Many Democrats in Congress and student loan advocates want to see President Biden forgive as much as $50,000 per student loan borrower.
Unfortuantely, Biden has made it quite clear that he is not interested in cancellation-for-all unless it comes from Congress.
If Biden won’t cancel the debt, the next best alternative is permanently setting federal interest rates at 0%.
The Case for 0% Interest Rates
There is some debate over the profitability of the federal student loan lending program.
There shouldn’t be.
Student loan lending is incredibly profitable for the government. Even at a zero percent interest rate, student loan lending would still be highly profitable for the government.
College graduates are less likely to need government programs like welfare, food stamps, or Medicaid. College graduates earn more money, which means they pay more in taxes.
How much does the government benefit from turning citizens into college grades?
For many Americans, federal student loans are the difference between getting a degree and not going to college. The government has a huge incentive to get these people degrees. Let’s start by not charging interest on the loans.
Charging Interest on Federal Loans is Wrong
Some argue that the government needs to charge high interest rates on federal loans because some borrowers can’t repay their loans, and the government needs to break even.
This attitude is ridiculous. For starters, the government isn’t a corporation with a mandate to generate profits.
Secondly, the government ought to treat people fairly as individuals. If people don’t pay their fair share of taxes, the answer is not to raise taxes for everyone else. The answer is to pursue and penalize the people who cheat.
If you go to college, work hard, get a degree and a good job, you shouldn’t be penalized because college didn’t work out for others.
We don’t expect the government to turn a profit on libraries, fire departments, or the military. Why should we expect a profit from college lending?
The Politics of a 0% Interest Rate
President Biden and the Democrats have backed themselves into a corner.
The closer the student loan payment restart gets to an election, the worse it will be for Democrats.
Even though the party has historically treated student loan borrowers better than Republicans, many voters will be angry about the student loan bills that just started back up and blame Biden.
It’s also worth noting that the restart will be a mess. We don’t know when the restart will happen, but issues are a near certainty. Servicers expect to receive more calls in a month than they normally receive in a year. They cut staff early in the pandemic, so many people answering the phones will be new to the job. Hold times will be long, advice may be questionable, and borrowers will be frustrated.
Many voters will blame Democrats for these issues. Democrats campaign as the party that wants to help on student loans, and if they don’t deliver, they will lose votes.
Implementing a Permanent 0% Interest Rate
If the government decides to set student loan interest rates at 0%, a couple of questions immediately come to mind. What happens to the borrowers who already have paid a fortune in interest? How do we make sure nobody takes advantage of the 0% interest rate?
For current borrowers, I’d like to see the 0% interest rate applied retroactively. In other words, if you borrowed $50,000, paid $65,000, and have a remaining balance of $30,000, you are paid in full. Refunds would be nice, but the critical detail is that borrowers only be required to repay the amount they borrowed.
As for preventing people from taking advantage of the low rates, I think the answer is lending based upon college success rates. The argument for permanent 0% interest is centered around the idea that the government benefits from citizens getting educated. However, not all schools provide a beneficial education. If students don’t become graduates or find jobs, the government should stop loaning money to attend that school.
Making Zero Interest a Reality
Student loan forgiveness gets headlines for politicians. However, it looks like nothing will happen on that front.
The idea of permanent 0% interest rates gets far less attention. Yet, it is a realistic option that could help many.
If you want to see your interest rates permanently lowered to 0%, there are several ways to help achieve this outcome.