tab to a university, loan shark, etc. But “the government,” which sounds distant and vaguely sterile, is funded by you.
And by me, for that matter. Which is irritating, because I strenuously avoided going into debt during college. I attended a state school despite acceptance to a pretentious “boat shoes” school. I obtained my masters degree through a scholarship. I intentionally zigzagged around accruing debt because I had the foresight to realize that both of my majors were utterly useless and would never earn the money back.
Thus, I do not carry a significant debt burden. However, I am still poor, underemployed, and probably eligible for food stamps. Assuming I make enough money this year to even pay taxes, should the government confiscate my income and give it to people who opted for expensive private colleges or who chose even more frivolous majors than I did?
Ultimately someone has to repay all these student loans, be they alumni or taxpayers. I nominate Warren Buffett. He’s always whining about not paying enough taxes anyway. If you’re unfamiliar with the man, Warren Buffett is a wealthy investor from Omaha who apparently was the inspiration for the lead character in the Pixar film Up.
Between his net worth of $53.5 billion and his endearing toothbrush-bristle eyebrows, I would like him to adopt my entire generation as his surrogate grandchildren. Then we can ask Mr. Buffett to use his vast, undertaxed fortune to pay off our student loans.
Better yet, what if we treated student loans like the sorts of investments Mr. Buffett needed to calculate himself in order to become a finance mogul? What if we treated student loans more like private enterprise? For instance, if you approached me for a $40,000 loan to obtain a degree in engineering, I might regard that as a savvy venture, whereas I might deny a $400,000 request to study Jurassic art. In a few years, you would see a dramatic reduction in redundant arts and sciences majors like myself, and no one would ever speak of nurse or technician shortages again.
Student loans, unlike all other species of finance, are ineligible for discharge in bankruptcy. Why not remove this legal impediment, allowing graduates to decide for themselves the pros and cons of filing for Chapter 7, which results in a personal balance sheet purged of debt, but a horrendously blemished credit rating? This option is better than the current option for students, which consists of faking their own deaths. Couple that with student loan speculation, and you could potentially push students toward degrees they might actually benefit from. Allowing them the option of bankruptcy would create an opportunity for true “forgiveness” of debt.
The combined student debt of our nation’s college graduates is massive, sad, and oppressive. We need to come up with solutions to deal with it. But remember: forgiveness of debt punishes someone else. The spiritual world may run on confession and absolution, but the financial realm is still firmly ruled by Mammon and Karma.