The “Unintended” Consequences of Student Loan Forgiveness

Michael Lux Blog, News, Student Loans 19 Comments

The subject of student loan forgiveness and elimination of student debt is a frequent conversation on this website.  When this topic arises my focus has always been on helping people deal with their student loans, updating readers on the latest news in student loans, and providing a venue for people to vent about their student loans.  My goal has always been to stick to the facts and let people reach their own conclusions.

However, I occasionally find myself compelled to add my two cents to the discussion…

Yesterday the San Fransisco Chronicle published an article about the unintended consequences of public service student loan forgiveness.  The article specified how people with professional degrees (i.e. Doctors and Lawyers) would benefit most from these programs.  The author went on to give a couple examples and conclude that many students might have an interest in taking out more loans than they need because they know it will be forgiven.

First, let’s all get on the same page about public service student loan forgiveness.  The only way to qualify for this program is to work a total of 10 years for a government or public service institution.  During this time you must make timely payments on your student loans and the minimum you will be expected to pay will be 10 to 15 percent of your income, depending upon when you graduated.  This is not a summer helping out the local YMCA, this is a major long term commitment.

The Chronicle theorizes that as word spreads about these programs, people will take on higher student loan debt with the aim of forgiveness.  The logic in this train of thought is lost on me.  First of all, in order for a student to concoct a plan to maximize student loans forgiven, they would need to have a fairly sophisticated understanding of student loan rules.  Anybody with any student loan familiarity, knows the onerous burden that this debt presents.  Why would someone take out additional unnecessary debt for the chance to possibly have it forgiven in 10 years?  Why take that risk?

The intended consequence of the public service student loan forgiveness program is to encourage people to do work that serves the public interest.  This is exactly what the plan does.  I have personally observed how finding government work has become more competitive, despite the fact that it pays significantly less than the private sector.  As a nation do we not want our best and brightest working on our behalf?

While I admittedly have some bias about this program, I sincerely believe that my personal career decisions demonstrate the value of public service forgiveness.  Service to the community has been a value that has been engrained upon me since my time in the Boy Scouts.  As a professional, I now make a living serving the community.  Absent this program, I would be in an entirely different position.  My student loans would preclude me from worrying about anyone other than myself and my finances.

My experience is that public service loan forgiveness is not some government handout.  Instead it is a means to provide an opportunity for civic minded people to serve their country.

Even if the fear of people taking out extra government loans persists, one fact should not be lost.  No matter what, borrowers are repaying their debt.  Either they will be making a long term commitment to the public or they will be paying back their loans plus interest.