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Some Students Not Reducing Student Loan Balances Because They’re Expecting Debt Forgiveness

Some Students Not Reducing Student Loan Balances Because They’re Expecting Debt Forgiveness

“Students think Uncle Sam is going to forgive their debt.”

Students are hearing the ongoing talk about free college and debt forgiveness in the Democratic primary every day. Why would they repay their loans?

The College Fix reports:

Expecting debt forgiveness, most students are not reducing their student loan balances ‘at all’

You’d think during a prosperous period with record-low unemployment, those who took out federal student loans would be better equipped to pay down the balances.

That’s not what’s happening, however, and higher education economist Richard Vedder has an explanation: Students think Uncle Sam is going to forgive their debt.

In an essay for the Martin Center for Academic Renewal, Vedder analyzes an October report from the Federal Reserve Bank of New York.

The numbers are alarming: Borrowers with more than $100,000 on their balances are 7 percent of the borrowing population, but owe more than a third of outstanding loans. The report’s analysis of student loan debt by ZIP code confirms that “relatively affluent borrowers are disproportionate participants in the student loan program,” Vedder writes.

Those who graduated in 2010 had repaid less than 10 percent of their loan balances five years later, and student loan debt rose twice as fast as tuition fees between 2008 and 2018, which means “much student borrowing appears not to meet direct instructional costs,” the economist says.

The New York Fed report expresses surprise at the “very large share of borrowers who have not reduced their balances” between the second quarters of 2018 and 2019:

Although the share of borrowers in the “balance not declining” category edges slightly lower as incomes increase, it should be noted that a surprisingly large share […] of borrowers are not actively reducing their balances even in relatively wealthy areas.


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The problem is the law is usurer friendly.
They should not have “forgiveness”, but allow the loans to be remitted in bankruptcy at least for one year. Their credit won’t get worse for the ding.

    healthguyfsu in reply to tz. | December 17, 2019 at 12:32 pm

    And how is that much different from forgiveness? Won’t most of these duck and cover types just take the bankruptcy?

    You call it a high rate scam essentially (usurers). Why not instead of bankruptcy have no interest during the academic years? Then, one is more akin to paying back approximately what one borrowed. Of course, deferment after graduation would still have to carry interest or deferment would be indefinite.

Antifundamentalist | December 17, 2019 at 1:34 pm

Seems like the student loan program needs reworking – If you have a degree and certification in certain fields, join X government agency for X number of years, and while you are employed here we will loan payments on your behalf up to $X. Of course, those payments will not be made during government shut downs, so be careful who you vote for….

    healthguyfsu in reply to Antifundamentalist. | December 17, 2019 at 3:11 pm

    Sans the last snarky comment that is already done

    It’s called PSLF or Public Service Loan Forgiveness. You have to pay for 10 years in an income-dependent fashion and the remaining balance is forgiven.

    There are other programs for other fields as well: Teaching in at-risk schools, cancer research, other healthcare areas, etc.

Get government OUT of student loans. Period.

I think that students loans should be allowed to be discharged via bankruptcy, however, the educational institution who received the money should be liable for 75%. That policy would slowdown the colleges encouraging the admittance of students who have no chance of graduating, encouraging students to borrow, especially for Masters and PhD graduate programs that have no hope of providing a financial path for repayment. Student loans, like other gov’t programs, have evolved where the “so called” beneficiary becomes just an intermediate conduit for transfer of Fed dollars to a third party.

    healthguyfsu in reply to SHV. | December 17, 2019 at 3:10 pm

    In your scenario, where is the responsibility borne by the individuals actually taking the loans?

    These are adults after all.

“where is the responsibility ”
A 25% responsibility is a significant hit on a person who is employed, for example, in a $36k/year job. The larger points are that recovery of money is much more likely from an institution and financial penalties on these bloated SJW institutions will hopefully cut down on the abuse.

SeekingRationalThought | December 17, 2019 at 8:58 pm

Why am I not surprised that these snowflakes expect someone else to cover the cost of their bad decisions? I’d like to say its not gonna happen, but it might. On the other hand, these rocket surgeons will find other ways to ruin their lives.

Charles N. Steele | December 18, 2019 at 8:21 am

Taking out loans with no intention of paying them back is theft. Time to bring back debtors prisons.

    And why is that? Lenders understand loan terms, repayment odds, and risks way better than 99% of student loan borrowers. They can, should, and do calculate the risk of a borrower not repaying. If they don’t set the rate, or the terms of the loan, in such a way as to reduce, or prevent, loss, then it is on them.

    Should the government step in to protect lenders from making bad loans?

I’m in a position to easily pay back my, appropriately, $200k in student loans. Two things are stopping me.

1 – My loans are locked at 2.625% It would be financially backwards to pay anything more than the bare minimum, when I can invest that capital instead. Even an extremely conservative market strategy leaves me net positive.

2 – The looming spectre of loan forgiveness. I expect some form of “forgiveness” will happen in my lifetime. Just because I disagree with it, doesn’t mean I won’t take advantage of it.

Until something radical happens, that changes my loan rate vs market yield math, I’m content to make the minimum required payments. Interest only? No problem. negative amortization? Even better.

There is already loan forgiveness built into the program. When you die, your loans are discharged. I fully intend to take advantage of this provision as long as the math continues to work in my favor.