Forget Forgiveness; Student Loan Debt Should be Voided
Forgiving student loan debt is an increasingly popular proposal for both helping today’s unemployed or underemployed youth and the overall economy. Forgivestudentloandebt.com suggests that, instead of providing bailouts or other stimuli, the federal government ought to forgive student loan debt. The argument states that doing so would unburdened college graduates from hefty repayments and allow them to stimulate the economy instead.
Additionally, arguments for forgiveness say that without such a financial burden, college graduates stand a better chance of moving out of their parents’ house, building wealth and starting a family. Youth entrepreneurship would be expected to benefit as well; if graduates were free from repayments they could instead invest that capital into new enterprises.
In my opinion, the manner in which these arguments are presented are often off-putting and selfish. After all, nobody forced students to take student loans and students should have had the foresight to gauge their ability to repay the loans or choose a major that would lead to a career that would generate sufficient cash flow to repay the loan. Leaving emotions, personal finance and entitlement expectations aside, we must look at the issue in the context of the Constitution and ask the question:
Is student loan debt forgiveness a constitutional solution?
For private loans, the answer is NO. Loans are contracts made between private lenders and students (or their parents). The federal government has no business violating contract law and declaring those loans to be null and void. The federal government is not authorized to rewrite or nullify contracts, whether it be to void student loan debt or adjust the principal owed on a mortgage.
A contract can be amended by the parties bound by the contract so long as all contractually bound parties agree. If a borrower suggests that the loan be modified in their favor or cancelled, and the lender agrees, then the contract may be modified voided. If the lender does not agree, the current terms of the contract stand. If a lender offers to modify a contract in the borrower’s favor or to cancel a contract, one would assume that the borrower would agree and the contract would be null and void. The parties bound by a contract, if in agreement (or in accordance with previously agreed-upon terms), can modify or cancel a contract.
Therefore, you might expect that the federal government is permitted to modify or cancel federal student loans. After all, the federal government and the student are the two parties bound by the contract and, if they both agree to cancel the contract, the contract ought to be voided. It would be no different than a private lender and a student agreeing to terminate a contract, right?
The answer for federal student loans is still NO.
You cannot void a contract that is already null and void.
A contract is only binding if the contract is entered into freely by both parties and if both parties are legally allowed to enter into the contract. For example, generally speaking, minors cannot enter contracts; for this reason, a minor’s parent or guardian must sign most contracts that pertain to a minor. A federal student loan is a contract like any other. The federal government gives a student money and the student promises to repay the loan with interest in a given time-frame.
Federal student loans should be declared void today because the federal government is not legally allowed to enter in a student loan contract. Article I, Section 8 of the US Constitution lists those things that the Congress is allowed to do. Only those actions that are listed are the actions that Congress is granted the authority to take. Any action not on that list, per the tenth amendment, is an action that must be taken by the individual States or by individuals.
A quick review of Article I, Section 8 reveals that Congress is not authorized to make the federal government a personal lender, regardless of the intended use of funds. Therefore, the student loan contracts made between the federal government and students are void.
One might make the argument that property rights dictate that taxpayers’ dollars be returned to the taxpayer (or the federal government). It is true that federal student loans are given using taxpayers’ money. However, the precise point at which property rights were violated was when the federal government loaned the money to the student. The federal government took, without our permission, our wealth and gave it to students.
Using this logic (and not arguments of emotion or pro-central economic planning agendas), if student loans were declared void today, the federal government would not recoup the money and certainly taxpayers may feel stiffed. But we must remember that the violation of our God-given rights was committed by the Congress, not graduates. The fault lies with our elected officials for breaking the rules of the Constitution and with the American people for not holding Congress accountable for its unconstitutional actions.