Should the Government Forgive Student Loans?

January 31, 2019

One of the most pressing issues facing the millennial generation is college debt. The typical millennial college graduate leaves school with a sizable debt load. A small but significant minority of millennials owe six figures. The total amount of student loan debt in the U.S. is above $1 trillion and exceeds credit card debt. The big question is how impactful this debt will be on long-term millennial fortunes. Millennials have had it rather rough as they’ve navigated through the American economy. They’ve been hit hard by the recession following the housing crisis. And, they compete against older workers in a way which is quite dissimilar from other generations. Millennials may have more formal education than past generations, but only time will tell if the benefits outweigh the costs. 

One of the measures which has been proposed to alleviate this situation is student loan forgiveness on a grand scale. This means that, whether public or private, millennial student debt would be wiped clear. There are arguments on both sides of the divide. Student loan debt is among the more pressing concerns for our society. This type of debt will influence our society in many significant ways in the coming years. Let’s explore both sides of this important topic in detail. 

Position: Forgiveness Would Stimulate the Economy 

Currently, student loan debt in the U.S. is roughly $1.5 trillion. This figure includes both federal and private student loan debt. This debt is spread over approximately $44.2 million borrowers. Student loan debt now stands as the second largest source of consumer debt, in front of both credit card and auto debt. Only mortgage debt surpasses student loan debt. Just on its face, this is truly a remarkable picture.

Unlike mortgage debt, though, student debt finances a diploma. And this diploma is merely a ticket to a higher-paying career. But the ticket is not a guarantee, only a possibility. No graduate has a guarantee to a good-paying job following graduation. In fact, many student debtors end up regretting the fact that they attended college to begin with. It is truly astounding that this debt is so high since it merely finances the potentiality of a good career. 

One of the more persuasive arguments in favor of student loan debt forgiveness is related to economic stimulation. Millennials carry the vast majority of the student loan debt. And this generation will have a huge influence on the future economic development of the country. There are data which suggest that carrying such debt may impede one’s ability to hit certain financial milestones. For instance, many student debtors may struggle to purchase a house or condo. If a large portion of the millennial population cannot hit these milestones, this could have serious negative consequences for society. Student loan cancellation may, therefore, be a means to create a more desirable societal future. Of course, the U.S. government and private lenders would suffer in the short-term from a full-scale cancellation. But, the government may ultimately reach the conclusion that the long-term benefits outweigh the short-term frustrations.  

Counter-position: Forgiveness is Fiscally Undesirable 

Opponents of full-scale cancellation have a number of arguments at their disposal. One of the most commonly used is that such cancellation would be fiscally unhealthy for the U.S. as a whole. As cited, the total student loan debt stands at $1.5 trillion. That is a very large amount. The U.S. government needs the funds for the federal loans. And private lenders certainly need the funds for their private loans. Certain private lenders may suffer severe negative impacts from full-scale forgiveness. Would such an outcome be fair or desirable? After all, student loan debtors made commitments to repay the debt upon accepting the funds. No student debtor is coerced or accepted under duress. There is a very cogent argument that cancellation is inappropriate in light of the legitimate interests of the government and private lenders. 

What’s more, there is also the argument that cancellation would constitute undue specialized treatment. Americans owe plenty in credit card debt, and that debt certainly impacts the financial future of the country. But no one of any influence has proposed a full-scale forgiveness of this type of debt. The same can be said for auto loan debt as well. If we are comfortable with the consequences of these other debts, why would student loan debt be treated differently? Student loans are treated differently from other debts in one very significant way, however: bankruptcy. Student loans are ineligible for discharge in bankruptcy. The rationale for this was to prevent abuse, but some may contend that this constitutes specialized treatment in the other direction. Perhaps a good medium resolution would be to restore bankruptcy eligibility for student loan debt.  

Full-Scale Student Loan Debt Forgiveness is Unlikely 

In the final analysis, it seems very unlikely that the U.S. will completely wipe away student loan debt. However, it does seem likely that the U.S. will continue to makes things easier for student loan debtors. As we’ve mentioned, the U.S. has already attempted to make things easier through income-based repayment and other repayment options. Given these attempts, and given the sheer quantity of student debt, a full-scale debt elimination measure seems improbable. But the U.S. obviously has a clear interest in making sure that millennials are able to having prosperous futures. And so we should expect to see new innovations in the law which contribute toward this end.

A NYC Tax Attorney Can Help

At Mackay, Caswell & Callahan, P.C., we are deeply concerned with debt issues of various kinds. We work with individuals trying to resolve various debts on a daily basis. Debt issues strike us in a very direct way. If you need counsel for the purpose of resolving a debt, please contact our top New York City tax attorneys today. 

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