There has been much discussion recently about the possibility of a student loan bailout. Of course, the government has previously bailed out a number of individuals and companies who were facing hardships. And some have compared the student debt situation to the mortgage crisis that occurred over a decade ago. The student loan problem in this country is definitely growing, and it impacts economic activity, since people with student loans have difficulties reaching financial milestones in their lives.
However, for a variety of reasons, there is little likelihood that there will be a massive government student loan bailout. It is possible that the government will provide some student loan relief, including more favorable income-driven repayment options and tuition assistance. However, it is very unlikely that the government will pay off massive amounts of student loans in any wholesale way. Although I have already addressed this topic in my column over at Above the Law, I wanted to write a piece on this subject for Student Debt Diaries, since the topic of student loan bailouts has been in the public discourse a lot these days.
One of the biggest reasons why there will likely never be a student loan bailout is since this would be extremely regressive. Most people who attend college are better off financially than individuals without a college degree. In addition, people who attend college are typically in higher income classes.
If the government paid off everyone’s student debt, it would just make the rich richer, since the primary benefits would be experienced by people with higher incomes and those who have the potential to earn more money. The proponents of student debt relief are typically progressives who are seeking to alleviate the burdens experienced by vulnerable populations. Since a student loan bailout would likely be regressive, it is unlikely that the government will pay off student loans en mass anytime soon.
In addition, paying off everyone’s student loans would cost an insane amount of money. Although the amount of student debt Americans have increases over time, there is currently about $1,500,000,000,000 in student debt in this country. This is a huge amount, that is higher than even the bailouts that were passed by Congress at the height of the Great Recession.
It would be extremely difficult for the government to come up with this amount of money. Even if one party controlled government, raising taxes would likely be unpopular, and there is not much that can be cut from the federal budget that could come close to this sum. In addition, even if the rich were exclusively taxed to pay for this sum, the individuals who would be taxed have the most political influence and will fight any tax increases tooth and nail.
In addition, there are many policy concerns that will likely take precedence over some sort of wholesale student loan bailout. Indeed, there is much bipartisan support for infrastructure plans, and any serious effort at improving infrastructure could cost trillions of dollars. Furthermore, if government-funded healthcare ever becomes a reality, this would also cost an insane sum of money. It is possible that if the government wanted to spend trillions of dollars on a policy initiative, it would not be to bail out student debt borrowers.
Furthermore, although many people might know someone with student loans, a minority of Americans have student debt. In addition, most people who have student loans are able to comfortably pay off their student loans, since their debt balances are reasonable. Only a small percentage of the population has six figures of student debt, and these individuals do not always have much political influence, since younger Americans are less likely to vote and donate massive sums to political campaigns. As a result, it is difficult to imagine the government spending so much money on this one constituency.
In addition, a student loan bailout would incentivize irresponsible behavior. Many student loan borrowers racked up insane amounts of debt by attending study abroad programs, borrowing the maximum amount of student loans possible, and in other ways. However, some borrowers attended lower-ranked schools in order to receive scholarships, and made other tough choices in order to lessen the amount of student loans they had to borrow. By bailing out all student debt borrowers, the government would give a reward to reckless borrowers, and it would not be fair to borrowers who made tough choices to lessen their student debt.
Some people have asked me if I would be upset about a student loan bailout, since I made a number of sacrifices to pay off my student loans. Although you might not believe it, I would not be upset if the government decided to bail out student debt borrowers. Paying off my student loans was one of the biggest accomplishments of my life. I am the type of person who pays off my debt, and I try not to rely on other people or the government. As a result, paying off all of my student loans gave me a great sense of accomplishment. That achievement would not be diminished by a student loan bailout, and I am happy that I had the chance to prove my mettle while paying off my student loans.
In the end, student debt borrowers should not expect a student loan bailout anytime soon. Paying off everyone’s student loans would cost too much money and would create perverse incentives that policymakers will likely not be able to stomach. As a result, I encourage everyone to use the methods discussed on this website to pay off their student loans by themselves.