Month: June 2014

The Truth About “Loan Forgiveness”

“Loan forgiveness.” The term is everywhere.  Ask the internet and it will refer you to hundreds of testimonials from people who are saddled with debt, struggling to make their monthly payments, begging for “forgiveness” from the government for their student loans.

The internet isn’t lying. Student loan debt is an epidemic that refuses to stop spreading. The average 2012 graduate had $29,400 of student debt by the time he got his degree, up from $26,600 in the previous year.

student-debt-cartoon-image

 

If you ask these debt-encumbered graduates (I am one of them) why they chose to borrow so much money, many will reply that the decision was the result of a dilemma more than simply a choice. The “choice” was between a debt-free-but-impoverished life of working for the minimum wage at a dead-end job, and a debt-riddled existence with the possibility of an upwardly-mobile and lucrative career. They were presented with two unfavorable options and chose the one that seemed less terrible. Choose your burden: poverty or debt.

There is some truth to this, though the situation is not quite as rigid as some claim.

At the very least, it is far more difficult to get a well-paying job without a degree than with a degree these days. And, for most people, a degree requires borrowing.

In response, the federal government has presented “loan forgiveness” to clean up the mess, to remedy the poverty vs. debt dilemma by removing debt from the set of options. Why not?

Well, the unfortunate truth is that federal loan forgiveness can do no such things; federal loan forgiveness does not forgive debt, nor does it remedy the poverty/debt dilemma.

Why? Well, for starters, because the government is not capable of forgiving loans.

Loan forgiveness occurs when the lender forgives the borrower’s debt, and eats the cost himself.

But the government is not in a position to forgive debt because the government did not lend the money in the first place—because the government does not have money to lend. When the government “forgives” loans, it does not eat the cost, the taxpayer does—which is another way of saying that, if you’re a taxpaying resident of the United States, your loans have not been forgiven. What you paid with a check before, you will pay with your taxes now. You may not have to pay off your debt immediately, you may not pay it off directly, you may not pay it off to the same degree as others, and you may not even realize that you are paying it off at all, but you are, and so is everyone else.

Your debts have not been forgiven, only redistributed. Smearing dog poop all over the sidewalk is not the same as cleaning it up. Sure, if you spread it sufficiently far and wide, it will seem to disappear; Passersby may not even notice that they are walking in poop. But there is only so much sidewalk and, if enough dogs poop, that crap will eventually pile up, no matter how much you mush it around.

 

2013-10-21-proxy

The poop has piled up, America.

The average graduate has $29,400 in debt? I’ve got bad news for you, graduate, you have far more debt than that. The federal government has over $17.5 trillion dollars (estimated to be $21.7 trillion by 2019) of debt. If you evenly divided it among the 318 million+ American residents, each and every citizen would owe more than $55,000. Divided among taxpayers, that figure rises to more than $151,000.

Federal debt

 

But wait, there’s more.

You see, America has several layers of government. Most American citizens live in a school district, college district, sewerage district, municipality, county, and state—most of which have the power to issue debt, and have done so. As of 2011, three years ago, the average American represented $3,613.78 in state debt, and another $5,594.61 in local debt.

The situation has only worsened since.

Loans forgiven or not, if you are an American taxpayer, you are on the hook for a lot of money. And the only (legal) way to avoid being a taxpayer, to the extent that one can, is to be poor.

Hence, we arrive back at square one, with that terrible dilemma: a debt-free-but-impoverished life working for the minimum wage at a dead end job, or a debt-riddled existence with at least the possibility of an upwardly-mobile and lucrative career.

Not only is federal “loan forgiveness” not loan forgiveness, but, like so many other government solutions, it is not a solution. Federal “Loan forgiveness” or not, the terrible choice between poverty and debt remains. Choose your burden: poverty or debt.