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Student loan forgiveness is regressive measured by income, education, or wealth

brookings.edu

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Re: Student loan forgiveness is regressive measured by income, education, or wealth

#41

Post by Tanjreeve »

twoodfin wrote: post #5
dv_dt wrote: post #2

I think the best context to this is this earlier discussion of similar analysis: https://www.currentaffairs.org/2019/06/is-student-debt-cance...

Two points on that discussion: - AFAICT, the argument that a massive loan forgiveness would not be regressive rests entirely on excluding from the analysis low-income members of the 25-40yo cohort with no student debt. Sure, that fraction may be smaller than in the past, but it’s hard to see how discounting a bunch of poor folks who would see $0 benefit from this expenditure is intellectually honest. - It’s amusing t…

I think this is post hoc wrapping usury and massive information asymetry in 'some progressiver than thou' language.

- if it's about taxing some qualitative value of education then it should be a graduate tax applied equally to everyone with tertiary education. I'd be curious how politicans would manage policies on education and taxes on this value when they are paying it too

- if it's not about the qualitative value but about the income, then it should be an income tax.

- if it can't be discharged through normal procedures of bankruptcy and terms are rewritten by politicians then it's not 'just a loan' either.

In the absence of any of these then these are largely generation taxes in terms of how they fall.

Re: Student loan forgiveness is regressive measured by income, education, or wealth

#42

Post by Tanjreeve »

twoodfin wrote: post #36
Tanjreeve wrote: post #24

>But that’s because such measures exclude the very asset the person borrowed to buy—an education that increases lifetime earnings. That’s like assessing a homeowner’s wealth by counting their mortgage balance but not the value of their home. The value of a higher education that it's sold to young people with is the income it allegedly brings in. If that's the case someone uses the product and their income goes up the…

If you think it’s fraudulent for the federal government to give a 22yo a $120,000 loan for a Master of Fine Arts program in theater, then you have to argue that such loans should stop. Only the rich or the beneficiaries of private charity will be able to access MFA programs—or perhaps the taxpayer should make degree programs like that “free”? I think that’s a defensible argument, but it’s regressive in a different wa…

If you're saying maybe something should be done with the cost of education and incentivising making it a valuable product rather than a way for middlemen to skim money off both students and educators who also haven't benefited from skyrocketing costs then I'd agree 100%. If the programmes are poor then the resulting failures and bankruptcies should be thinning out poor products same as anywhere else.

If some rich people benefit with valuable education (or the ever loved MFAs in this debate), so what? That's what income tax is for. The rich having skin in the game too is a good thing.

Re: Student loan forgiveness is regressive measured by income, education, or wealth

#43

Post by nate_meurer »

twoodfin wrote: post #35
nate_meurer wrote: post #21

Earlier quoted context omitted.

This is the correct answer. Personal bankruptcy is the tool developed and refined for over a century to address exactly this problem. It should surprise nobody that the banking interests (and industry-adjacent politicians) who pushed so hard for student debtors to be uniquely deprived of their right to shed their debt through the courts are now pushing for taxpayers to repay their unsecured loans.

Again, the banks are almost totally disinterested at this point. The only entity significantly on the hook for these unsecured loans is the taxpayer, via the Department of Education which issued them directly to students.

Great, then it should be easy to fix the law now, right?

Re: Student loan forgiveness is regressive measured by income, education, or wealth

#44

Post by twoodfin »

Tanjreeve wrote: post #41
twoodfin wrote: post #5

Earlier quoted context omitted.

Two points on that discussion: - AFAICT, the argument that a massive loan forgiveness would not be regressive rests entirely on excluding from the analysis low-income members of the 25-40yo cohort with no student debt. Sure, that fraction may be smaller than in the past, but it’s hard to see how discounting a bunch of poor folks who would see $0 benefit from this expenditure is intellectually honest. - It’s amusing t…

I think this is post hoc wrapping usury and massive information asymetry in 'some progressiver than thou' language. - if it's about taxing some qualitative value of education then it should be a graduate tax applied equally to everyone with tertiary education. I'd be curious how politicans would manage policies on education and taxes on this value when they are paying it too - if it's not about the qualitative value…

It’s really difficult to consider federal student loans as “usurious”. The interest rate is fixed well below market rates for similar unsecured loans. There are numerous income-based repayment & forgiveness schemes that for many borrowers will represent a negative effective interest rate. And no one has had to make any payments on these loans at all for almost two years.

It’s also not at all obvious to me how making such loans dischargeable in bankruptcy would actually help borrowers, other than creating a really nice dodge for recent graduates of Harvard Law.

Re: Student loan forgiveness is regressive measured by income, education, or wealth

#45

Post by twoodfin »

nate_meurer wrote: post #43
twoodfin wrote: post #35

Earlier quoted context omitted.

Again, the banks are almost totally disinterested at this point. The only entity significantly on the hook for these unsecured loans is the taxpayer, via the Department of Education which issued them directly to students.

Great, then it should be easy to fix the law now, right?

Fix the law to do what? The proposal under discussion is to hand $50k to doctors, lawyers, and MBA’s (among others, of course) under the guise of fairness.

Re: Student loan forgiveness is regressive measured by income, education, or wealth

#46

Post by nate_meurer »

twoodfin wrote: post #45
nate_meurer wrote: post #43

Earlier quoted context omitted.

Great, then it should be easy to fix the law now, right?

Fix the law to do what? The proposal under discussion is to hand $50k to doctors, lawyers, and MBA’s (among others, of course) under the guise of fairness.

You stated that "the banks are almost totally disinterested at this point." My facetious response was just a cheeky way to propose that if your statement is not utter bullshit, then there should be very little opposition from the credit industry to legislation such as the FRESH START act. I guess we'll see soon enough.

Re: Student loan forgiveness is regressive measured by income, education, or wealth

#47

Post by twoodfin »

nate_meurer wrote: post #46
twoodfin wrote: post #45

Earlier quoted context omitted.

Fix the law to do what? The proposal under discussion is to hand $50k to doctors, lawyers, and MBA’s (among others, of course) under the guise of fairness.

You stated that "the banks are almost totally disinterested at this point." My facetious response was just a cheeky way to propose that if your statement is not utter bullshit, then there should be very little opposition from the credit industry to legislation such as the FRESH START act. I guess we'll see soon enough.

I really have no idea what you’re suggesting. What’s the “credit industry” (now not the banks?) role here?

Re: Student loan forgiveness is regressive measured by income, education, or wealth

#48

Post by nate_meurer »

twoodfin wrote: post #47
nate_meurer wrote: post #46

Earlier quoted context omitted.

You stated that "the banks are almost totally disinterested at this point." My facetious response was just a cheeky way to propose that if your statement is not utter bullshit, then there should be very little opposition from the credit industry to legislation such as the FRESH START act. I guess we'll see soon enough.

I really have no idea what you’re suggesting. What’s the “credit industry” (now not the banks?) role here?

I'm using "credit industry" to distinguish the private-market credit services industry from federal servicers of student loan debt. Your assertion was that the "banks" (which appears to be your shorthand for the same thing) are "almost totally disinterested at this point." I'm saying that smells a little fishy, since the "banks" have generally opposed reforming the restrictions on discharging student loan debt through bankruptcy since they were enacted by congress in 2005. That's it, that's all I'm saying.

Re: Student loan forgiveness is regressive measured by income, education, or wealth

#49

Post by Tanjreeve »

twoodfin wrote: post #44
Tanjreeve wrote: post #41

Earlier quoted context omitted.

I think this is post hoc wrapping usury and massive information asymetry in 'some progressiver than thou' language. - if it's about taxing some qualitative value of education then it should be a graduate tax applied equally to everyone with tertiary education. I'd be curious how politicans would manage policies on education and taxes on this value when they are paying it too - if it's not about the qualitative value…

It’s really difficult to consider federal student loans as “usurious”. The interest rate is fixed well below market rates for similar unsecured loans. There are numerous income-based repayment & forgiveness schemes that for many borrowers will represent a negative effective interest rate. And no one has had to make any payments on these loans at all for almost two years. It’s also not at all obvious to me how making…

That's not exactly a ringing endorsement of the system If it's relying on pandemic fiscal policy and/or patchworks of different schemes many operating on political whims to negate fundamental dysfunctional behaviour.

The argument for bringing student loans back into line with normal debt is less to do with poverty and more to do with not creating a system that incentivises racking up the price as much as possible and letting debt (and bailouts) patch up the difference when it all falls apart and the product doesn't actually fulfill any of its sales pitch and the price goes up far beyond what any reasonable income expectations can sustain.

If the system is fixed for graduates of Harvard law then I don't think that's skin off anyone elses teeth. Bankruptcy is not exactly an easy route into legal practice so I think you're being a bit fixated on a v small edge case.

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