Law Schools

Don't Count On A Government Student Loans Bailout

There's been a lot of talk about bailing out student debt. And it's going to stay all talk.

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I receive a number of interesting emails each day from readers of this column and my articles on Student Debt Diaries. The topics of these emails vary from questions about student debt repayment strategies to inquiries about my own personal experience with student loans.

One of the queries I have been asked numerous times over the past several months is whether I think there will be a government student loans bailout. This topic was widely discussed during the 2016 election cycle, so I can understand why this subject is on people’s minds. Some convey to me that they view their student debt situation as hopeless, and that their only expectation of being debt-free is through a government bailout. Others relate that the chance of a government bailout discourages them from paying off their student loans. Several people have also asked me how I would feel if the government massively changed the student debt landscape since I worked hard to pay off my student loans.

All told, I think it is fair to say that there will not be a wholesale government student loans bailout for a number of reasons.

The obvious reason why there will not be a government student loans bailout is that there is no political will for such a move, and there likely won’t be for a long time. The amount of student debt in this country is well over a trillion dollars, which is more than any proposed infrastructure plan, military expansion, or any other government initiative that is currently being proposed would cost. The 2008 government bailout was not even as large as the amount of money needed pay off everyone’s student debt! As such, it is unlikely that there will be any political will for the government to completely pay off student loans.

In addition, a government student loans bailout would likely have extremely regressive effects. It might seem progressive for the government to take care of struggling young borrowers who cannot move forward in their lives due to the shackles of student debt. However, individuals with student loans are some of the highest income-earners in our society, since people with more education usually make more money. In addition, those with the highest amounts of student loans usually have the highest incomes. If the government did a wholesale bailout of student loans, it would benefit high-income earners the most, since these individuals would continue to earn large incomes without having the burdens of student debt. This reality makes it even less likely that there will be a government student loans bailout since the progressive policy-makers who might support this initiative understand that such a move would likely help richer consistencies the most.

Furthermore, a government student loans bailout would incentivize irresponsible behavior. Numerous people attend second-choice law schools in order receive scholarships and minimize debt. A student loans bailout would discourage this type of responsible behavior and individuals would also have no incentive to minimize expenses while at school. The government usually worries about “moral hazard,” and this topic was widely discussed after the 2008 financial crises. A government student loans bailout would create “moral hazard” on an unprecedented level, and reasonable policy-makers understand the negative consequences of eliminating responsibility from student debt borrowing.

Many individuals have asked me how I would feel if there was a government student loans bailout. I saved, sacrificed, and worked thousands of hours on side-hustles to pay off my student loans, so individuals oftentimes wonder how I would react to a government student loans bailout. To be honest, such a move would not affect me in the slightest way. I am the type of person who likes to pay back my debts. I have been on my own for a while now, and I don’t like relying on other people or the government for help. Paying off student debt gave me great satisfaction and allowed me to live my life without outside help. Since student debt repayment was a personal goal that comported to my own deeply-held values, I wouldn’t really care if there was a government student loans bailout.

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It is worth mentioning that there may be some government intervention involving student loans short of a full bailout. It is possible that income-driven repayment plans will become more generous such that individuals on these plans need to pay less of their monthly incomes to student debt for shorter timeframes. However, it seems that the government may have difficulty paying for debt forgiveness under current income-driven repayment plans. Also, there have been proposals in the past administration and the present one to cap the amount of debt-forgiveness available through income-driven repayment plans. As such, if there is government intervention involving student loans, it will not be a wholesale bailout, and it would likely take years to implement.

In sum, everyone is likely going to have to take care of their student debt by themselves. If the hope of a government student loans bailout is keeping you from paying off your debt, you should probably stop waiting. As my own story indicates, it is possible to pay off student loans by saving money and boosting your income through side-hustles. This might take time, and a lot of effort, but the possibility of being debt-free from this approach is far more likely than if you wait for the government to pay off your student loans.

Jordan Rothman is the founder of Student Debt Diaries, a personal finance website discussing how he paid off all $197,890.20 of his college and law school student loans over 46 months of his late 20s. You can reach him at Jordan@studentdebtdiaries.com.

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