Why we shouldn't forgive student loans

I was about to respond to someone's Facebook post about forgiving student loans, but I realized that my response would have been tactless.  So I'll post it here.

My response is regarding a resolution supporting the forgiving of student loans, a letter from the resolution's sponsor, and an article about this resolution which seems to misconstrue the issue.

The resolution states:

Expressing the sense of the House of Representatives that Congress should cut the United States’ true debt burden by... forgiving student loans... and bringing down overall personal debt....

Resolved, That it is the sense of the House of Representatives that... Congress should cut the United States’ true debt burden by reducing home mortgage balances, forgiving student loans, and bringing down overall personal debt;

So I'm a fan of free (merit-based) higher education in certain fields of study, but I'd put money on the outcome that no law actually forgiving student loans ever gets through.  The main problem with forgiving student loans is that it would lead to the same sorts of problems we saw with the housing crisis: someone is on the other side of those loans.

For many of these loans, the credit markets would again seize up (see 2008), because nobody would know how much the lending position of these loans are worth, and nobody would know who holds those positions.  Were these lenders greedy?  Not necessarily; after all, these loans would have been considered a fairly safe investment (hence low risk and low return), since they're backed by the Federal government.  So some of these loans are probably coming from decent people -- some endowments (which want to support education) and some pension funds.  Who gets hurt the most from student-loan defaults would depend on the contracts between the actual lenders (people with capital) and the loan agency (only some of which we really want to penalize).


From Clarke's article, I assume that they plan to release the federal government's guarantee on the debt, not necessarily have the government pay off this debt (and we should all agree that no taxpayer money should go toward this, since it would be better spent on infrastructure=jobs, especially with so many unemployed people).

In contrast to the Common Dreams article, there is no realistic indication that anyone will get their debt discharged for free; at the very least, they would need to discharge it through a traditional bankruptcy -- the only way to disincentivize everyone from defaulting.

My hunch is that this congressman wants this young, educated demographic to vote for him.  This in itself is silly, since he's a Democrat and already has that in his favor for this demographic.