Student Loan Debt Settlement

Education
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The student loan crisis is a sword of Damocles hanging over the head of the U.S. economy: Americans have $1.74 trillion in student loan debt. The 42.6 million graduates with student loan debt in our country owed an average of $29,600 the day they walked across the graduation stage. This debt is not dischargeable through bankruptcy; it is a permanent anchor on the budgets of those with college debt. And as the economy becomes more and more specialized, requiring greater and greater skills for entry levels, ever increasing numbers of Americans will find this anchor dragging them down. As economic burdens increase due to inflation, low wages, and disproportionate price increases beyond general inflation - housing, cars, and healthcare, to name a few examples - these inescapable debt obligations will pull down an already floundering economy.

Many people rightfully point out that previous debt forgiveness plans are unjust, in that it redistributes tax funds from those who didn’t go to college - often due to not wanting to go into debt - and giving it to those who did. Adding to this sense of injustice is the fact that, on average, college graduates have greater lifetime career earnings than non-college graduates. This has been the fatal flaw in all discussions of student loan forgiveness.

However, it’s important to realize that the status quo itself is also unjust. Our education system consistently directs children for 13 years of their life to attend college. Every teacher, every principal, every coach, and every guidance counselor tells kids one resounding, consistent message: “go to college.” But it goes beyond the education system - every single institution and guiding figure children trust give them this same message. Their pastor tells them to go to college. Their governor tells them to go to college. Their president tells them to go to college. Their favorite athletes and musicians and actors tell them to go to college. Their aunts and uncles tell them to go to college. Their grandparents tell them to go to college. And, perhaps most important of all, their parents often will tell them this same command, drilled into kids from the moment they are capable of independent thought: go to college.

Is it any wonder, then, that these kids - especially those that are the most respectful and hard-working - follow this advice? And after 13 years of being taught to do as they’re told and making them ask permission to use the restroom, they are presented with two choices: go to college and likely take on debt, or break the rules and ignore what everyone told you to do for your entire life. And after this, and they get to college, what are they met with? More people pushing good kids who simply don’t know any better into foolish choices. Every college freshman is told to “take a year to try out different classes and see what they like,” and to “follow their passion.” They are often given absolutely no guidance on what jobs exist, what they pay, and how to actually get them. Is it any wonder, then, that so many take more than 4 years to get a 4 year degree, and that so many end up with so-called “useless degrees”? No! It’s actually entirely predictable.

To fix this injustice, we must give a path of escape to the young people who were just trying to do the right thing. We must also make sure we permanently solve the problem creating these victims of the educational industrial complex. Both of these must be done in a way that isn’t punishing those who didn’t go to college, or who made significant sacrifice to pay off their debt.

To create this path, I propose the following policy to forgive student loans for those who make good faith efforts to do the right thing, as well as implement a financial penalty system punishing higher education institutions acting in bad faith. Numbers are meant as a starting point for discussion:

  1. All student loan debt is dischargeable in Chapter 7 bankruptcy. *Edit: Possible addition of waiting period to eliminate gaming of the system by recent grads with no net worth: "After 120 months from the final date of enrollment, all student loan debt shall be dischargeable in Chapter 7 bankruptcy."
  2. Individuals will no longer owe payments on student loan debt after 84 months of consecutive payments or 120 total months of payments ("Payment Term"), whichever comes first.
  3. Responsibility for all remaining debt owed at the end of the Payment Term is transferred to the entity that received payment sourced from student loans for tuition, fee, room and board, or any other service ("Institution"). If multiple Institutions received payments sourced from student loans, the debt is transferred to the Institutions on a prorated basis by credit hours enrolled.
  4. Require all Institutions to obtain and maintain a Higher Education License to receive federally-supported student loan funds. This Higher Education License is earned through payment of a per-student Higher Education Licensing Fee, the amount of which is determined by a formula. This formula will account for a number of factors in order to create a multiplier that will be applied to a base fee amount. These factors are meant to fully capture whether an Institution is acting in good faith or bad faith towards students, and would include, but not be limited to: graduation rate; total student debt upon graduation; percentage of graduates with debt; average income within 1 year of graduation ("Graduate Income"); the difference between Graduate Income and the average income of 21-25 year olds without a college degree; the difference in marriage rates between graduates and 21-25 year olds without a college degree; and debt-to-income ratio.
  5. The number generated by applying the multiplier to the base free amount will fall into a traditional A-F scoring system. All Institutions with an "A" rating will owe $0 per enrolled student for their Higher Education Licensing Fee. All results greater than $0 will fall into the B-F range, depending on the amount.
  6. Institution ratings must be prominently displayed on all advertising materials, constituting no less than 25% of the space on the ad. Failure to do so will result in criminal penalty to the chief executive of the Institution.
  7. A wealth tax will be imposed against the endowments of all Institutions with a rating other than "A". For example, a B-rated Institution may owe a 1% wealth tax on their endowment, a C-rated Institution a 5% wealth tax, a D-rated Institution a 10% wealth tax, and an F-rated Institution a 25% wealth tax. These will not be gradual, and will be applied per letter rating.

The overall goal of this policy is to (1) immediately offer relief to those who have been making payments as required, (2) give Institutions a vested interest in the ability of graduates to fully pay debts within the Payment Term, (3) make those responsible for this crisis financially responsible for it as well, and (4) reform the higher education system so that this problem’s root cause can be fixed. The Higher Education License system gives Institutions concrete financial incentives to ensure their graduates are making high salaries, carrying little debt, have healthy family lives, and are all-around successful in all aspects of life. It also puts a very significant financial cost to “useless degree” departments. Overnight, the vast majority of colleges will abandon these programs. They will broaden efforts to build recruiting pipelines with businesses. You could one day see bright students offered the same kind of intense support talented athletes receive, all for the same reason: money. By making it financially beneficial to ensure graduate success - and ruinous to not do so - we can permanently change the higher education industry.

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This is a fantastic suggestion.

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Edited tag to the new “Education” label.

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Thank you for the feedback. My pipe dream is some policy wonk GOP staffer sees this and realizes that student debt relief can actually be packaged in a way that most Republican voters would not only stomach, but fully support, and push it up the chain.

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Overall fantastic post, your description of the problem and the direction of your policy prescriptions are both correct at least directionally IMO. The only thing I would worry about is the complexity of some of how your proposed policies would work.

Specific feedback:

For 1 it might need to be after a certain period of time (few years), I believe the fear of allowing student debt to be discharged through bankruptcy is that most graduates are broke and filling for bankruptcy would have less consequences.

4 & 5 just feel a bit too complex to measure and govern well. What is measured, especially with large financial incentives, will be gamed and abused to the fullest extent.

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Fully agree that it could be exploitable regarding bankruptcy and that some kind of delay would be useful.

As for the Higher Education License and Fee element, I agree it’s complex and is open to gaming of the system. I got the idea while completing some similar licensing-related tax returns for my company. I envision it operating much like any other IRS form: you have a line asking for a figure, you enter the value, and then run the calculations as directed.

While it would take time to determine just what figures are a good way of testing “just how much value is this college providing to these kids,” and some figures may even require developing new surveying/measurement efforts, I think it’s possible to do. At absolute bare minimum with existing figures drawn either from current stats or existing government databases, we can track graduation rate within 4 years, graduation within 6 years, average debt load, and graduate income, which allows us to calculate student loan debt-to-income. Cross-referencing data already collected by the government would help as well. Still, just the basic figures alone would let us get some kind of concrete evidence of an educational institution’s quality.

The big goal with those two points (and the ones tied to them) in my mind is to create a scoring system that can be used by applicants to judge an institution’s merit at a glance, while also acting as regulatory pressure on the institution to improve the attached metrics. In my opinion, we need some combination of a ramping up pain point and a sharply escalating endowment wealth tax on poor performing schools. Anything to make that happen would be good! What I laid out was just the first thing I thought of, and I’m not shocked the tax form-inspired policy concept is a bit lacking when it comes to ease-of-use and lack of loopholes!

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I still definitely agree with the intention, I just think the operational overhead is high and could lead to abuse, confusion, and too much friction.

I honestly think the idea of putting the financial burden back on the colleges after a period of years might be enough. It is probably a much cleaner way to align incentives with less overhead. It would hurt their endowments because that is probably where they would have to pull the money from to pay back remaining loan amounts. And they would likely shutdown programs that don’t result in high enough income to pay back the loans which would leave only better options for students to pick form.

I think the only thing that would need to be mandated is something like what % of income the graduated would need to put towards the loan repayment for that period of time. Someone could be making a great salary but pay a low amount per month until it gets kicked back to the university, so it should be something like you have to pay something like 10% of income towards the loan repayment each month for it to count.

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Outright forgiveness of debt is never acceptable in my opinion. My tax dollars shouldn’t go to someone who made poor decisions as an adult. Since they are more “educated” than I am, they should understand how interest works before signing.

How ironic is it that the “educated” need the most help because they weren’t smart enough to calculate interest or the long term implications of their decisions. They have my sympathy, but they don’t deserve my taxes.

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It would be nice if the loans could be discharged through bankruptcy, but I don’t think that should be the first solution. I think the first solution would be a cap on interest - but also an interest reform so that interest is NOT being computed daily. It makes zero sense that you can pay off a car loan in 5-6 years for the price of some people’s college education that people will pay on for 25 years (and probably still owe $ before the “forgiveness” is granted).

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As I said in the post, this just isn’t a fair judgment of the situation. These aren’t “adults making a decision.” It’s people who by only a matter of weeks or months legally adults (and sometimes minors, such as myself at the time) that went through 13 years of what amounts to intense manipulation/propaganda from every single influential person in their lives. Expecting good kids who are good students and who have always been respectful of their elders to suddenly pull a 180 degree shift in personality and spit in the face of their teachers, coaches, pastors, and parents by not heeding the 13 years-worth of advice is completely unrealistic.

The reality is that the people taking on debt, while maybe legally liable in many cases, are not truly “at fault” here. They’re not capable of going to the bathroom without permission one day, but the next day they’re supposed to be equipped to make a six-figure financial decision that they’ve been propagandized about for their entire conscious lives? We aren’t talking about 30 year olds buying a brand new car with a terrible interest rate because of poor impulse control. We’re talking teenagers who were indoctrinated to follow the rules and do what they’re told getting punished for decades for following the rules and doing as they were told.

And as I mentioned, not all going to college are even adults. I was barely 17. While I had scholarships, I was also not exactly “average” when it came to academics. If the status quo requires students to be in the 99th percentile in order to not cause massive societal problems, it is a terrible system that requires change.

And again, as I mentioned, this isn’t your tax dollars. This is entirely funded by shifting liability onto colleges and heavy taxation of college endowments. The only reason to not support something like this would be out of dislike of college graduates as a group, which while I understand as a political issue, is alleviated by this policy heavily taxing colleges who produce the kinds of graduates you likely have issues with.

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I fully agree with this, plus it makes people more responsible after all it is their debt. There should be a cap on interest rate. Period!

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Respectfully, I don’t see how Congress is going to be able to pass a law that takes existing legally binding contracts, and does a full 180 where the institutions become liable and the executives can be criminally charged if they don’t comply. Remember who put pen to paper.

While I agree there’s push from parents and teachers to go to college. There are collegiate options that aren’t as expensive. When I was the same age I chose community college first because I looked at the total cost savings. You can seek further education and do so responsibly. I was no honors student either. I know many who took this path despite their youth and inexperience. We can’t pretend that most 18 year olds are incompetent just because a few of them were.

If you want to claim negligence by young adults, then they aren’t mature enough to consent to sex, go to war, or buy houses either. At some point responsibility is to be expected. At some point you must take off the training wheels.

Any debt forgiveness or change will fall to tax payers. It always has, it always will. The danger in these plans, is that Congress will agree in principle, and print more money to fix the problem when they can’t legally enforce the institutions to comply.

Also, while we’re at it. Let’s go after the colleges for increasing tuition at an insane rate when the weight of their degree falls with each passing year. Forget who gave you the loan, the education was the ripoff. You are blaming Ticketmaster for the buyers remorse that was college.

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I believe lowering the ceiling on the interest rate of student loans (federal & private) would make it much easier on students. 4-6% interest rates on debt that cannot be wiped through bankruptcy, especially when consumer interest rates were much lower for many years, never made any sense. If education is partly a public good (educated citizens, etc) why couldn’t the government demand locked low or zero interest rates.

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There should not be any loan forgiveness and it shouldn’t be dischargeable in bankruptcy. If you are smart enough to go to college then you should be smart enough to do the basic math to figure out a loan. What I do think we should do is provide education about the loans and the associated risks/costs (provide general financial literacy in our highschools). We should not allow loans for certain degrees that have not proven to translate into jobs and should consider capping the actual loan at a much lower amount. Tuitions will fall in line if not enough people can afford the school.

Interest on student loans should be capped but instead of forgiveness, people that have taken out student loans should be REFUNDED a portion of interest paid even if they paid that interest 40 years ago. It was wrong to take that money then and it is wrong to keep it now just because they paid it in the past. In some ways it is much worse because that money could have been invested or used to pay other debt. The quality of life, their children and their retirement funds have certainly suffered from having to pay the loans. These people were wronged and it is unjust to just help the current loan holders without undoing the previous harm to the past loan holders. The current loan holders should get the same low interest or a capped interest. We need to be fair about this. Just forgiving a loan while not compensating the others that suffered through and actually paid their loan is not fair because it is a massive windfall for current loan holders and disproportionally punished the hardworking responsible people that paid their loan . You are punishing those people double. They had to pay theirs and now they have to pay for the irresponsible decision of others.

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I would like the idea that we can be responsible for our student loans by fulfilling our obligations to pay the debt with a capped interest rate. As long as a hardship is not being faced by the borrower, why not capped the interest rates on a loan based on the career path. All loans leading to educational careers (public) should have an interest capped at 2% for the life of the loan. Any private sector loans for careers such as doctors, nurses, and businesses should have a a 3% cap on the interest rate for the life of the loan. I do not understand nor agree with a loan that doubles the debt after every 5 to 10 years because of the interest. I have seen people pay back their loans, yet the interest is overwhelming that it does not make a difference.

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While this comment is a reply, it’s not targeted at any one person and instead meant as a catch-all response. I feel like most of the critics of what I proposed didn’t actually read what I wrote, and are instead replying based solely off the “headline.”

First off, while many “student loan forgiveness” plans are just a straight-up handout, what I’m proposing is not. This would require (as a draft idea) 7 years of consecutive payments, or 120 total months (10 years) worth of payments before any kind of “forgiveness” kicks in. In other words, it’s not some kind of windfall. These people will have been paying their loans for a decade.

Second, I see a lot of general contempt towards college students in the critiques. “Well if they’re so smart…” and the like are just not reflective of reality. To beat a dead horse (seriously, please actually read the post before commenting), these are people who are either still minors or barely adults that are “making decisions” after 13 straight years of every single adult in their lives telling them to go to college. They are told this constantly, from every single angle, for their entire conscious lives. Any kind of agency is pounded out of them. They don’t eat when they’re hungry - they eat when they’re told. They don’t speak when they want or need to - they speak when they’re told. They don’t go to the bathroom when they have to - they go when they’re told. They are trained from as soon as they can read to follow directions and do as they’re told. How can we possibly then expect them to suddenly not do as they’re told when it comes to the thing they were told to do for 13 years? It’s unrealistic and unjust, and that kind of spiteful attitude towards college graduates only serves to drive these people further into the most radical and dangerous elements of the political left.

And finally, to again repeat myself, this is not a transfer of wealth from taxpayers. This would transfer debt obligations to colleges and universities that are taking these kids’ money and leaving them with nothing in return. It would dismantle the worst aspects of academia and refocus higher education on productive endeavours instead of “[grievance] Studies” departments. At no point are your tax dollars taken from you to go to the people you hate, and who hate you.

As far as interest rates, I don’t actually have a problem with high rates for an unsecured debt. The thing is, it should only be issued if the issuer is sure they’ll be able to get that back. If we put a firm end date to debt, it will make lenders more careful in who they give loans to. And if we send colleges the bill of what’s left over, they’ll be more careful in who they admit and what departments they choose to have. Interest rates are not the problem. The complete lack of downside risk from lenders and universities is the problem.

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Not sure about every detail, but this seems very smart to me, and puts the onus on the people who intentionally created this problem and profited by it.

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I personally would like to see state run schools instead of the government interfering. How about we make it mandatory for money management classes where we teach children about all financial matters, interest, debt, maybe even a little on the stock market so they’re more able to understand that their decisions have long impacts upon their life.
I would like to go back to the 60s and 70s where you had welding, carpentry, Plumbing, and mechanic electives where you could actually leave school and have a profession earning a very good wage.
Let’s make College affordable! Let’s do away with Professor tenure ship, put a cap on how much they can charge for books, end the corruption and over pricing! This above all let’s make a republican leaning College instead of far left trying to indoctrinate them with gender ideology.
In my opinion this would go a long way to fixing the problems that we are facing in the long run instead of again not having to face the consequences of your actions even if it is going to college.

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I agree it is hard to advocate fixing this problem retroactively for people who already made agreements. But we should definitely be doing a lot to make sure the system works better going forward so the problem doesn’t continue or get worse. These changes should focus on loan programs and the colleges rather than the students.

Any solution that is applied to existing debt should only soften the blow and should still keep most of the responsibility on the borrower. Ideally we would find a way to put some of the costs back on the colleges but that is easier said than done.

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Exactly…

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