Guest Host On Student Loans

Editors note: Today we have a guest host, who upon reading the Democratic Plan to cancel student debt wanted to share his thoughts on the implications of doing that from the cost to the mid term implications.

Fiscal Insanity and Moral Hazard- a path to victory for the Dems in the mid-terms
C. Paul Tyborowski

There is no denying that Student Loan Debt is at a near crisis level and should be addressed. It’s estimated that about 35% of the 44+ million individuals with SLD cannot even afford basic essentials.   The current thinking out of Washington is to unconditionally forgive some of it, as $10,000, or all of it.  This puts the price tag somewhere between $400 billion and about $1. 8 trillion.

This approach is wrong on many levels, and it does nothing to solving the inherent problem.  

  • It’s the definition of fiscal insanity- (it wouldn’t solve the problem but sets the precedence which could repeated over and over again in the future and have no different outcome).  
  • It creates a moral hazard mindset by taking away the consequences or the need to act in good faith.  Borrow but find no need to honor your commitment to pay it back.   
  • Notwithstanding the above, it is not equitable to those individuals who sacrificed in many ways to pay off their own loans, or pay their kid’s way through college, and/or made the hard choices to select less “attractive” less expensive school. (Never mind that in addition to their sacrifices they get the “joy” of knowing they will also be paying for someone else’s kid college through their taxes).

Set aside the fiscal insanity, moral hazard and inequitable treatment of many Americans outright loan forgiveness can be a winning strategy for the Dems in the mid-terms. Recent action by Biden to defer reinstating loan payments until August ties nicely into this strategy. It sets the stage for a couple of months before the election to make the borrowers feel the pain of making payments – it’s a reality check to help make the election a binary choice. “Vote Democratic for student loan relief.”

It’s not just strongly influencing the votes of those 44+ million current borrowers-, it’s some portion of their parents and siblings and friends that can be sympathetic and influenced. You don’t have to change a big percentage of the votes of the potentially 100+ million pool to win the mid-terms. You should be able to get quite a few to change their vote for $10,000.  

Even with all the negative noise the Democrats have gotten from the other issues, inflation, crime, the border, Ukraine, Russia, etc.  by simply owning this “giveaway” and making it the dominant mid-term issue, a “vote the pocketbook” election choice- they can turn the tide. 

If the Democrats imbed the giveaway in a reconstituted “Build Back Better” program, it not only precludes the Republicans from owning the issue in any manner but may even get more Democrats to vote for it.     

There is a “woke” trap in this strategy which could help the Dems snatch defeat from the hands of victory. Placing a low-income cap on eligibility would more than sour the issue to many working-class and middle-class borrowers.   

There are actions that could be taken to ease the student loan payment burden in a more equitable manner i.e., allowing 401k monies to be used without penalty for loan payments and if you want to go so far, temporarily having a government 401k contribution to all the eligible plan participants as those earning up to the Social Security limit.  

The student loan issue is complex and systemic in nature.  There is an “insanity” in the root cause- lending of tens if not hundreds of thousands of dollars to teenagers who have no known means of employment or making payments.  There is little cost-to-value consideration in the loan process in  choosing a private college over a public university. The necessity of 4 years/120 credits for a degree has been sacrosanct for eons.  If you need just 45 to 60 credits in your major to graduate, what is wrong with a 90-credit degree- other than 25% less tuition for a college. The old argument college provides greater access to a “broader educational experience” is muted with today’s internet offerings. 

All that said, seeking a solution for this complex problem is not the core goal for many politicians- their concern is to get re-elected.  All in all, another $440 billion added onto our $30 trillion national debt is only 1.46% increase- not a lot to win an election.  And if the Republicans naively don’t get out in front of this issue, they deservedly might just lose the mid-terms. 

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