Federal Student Loans Absolutely, Positively, will be Cancelled.
The student loan cancellation debate has taking on spectacular proportions since 2020 when Joe Biden made it a centerpiece of his presidential campaign. Since then, we’ve seen all manner of partisan fighting on this issue in the public conversation, in Congress, even in the Supreme Court.
What gets lost in the cacophony, however, is a simple, unavoidable fact: The vast majority of federal student loans will never be repaid. They will, in fact, be cancelled.
Even before the pandemic, more than half of all borrowers were unable to make payments on their loans. Today, that number has shot up to 78.2% (not including students who are currently enrolled in school). This is likely to increase, not decrease as the reality/difficulty of repaying the loans after a 3+ year pause on payments sinks in for borrowers.
The President’s much-touted student loan cancellations are nearly inconsequential. Simple analysis shows that even assuming this- or the next- President continued cancelling loans at the rate we have seen ($167 billion every 3.5 years), the loan portfolio will still grow by nearly $2 Trillion over 10 years. With only about $20 billion being repaid from the borrowers (this assumes an average $200/month payment from 8.8 million borrowers), we are still left with a portfolio growth of about $1.7 Trillion over ten years.
No matter what your opinion on the subject might be, the overwhelming majority of the debt will be cancelled, and that is a fact that is just not up for debate.
The federal student loan program is, frankly, finished. All rational metrics bear this out. All the “experts” in Washington DC know this is true. They saw this coming many years ago, frankly. The only question, today, is whether we deal with this $1.7 Trillion problem now, or are faced with over $3 Trillion in cancellations ten years from now.
Interestingly, the taxpayers have essentially broken even on the loans up to this point, having recouped nearly as much as lent out under the program. The loans could be cancelled entirely today, and the government would be breaking about even.
Past performance, however, is no guarantee of future results- certainly not in this case. The taxpayers will absolutely not recoup their investment going forward. To continue this failed loan program is exactly the wrong move. Lending systems fail from time to time, sometimes spectacularly. From The S&L crisis of the 80’s, to subprimes in the 2000’s, to the federal student loan program today. Those failures were acknowledged, and handled. A similar “Day of Reckoning” for the federal student loan program is here.
The current political narrative around this problem (largely shaped by those who wish to perpetuate this failed loan scam) is an electoral bonanza for the Democrats. They are cashing in on the real harm these predatory, hyper-inflationary loans are causing to 40 million voters, who comprise a proportional mix of conservatives, liberals, and independents. By cancelling even small amounts of the debt, overselling these small acts, and wrapping it all in pleasant sounding rhetoric, Biden and the Democrats (even if insincere) are playing the Republicans like a fiddle on this issue.
With every finger-wagging republican Congress member who excoriates the Democrats, denigrates the borrowers, and insists (falsely) that the taxpayers are footing the bill for these cancellations (they are not), the GOP only pushes away 20% of their voting base who have student loans (80% are in distress about them), and millions of independents for whom this issue is top of mind.
This will get much worse for the Republicans, to say nothing of their base, who are now in fact killing themselves, declaring war on the Federal government and committing the most ghastly of acts, at least in part because of the psychological stress this failed, unconstitutional loan scam has put on them.
What needs to happen: Standard, constitutionally enshrined bankruptcy rights must be returned to the debt, and the President should stand at the ready to cancel very broad, deep swaths of the debt depending on the number of filings, which could be very large, and need to be pre-empted. The Founders called for uniform bankruptcy rights for a very good reason, and tyrannical loan scams like what the federal student loan program has become were precisely what they wanted to avoid. But for the greed, corruption, arrogance, and lack of honesty and political courage in Washington DC, this would have happened a long time ago.
Reality is a stubborn thing: The loans will not be paid, the loans will be cancelled. The sooner this is acknowledged, the sooner we can move forward, end, and replace this failed loan scam with something that helps, rather than ruin, the vast majority of people who make use of it.
If you agree, please sign this petition.
