With student loan debt continuing to go up in the United States, there are strong calls for the government to “solve the problem”.  The only way the government can solve this problem for people in student loan debt is to pay for some of it or forgive it, which would be at the expense of others.

I have even heard some supposed libertarians say that the government should get rid of all student debt.  They look at it in a similar fashion to defaulting on the government debt.  The problem is that it is reversed.

In order for the government to pay interest on its debt, let alone paying back principal, it has to extract this money from others through taxation, inflation, or more debt. The government does have some assets it could conceivably sell, but that would not fulfill all the promises. Plus, that idea is not exactly out on the table right now.

If someone pays money for government debt, then repayment of that loan can only happen by taking money from others.  Therefore, from a libertarian perspective, it is not a valid contract. Person A can’t legally loan money to Person B, with Person B’s promise to pay back the loan by stealing money from Person C.  If Person A entered into this contract and Person B can’t pay back the loan, it isn’t right for Person C to have to pay who was no part of the contract.  Person A should be the one out of the money.

Student loan debt is not the same thing.  It is people borrowing from lenders, which are often backed by the federal government.  If people don’t pay back these loans, it is the American taxpayer that gets stiffed.  The government lent out the taxpayer’s money, so to speak, so the American taxpayer should try to recover as much as possible.

I am open to other opinions on this matter, but that is the way I see it now.  I don’t think a proper libertarian position would entail allowing these loans to be waived.

The proper libertarian position is that the federal government should get out of the education business entirely.  This includes not subsidizing or in any way backing student loans.  It should be up to a bank or other lender whether they want to enter into a contract to loan money for college.

You hear these horror stories about people graduating with $200,000 in debt.  It’s fine for someone who is about to be a heart surgeon, but it doesn’t work for a sociology major who ends up working at Starbucks. This just tells you that there isn’t a free market.  If the lender were not backed by the government, then you wouldn’t see six-figure loans to people who are getting degrees that are not likely to produce above-average incomes.

If You Have Student Debt

If you currently have student debt, it is tempting to not pay it down because the government might bail you out.

I don’t think there is anything morally wrong with accepting such a bailout, especially if you are paying taxes.  I wouldn’t tell anyone to not accept Social Security payments either.  If you are a libertarian though, then you shouldn’t be advocating it.

If you have a suspension of student loan debt where you don’t have to pay right now, and interest doesn’t accrue, then I would suggest putting money aside as if you are paying. When interest starts to accrue again, then you can take this money and pay down some of the principal balance.

The other day, Biden was asked about relieving up to $50,000 in student debt, and he shot down the idea.  So it doesn’t look like anything major will happen.  If there is anything passed, I think it will be something like $10,000 in forgiveness.

It will really irritate people who just finished paying off student debt.  The word “fair” is thrown around a lot in our unfair world. In this case, it is easy to see why some people would think it is unfair, and they would be right to think that.

Anyway, if any student loan forgiveness is going to happen, it will happen in the next 23 months. Really, if it doesn’t happen in the next year, then it probably won’t happen.

So if you are looking at paying off or paying down the balance on your student loan debt, you may want to hold off on paying it all off just in case there is some government relief.

As long as the government is subsidizing student loans, it is going to distort the market and misallocate resources.  College is far more expensive than it would be without this, and you wouldn’t be hearing as many horror stories of people deep in debt who can’t pay it.

I’ve heard people suggest that if the government is going to forgive all student loan debt, then attached to the same legislation should be something that prohibits the government from backing any future student loans.  But we know this isn’t going to happen.  The politicians who are likely to forgive student debt are not interested in getting the government out of the education business.

Again, if there is any forgiveness, I don’t think it will exceed $10,000.  The government is spending recklessly right now, so this would just be one more thing.  It is like spending in the sense that they would be reducing money coming into the government, but it should not be equated with taxes.

If interest rates start to rise and consumer price inflation becomes a worry, then all bets will be off the table.  The government isn’t going to give up this revenue stream of debt repayment, since it owns a majority of the student loan debt.