Hi- new here. Have two simple questions- help!

General
#1

My question is this: the money that is dispersed (the student loans themselves), where does that money come from? I hear it often for people that it’s taxpayer money, but from the little that I’ve researched, that doesn’t seem to add up/make sense? Am I wrong in this? Where does the literal money given out by students, via loans, come from?

If anyone can provide information on this, I would be grateful.

p.s. I also hear the idea that by canceling student debt, the taxpayers would pay! Using simple logic, I know that to be untrue (erasing the debt would mean just that… it’s erased…no one is paying for anything). And I make the point that we would save money over the long term if student debt was canceled and tuition-free college was established.

so two common points I hear:

  1. taxpayer money is funding these loans
  2. if you cancel the debt, taxpayers would have to pay for it

thank you all for any info. I’m trying to educate myself on this matter.

#2

The loans originated through the Federal Direct Student Loan Program are funded by $ from the U.S. Treasury, with the Education Department the lender.

Loans that were originated through the Federal Family Education Loan Program (established in 1965 as the Guaranteed Student Loan Program) were originally funded by private banks, credit unions, insurance companies, state governments, etc., with their private $, and repayment was guaranteed by the federal government in cases of death, default, disability of the borrower.

However, FFELP originations ceased in 2010 as a part of the same budget reconciliation bill that created the Affordable Care Act due to duplication with the FDLP, lenders borrowing funds through the Treasury (contrary to the original 1965 public/private partnership model), excessive costs, etc. There is still hundreds of millions of dollars being wasted in the FFELP through payments to guaranty agencies.

So, today, the majority of the outstanding student loan debt is 100% federal through the FDLP and a small percentage is FFELP ( mostly held by the private sector, and not included in the forgiveness/cancellation discussions if in repayment status, but should be).

Hope this helps. If the congress had comprehensively reviewed, updated, and reauthorized the Higher Education Act on schedule in 2013 and 2018, the studen debt issue would have been responsibly addressed.

#3

My understanding is that part of the reason to seek cancellation through executive action is that an EO would just eliminate the loans by zeroing out balances.

If, however, cancellation goes through congress, the pay-as-you-go budget rules would require congress to appropriate funds to cover cancellation. I believe then that means the money would come from the congressional budget which might mean money collected from taxes.

It is also worth noting that the administrative costs for operating the student loan program are quite high. These costs are rarely calculated as a part of cancellation because funds for operating the servicing programs are dispersed annually (which is a different part of the federal budget from where student loans are funded). So, it is quite possible that over time the federal government is paying more to operate the student loan program via budget appropriations than the federal government can reasonably expect to collect from debtors if the program stays in tact.

#4

Right. The bottom line is the FDLP and what’s left of the FFELP portfolio are both federal loan programs - one, 100% funded through federal tax $, and the other is still subsidized with federal tax $ until the FFELP portfolio is gone. Cancelling the outstanding FFELP debt would probably have a cost since holders of that portfolio would presumably be paid off with federal $. The same doesn’t hold for FDLP debt. It’s all federal $. However, there may contractual concerns to be addressed.

Again, this should be addressed through the reauthorization process, Regular Order, committee hearings, etc., not the budget process, which doesn’t concern policy, only savings and taxes.

#5

The US federal government’s budget is not like a household budget. We do not need to raise taxes for every expenditure. Witness not only the relief funds sent to us during the pandemic, but the huge amounts of money given to the Pentagon annually that no one ever says is too much, even though we tend to give the Pentagon more than they ask for.

Most new money in US and Europe comes into being in the form of loans, as opposed to printing. You ask for a loan, and the bank lending to you only needs to have 10% of what they give you in deposits, the rest is made up out of thin air. Yet even though they’re not risking much, the banks not only require you to pay back the money they loaned you, most of which they never had, but you’re also required to pay interest on it. Then that repaid money goes to the 1%. Public banks, such as the Bank of North Dakota, use that repaid money for civic needs.

People will tell you that if you just give away money, you’ll get inflation. That’s true, but all that means is that there’s too much money in circulation. The solution at that point is taxation to limit the amount of money in circulation. At the same time, it’s worth noting that despite everything we hear, inflation can be better for the 99% than it is for everyone else, up to a point. More on that here:

#6
  1. Govt fund paid the tuition. Govt fund is money taken from taxpayers.
  2. If debt is cancelled, govt, ie taxpayers are not paid back.

Bottom line though, if they are paid back, govt will just appropriate pay back to some other give away. Either way, taxpayers lose.

#7

It seems to me that it is only a loss to taxpayers when there is no return on their capital investment (education). A well-educated population makes for a strong, innovative, and productive nation.