I have been contacting my legislatures with a tax redirection repayment proposal since it seems that forgiveness is out of reach due to political moralizing of student debtors.
First off, I don’t like to use the term “forgiveness” because it implies that students are getting a bailout. As a cohort, student debtors do not need a “bailout” in the same way that farmers recently did.
As a cohort, students more than pay for their education through incremental tax revenues generated. The federal government extracts a huge benefit from increased productivity, and they pass the risk and cost of that benefit to students. It’s unethical, and is poor economic policy as money that could circulate throughout local economies is tied up with loan servicers and banks.
I propose a change to the tax code that redirects a portion of existing individual income taxes to paying down loans. This has the benefit of not being a “wealth transfer” while the fed still recovers the principal. In essence, it treats education as infrastructure paid for with taxes, while compartmentalizing to only students, avoiding the sticking point of wealth transfers from non-debtors. This is not a full forgiveness, it is risk pooling while holding the federal government accountable. Its not a subsidy, there is still as massive net benefit to taxpayers (which they forget), it avoids defaults, collections, and service costs, and it ends negative amortization of interest. What more - no more monthly payments out of pocket. Essentially, the fed needs to pay for the increased productivity before they benefit - and they can do this through existing tax revenues.
I have been sending this proposal to every federal congressperson I can:
"As the Trump administration moves to end the SAVE forbearance period, we are faced with an opportunity to correct an extreme injustice for our student debtors, especially when contextualized against the recent farm bailout. Republicans have long rallied voter sentiment against student relief, while being happy to provide subsidies and bailouts to other groups affected by economic hardship. The student loan system in the US is both broken and predatory, with some carrying balances at or above their original principal, even after paying back the original borrowed amount (due to amortized interest).
Higher education reliably increases lifetime productivity and federal tax revenues, yet the federal government externalizes both the cost and risk of that investment onto citizens, while enjoying the benefits. This is not only unethical, it is bad policy as billions of dollars are tied up with loan services instead of distributed throughout local economies.
I often hear politicians moralize debtors and relief, which is useful in turning popular sentiment against students (they don’t do this for corporations, farmers, or PPP loan recipients). At the same time, FRED economic data shows that as a cohort, college graduates generate $16,293 per person per year in incremental tax revenues compared to non-college graduates. Over the course of 20 or 30 years this results in hundreds of thousands of incremental tax revenues per person, more than making up for the individual cost of education.
Since the moralization of student relief seems like it will not subside, precluding flat out forgiveness, I propose the following capital net-positive tax redirection that can and should be introduced into the tax code:
A portion of incremental taxes from student loan borrowers should be redirected toward the repayment of their loans. No tax rates change, only the application of existing payments are temporarily redirected until loans are repaid. Once a borrowers loan balance is fully retired, all future tax revenues flow directly into general funds - preserving the long term benefit of education. High earners repay quickly and exit early, while low earners receive implicit insurance through time, not transfers. No negative amortization - any interest not covered by surplus is automatically neutralized.
This is a fiscally responsible way to permanently expand education and the tax base without wealth transfers that are politically toxic, and it resolves the issue of the federal government benefiting without assuming risk or cost. All parties benefit - the borrower isn’t kept in perpetual debt, the fed gets to benefit from increased revenues, and detractors cannot point to a wealth transfer.
- Eliminates debt and negative amortization
- Preserves work and earnings incentives
- Reduces deficits and returns capital to circulation
- Aligns with public investment returns
- Treats education like infrastructure instead of consumer credit (college isn’t a new car)"