An English major considers loan forgiveness

[planetc]

Following are economic thoughts from an English major, so you can judge how many academic credits in economic subjects I have: none. Still, I listen to NPR reporting on economics all the time, and have life experiences too. So, here's my take on how loan forgiveness will affect the economy.

First, I'd like to point out that when most of us say we own a car or a house, what we mean is that the bank owns the house and the financing company owns the car. This is only fair: if we encounter financial difficulties, the financer can repo the car and the bank can foreclose on the house. When we use our credit cards, there's often less tangible stuff to repossess. How is the bank going to repossess the restaurant meal we charged to our card, or the vacation in Acapulco? The bank could try repossessing the stuff we bought, but the bank wants our washer even less than they want the house or the car. The banks' profits sink like a stone when they have to repossess something. What they really want is for us to pay off the loan at the interest rate we agreed to. That will make them happy. Or perhaps they want to sell our active loan and make a profit from that. The only thing I'm confident of here is that banks and financing companies do nothing that's not profitable.

Now, What does all this have to do with student loans? Student loans are used to pay for education. Just try repossessing somebody's education, and see how far you get. Banks are taking a bigger risk with financing education loans, because we really can't pick people's brains. That's only a metaphor for voluntarily sharing your thoughts. Meanwhile, to the economy at large, the average person is of primary importance, because 70% of our economy is powered by consumers. What this means is that the Economy needs us to spend as much money as we can possibly afford, so that all their industries will thrive and grow. When we hear it reported that the Economy "grew" by X percent, that means lots of us spent money on things we needed or wanted, and our noses are still above the flood waters of insolvency. So, it is our economic duty to spend as much disposable income as we can for the greater glory of Capitalism and Our Country.

Perhaps you can see where I'm headed with this: when we forgive educational debt, we boost the economy. A fellow DUer mentions that their son may be able to get married now with his lingering education debt forgiven. Wedding industry, take note! Mortgage industry and child product industries, celebrate! I am assuming here that Pres. Biden is going to pay off the students' debtors, the banks, from tax revenues. If this happens, truly everybody wins, especially the overstocked retailers who need to sell some stuff pronto.

[jimfields33]

1. Due to the moratorium the last two years and extended until December,

I don’t think we will see the “sky is falling” or the “economic pick up”. Most have been spending the money they typically use for loan payment already for survival. Some probably took advantage of the interest free and paid down their Loan but most didn’t so I don’t think we’ll see any major change economically from this right now at least.

[mopinko]

2. it's gonna light a fire under the whole housing sector. furnishings, everything.

i'd place a wager on a baby boom, too.

whoooole lot of pent up demand out there.
your opening is wrong tho. the banks took no risks. the feds backed them, and they got near credit card rates. lotta people out there who paid for years owe more than they borrowed.
if you ever had to take a deferral, you're prolly never paying that off.

[planetc]

5. Okay, I stand corrected.

You're saying that private lenders loaned money to private students who paid it to private and public schools, and the federal government guaranteed the loans? Nice business proposition. I wonder (innocently and sarcastically) whether the banking industry has any influence with Congress. Could be!

[Ocelot II]

3. In other words, it's an unsecured loan - nothing to repo.

The value is something else - an educated society. And I agree with everything you said. But the next step is to fix the way education is paid for so student loans won't be necessary at all (though the banking industry might not care for this idea). We need to think about why higher education has become so insanely expensive in the last 30 years or so, and what can be done about it. In some countries college students don't have to pay any tuition at all, for example: https://www.mastersportal.com/articles/343/tuition-fees-in-norway.html#:~:text=In%20Norway%2C%20public%20universities%20are,in%20Norway%20are%20pretty%20high.. Why have we made education unaffordable for so many people, and how can we fix it?

[planetc]

6. And I agree with everything you say too.

It occurred to me after I posted that what the borrower gets from their education loan actually appreciates in value once the purchase is made. They have a broader education than they had coming out of high school, and the means to keep on educating themselves without further investment. And thanks for the link. I'll check it out.

[gratuitous]

4. Also important to remember

That the person who took out the loan paid that money to the university, college, fly-by-night operation, or other institute of higher learning. And yeah, the lenders package and sell the loans to collection agencies for quarters, dime, nickels, or pennies on the dollar. They have no more stake in getting the loan repaid than you or I do.