The competing issue is that the sheer number of people in problematic student loan situations has become a drag on the economy--millennials are having to spend so much of their income on their student loan debt that they cannot do the usual things that keep the economy going, such as buying property, and all that fun stuff.
I get the reluctance some may have at the idea of loan forgiveness, but some sort of relief helps the economy, not just individuals. And frankly, I'm gratified/delighted that there have been a lot of different ideas floated in this thread.
I'm sorry, jt. I have to respectfully disagree.
If we forgive student debt because we want to allow the debtors to find other uses for the cash that currently goes to student loan debt service, we'd forgive credit card debt as well. Actually, we'd forgive any debt that financed something that is no longer of any value. After all, if nobody had to make debt service on credit cards, or on a car or house that was no longer worth what was borrowed, they could use the freed up cash to buy stuff to keep the economy humming.
Regarding reduction or forgiveness of interest, so long as the US Government is the lender, I'm kind of ambivalent about it. It just doesn't help all that much. If I have $50K in student debt, and am paying at 5% or 7% -- let's call it 6% for purposes of this example -- over 120 easy monthly payments, that's $555 a month. If we cut the interest rate in half, the payment is reduced only to $483 -- almost 90% of the originally-contracted amount. Even if we reduce the interest rate to 0%, the payment is still $417, or about 75% of the original contract.
(BTW -- I'll digress for a tangential note. For anybody who thinks that a 6-7% interest rate on student debt is outrageous, try this: Go to a bank and ask for a 10-year unsecured installment loan to pay for something that is both intangible and has no value to anybody other than the prospective borrower. And that assumes that it does in fact have ongoing value to the borrower. Tell the bank that you have no income or job, but will in a few years. If you can get the loan at all, it's going to be a lot more expensive than that. The comparison to a first mortgage loan financing an owner-occupied residence is not even apples to oranges. It's apples to car tires.)
Back to the original topic of forgiving student loans: Not all student loans are made by the government. Some are made by banks or other lenders, guaranteed by the government. Others are made by banks and other lenders with no governmental backing of any kind. Should those be forgiven?
Think carefully before you answer. If you think they should, you just cost a lot of people a lot of money. Either the taxpayers paying off the banks (in which case we're back to why it's a taxpayer issue), or the banks themselves. If your reaction is that the suits deserve it, you need to re-think. The suits that so many people love to hate won't be affected at all....the shareholders will. And if you think you don't have any skin in that game, you probably need to take a look at what your 401k, IRA and pension fund are invested in. It is close to certain that there are lots of bank stocks in those portfolios. If you or your pension fund have an S&P 500 or Russell 2000 Index fund, it goes from close to certain to a 100% lock.
And we don't even touch on the effect on credit going forward. As in, if a bank can have assets or earnings wiped out by the stroke of a governmental pen, why should they ever lend a dime to anybody again? For that matter, what would we be saying about the enforceability of contracts, the very foundation of any capitalistic economy? And what would separate us from third world countries that nationalize industries?
This is an idea that has lots of populist appeal. But the slope is incredibly slippery, the unintended consequences are countless, and while I'm sorry for anybody who has a failed investment (believe me, I have my own list of those), I still don't see where the problem belongs to anybody but the borrower.