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Wall Streeter: Forgiving Student Loans Lets People Get Away With Something

There is much pearl-clutching at the thought of those bogged down in student debt actually getting relief.
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Stephanie Ruhle, who probably makes more in one year than most of us make in our lifetimes, has an itch that simply must be scratched.

"On the top line, forgiving student debt sounds like a good idea. But is student debt the solution or is it that college simply costs too much?" she asked.

Economist Allison Schrager responded that college costs too much, "but also, if you look at the data, the students who are struggling are the ones in default who have less than $10,000 in loans. So what you're really seeing is people who went to college, dropped out, and didn't have a boost in earnings. They are the ones really struggling. this is a big transfer to middle class and upper middle class people."

(No, Allison, it really isn't. Elizabeth Warren's proposal limits loan forgiveness to those making less than $100K a year.)

"Really. Some people are comparing the student debt crisis to the new subprime crisis and you seem to be framing it like it's not that big of a deal," Ruhle said.

"It's not that it is not a big deal, but people who went to for-profit colleges and did not finish, they're the ones really struggling. Student debt is an investment in your future earnings. A lot of people who took out that debt, their earnings will increase over their lifetime. It may hold them back in certain areas economically (Editor's note: Like eating), but higher earnings over their lifetime. It doesn't mean it is not a problem, a lot of the more vulnerable people are struggling. Should we use this money to help them more directly or subsidize everyone?" Schrager said.

"It's not like the subprime crisis, all those mortgages were held by institutions all over the world. When people didn't pay that back, it had a ripple effect," William Cohan, long-time Wall Street banker, said.

"If you forgive all that, that is $1 trillion that the government will not get back and a trillion dollars that will be spread across the population of the United States, two-thirds of whom don't go to college. That's a tax on those two-thirds of the people. Instead of just forgiving it, these people entered into contracts with maybe good intentions and it didn't work out. They should be able to restructure those loans."


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(First of all, the proposal doesn't forgive all student debt. False equivalance much? As for restructuring debt, oh yeah, because no one ever thought of that before! You were a managing director at JPMorgan, Bill. You probably knew that. Maybe your real concern is that Warren wants to finance this with a wealth tax on people like you.)

"You need to restructure that into new terms or conditions or public service. If you want to forgive your student loan debt, give me a year or two years in the Peace Corps or Teach for America and some sort of American public service that we used to do in this country and used to be important, and people had a real pride in that. If you forgive those loans instead of just wiping them out, it doesn't teach us anything. That just teaches us how to get a nice benefit. Who wouldn't want their mortgage wiped out?" he intones.

"I would like mine wiped out," Ruhle chirped.

My. Head. Hurts.

Understand, the higher impetus behind Warren's proposal is not social work, although it's a nice perk. It's about the drag student debt places on the economy -- just like when we bailed out the auto industry in the 2008 crash, because the ripple effect of letting them drown would be so bad for the rest of the economy.

It doesn't matter where you went to school if you don't have a good enough job to pay back your loans without economic hardship. That's money you're not using to get ahead in life.

Here's Cohan, a former Wall Street banker, moaning about the $1 trillion it would cost. (You think he complained about the $2.3 trillion Trump tax cuts?) You can tell he was a banker -- he thinks the average dropouts can afford to take off years from working to do public service. On what planet do these people live?

The same planet where bankers successfully persuaded Congress to remove student loans from bankruptcy protection -- because they were making so much money on student debt. The real problem is that we let the for-profit sector make money off students, instead of letting the feds loan it directly -- like other countries.

The majority of students who drop out do so because of money problems at home, like a parent or guardian losing their job, or getting sick. Doing volunteer work is not going to solve that problem.

For 40 years, we have been conditioned to believe that the only legitimate distribution of wealth is upward. Time to break that bad habit.

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