Where’s Mine?

In my Econ 385 class on Tuesday (International Economic Policy), an excellent discussion on student loan debt came up.  One of my students asked the probing question: “Student debt is approaching $1.8 trillion.  Everyone seems to recognize this is a bubble.  Why is there so much resistance to student debt forgiveness?” 

I opened the discussion up to the class.  Lots of excellent, well-reasoned opinions were expressed.  Some argued that the schools have no incentives to keep their expenditures in check since the government is subsidizing the loans.  Some argued that the politicians do not bear the full costs of these loans, nor a default, so they have little incentive to address the issue.  Others noted that the banks would keep giving loans so long as they are backed by the government.  All of these are excellent points, which I’ll not rehash here (I wish I could take credit for teaching these students, but they were already smart before they came to my class).  

There is a larger issue I wanted to discuss, one which was not discussed in class (we were acting under the assumption, for the sake of the discussion, that forgiveness was the best option).  This issue is: who gets forgiven?

What is it about student loan debt that makes it worthy of being forgiven, but other forms of debt are not?  There’s credit card debt, housing debt, business debt, auto debt, etc.  All this debt can have the same effect as student loan debt.  True, student loan debt is larger than these other sources, but if that’s the case, that’s just an argument either for partial forgiveness, or for people to mount up other forms of debt.

If student loan debt is forgiven, the holders of the other forms of debt will wonder “why not me?  Where is mine?”  Indeed, recently a friend used exactly this line of reasoning when justifying tariffs for his own industry: “My competitors and suppliers get protection.  Why not me?”

This is the problem with most government handout programs.  Those that are designed to help a certain and arbitrary group can compel members of the out-group to seek their own rents.  If student loan debt is forgiven, business owners might lobby to have their debt forgiven (“I’m creating jobs!  if my debt is forgiven, then I can create more jobs!”).  Or automobile owners (“My car lets me get to my job!”).  Anyone could come up with various excuses.  

This rent seeking, of course, then results in wasted resources.  Resources that could have gone to productive uses are now trying to capture rents.  And there are other issues as well that I’ll not touch on here: the sanctity of contracts (will it become harder for people to get loans since the value of a loan contract will be reduced?), moral hazard problems (will former debtors seek even more debt since their previous amount was forgiven?).  These are all important issues to consider.

8 thoughts on “Where’s Mine?

  1. “Where’s mine” is a very common complaint heard by union representatives. Some people even want the other person to forfeit whatever was received if they don’t get the same thing just out of spite or jealousy. The answer? “You were not personally disadvantaged by that action” (i.e., you have no documented gain or loss from _________ to be addressed or expressed in writing at this time, but be sure to bring it to me when you do).

    Obviously, if tax payers have to pay for any student loan forgiveness, they are disadvantaged, but I don’t think credit card holders, mortgage holders, . . . would be personally disadvantaged from a student loan forgiveness program except for possibly also being tax payers (their payment/balance would not show evidence of an increase or a decrease from that action to be addressed).

    Debates about fairness are always difficult. Hand-holding/empathy is an art.


  2. These are all important issues to consider.

    Indeed they are, as is the question of whether a redistribution of wealth from poor people to those who are mostly already wealthier makes sense. How many of your students came “Up from the Projects” like your colleague and one of my heroes Walter Williams, and who might be deserving of some assistance?

    On the micro level, ask any of your students who favor loan forgiveness why they believe Ron H. should be forced to pay for their education? On the macro level you might ask them to consider that with this type of program you eventually run out of other people’s money.

    Considering what I perceive to be a fairly libertarian worldview at GMU Econ, I’m a little surprise econ students at that advanced level would even consider student loan forgiveness seriously, especially if they spent their prior college years there . Perhaps some of them just transferred in from Bernie Sanders U or Berkeley, or some other cesspool of collectivist thinking.

    It seems pretty Keynesian to believe a bubble caused by excess taxpayer funding could be cured by MORE taxpayer funding.


    • If I had to guess I’d say that an exception to discharge is necessary for student loans, because otherwise the default rate would be unacceptably high. The debtors are young people with no assets, no collateral, little or no income, and tens of thousands of dollars in student loans. Would you loan to them? I doubt even the ever abused taxpayers would out up with constant losses for long.


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