MILLER: Slow the pace of the student loan market | Mississippi Politics and Current Affairs

Joh adapt Olivier Hardy: Well, here’s another nice mess the federal government obtained we in.

When Congress passed the CARES Act in March 2020, it placed student loans in “administrative abstention” until September 2020. That is, there was no penalty for not making student loan payments. Why? What makes student loans different from other debt? Then, through executive actionthe Trump administration has twice extended forbearance on student loan repayments – now suspended until January 2021.

On the day of the inauguration, student borrowers will have benefited from ten months without repayment of their debt. But any private lender knows that once loan repayments stop, it’s hard to get borrowers back into the habit of paying.

We would all be wise to ask ourselves: how exactly is the federal government going to get taxpayers’ money back? More importantly, if the federal government heeds recent calls for student loan forgiveness, then what will happen? Don’t we deserve answers to 1.6 trillion dollar questions?

About 43 million people have chosen to take on student loan debt. A recent survey says 81% of respondents say the government should make it easier for borrowers to pay off their debt. How? ‘Or’ What? Do all borrowers find it difficult to refund? Is it wise to write off billions of debts without knowing the answer to this question, and without any credit reform that would prevent the problem from reappearing?

In the Consumer Credit Protection Act of 1968, Congress established a National Commission on Consumer Finances to study the entire consumer financial market in America. At the time, student loans were practically non-existent. Yet this commission provides us with a helpful column on how to investigate complex consumer credit issues.

We need to know what is happening in the student loan market. As in 1968, Congress should now create a new bipartisan national commission, this time to study all aspects of the student loan market. Our decision-makers badly need a thorough and unbiased study of the history and current state of the program, and would surely benefit from it.

The need for a depoliticized commission could not be more evident. Battle lines have already been drawn and political pressure for further executive action is mounting. There seems to be little thought given to the problems a general debt jubilee can create.

Some proponents of student loan relief fear that when payments resume, confusion could reign and we will get a “disorder.” Does that mean the federal government should just forget about trying to get reimbursed? If so, what is the purpose of the bankruptcy protections on these loans?

Others have spoken out against a forgiveness program. Arguments that abound include that the program does not actually return to forgiveness, that there are taxes consequencesand that there are nettles legal Questions. Moreover, many of the arguments argue that this program is clearly regressive: It benefits high-income borrowers much more than low-income borrowers borrowers. Canceling most of this debt is probably not a stimulus. So why do it?

Basic economic theory suggests that incentives question. If you encourage bad economic behavior – even in the name of “fairness” – you end up with more bad behavior.

This beautiful mess has been going on for over 20 years manufacturingand current student loan debt exceeds $1.6 trillion. Why the Rush for debt cancellation before the January 31 extension expires? The economic forces underlying the perceived chaos swirling around him will not be resolved by then.

The path to student loan forgiveness through executive action is fraught with legal pitfalls and moral hazard. It could even hurt student borrowers who need help.

We need answers before we act. A bipartisan national commission brings both sides to the table and provides empirical research to guide Congress toward a solid solution. In the meantime, the federal government should find a way to restart the repayment of student loans.

THOMAS W. MILLER JR. is Professor of Finance and Jack R. Lee Chair in Financial Institutions and Consumer Finance at Mississippi State University and Senior Fellow at CONSUMER RESEARCH.

Article reproduced with permission from National exam

Priscilla C. Carnegie