Student debt cancelation vs. postponement

In his poem, Robert Frost only gave us two roads to choose from: the road not taken, and the road less traveled by. When applied to national student debt policy Frost’s road not taken clearly represents comprehensive debt cancellation. Instead, policymakers, like Frost, have stumbled down the road less travelled by, for over two years opting for postponement again and again and forgiving all the interest in their haste.

Whether you favor debt cancellation or not it at least represents a policy, one that if enacted, would have amounts, procedures, limits and enforcement. Its terms would be transparent to both creditors (taxpayers) and debtors (students). In all likelihood, it would have authority from legislative approval.

Of course, those picking this road would encounter some very large potholes, including budgetary costs. Interest alone, if forgone until the end of the year, will amount to $170 billion. It would also separate winners from losers by placing on one side of the road those college students benefiting from canceled debt, and on the other, those having paid their debt in full and those never having had any debt. But all would not be negative. Policymakers would find rich land along the road as the economy would grow without the drag from almost $2 trillion in student loans on consumption, housing, marriage, child-rearing and retirement. It would encourage the spirits of freed debtors as shown by their increased purchases of houses and other goods over the past two years.

The government never really chose the path of postponement, rather the prospect of wide-spread defaults, threatening all of college finance, chose it for them. Postponing debt is not a policy but the absence of a policy. When you have five postponements in a row everyone is betting on the sixth. This provides no structure and nothing to enforce. Implicitly it asks debtors to save to be ready for when the postponement period ends. But how many do that? Their debt payments have been absorbed by the costs of daily living. In truth, it is setting them up for failure. This makes either cancelation or wide-spread default a self-fulfilling prophesy. In his poem, Frost had foreseen the outcome of continuous postponement.

“Yet knowing how way leads on to way, I doubted if I should ever come back,” Frost wrote.

How will the government come back? How will college finance come back?

Robert Hildreth is a former International Monetary Fund economist whose professional work involved restructuring South American debt and marketing sovereign debt loans. He founded the Hildreth Institute dedicated to restoring the promise of higher education.

Tags Debt Education federal loan Robert Hildreth Student debt student debt relief Student loan

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