Student Debt Cancellation vs Deferral
In his poem, Robert Frost gave us only two roads to choose from: the road not traveled and the road less traveled. When applied to national student debt policy, the route not taken by Frost clearly represents complete debt cancellation. Instead, policymakers, like Frost, have stumbled on the road less traveled, opting for more than two years of postponement again and again and forgiving all the point of their haste.
Whether or not you support debt cancellation, this at least represents a policy that, if adopted, would have amounts, procedures, limits, and enforcement. Its conditions would be transparent for both creditors (taxpayers) and debtors (students). In all likelihood, it would have the authority of legislative approval.
Of course, those who would choose this route would encounter very large potholes, including budgetary costs. Interest alone, if waived until the end of the year, will amount to $170 billion. It would also separate the winners from the losers by placing students with canceled debt on one side of the road, and those with debt paid in full and those with no debt on the other. But not everything would be negative. Policymakers would find rich land along the way as the economy would grow without the toll of nearly $2 trillion in student loans on consumption, housing, marriage, children’s education and retirement . This would encourage the spirits of discharged debtors as shown by the increase in their purchases of homes and other assets over the past two years.
The government never really chose the postponement route, rather the prospect of widespread defaults, threatening the entire finances of the colleges, chose it for them. Deferral of debt is not a policy but the absence of a policy. When you have five overs in a row, everyone bets on the sixth. This provides no structure and nothing to apply. Implicitly, it asks debtors to save in order to be ready at the end of the deferral period. But how many do that? The payment of their debts was absorbed by the costs of daily living. In truth, it sets them up for failure. This makes widespread cancellation or default a self-fulfilling prophecy. In his poem, Frost foresaw the result of continuous adjournment.
“Yet knowing how path leads to path, I doubted I would ever return,” Frost wrote.
How will the government come back? How will college funding return?
Robert Hildreth is a former International Monetary Fund economist whose professional job was to restructure South American debt and market sovereign debt loans. He founded the Hildreth Institute dedicated to restoring the promise of higher education.