The cancellation of student debt has echoes of two other unwise political decisions, one made by a Republican President, the other by a Democrat President.
In 1987 Ronald Reagan agreed to an amnesty for illegal immigrants. At the time it was a deal that would see current illegal migrants given amnesty in exchange for more border security. The border security was never delivered but the amnesty part was, naturally. There were as many as 11 million illegal migrants in the U.S. at the time of the amnesty, and at least three million were legalized under the exact terms of the amnesty. This amnesty did nothing but incentivize further illegal immigration. The precedent had now been set that the U.S. was in the habit of forgiving illegal immigration. All you had to do was sneak into the U.S., sit tight, and wait for the next amnesty.
The second one was the decision of the Clinton administration to allow people to have access to mortgages they had little chance of actually repaying. Under Clinton’s Housing and Urban Development Secretary, Andrew Cuomo, Community Reinvestment Act regulators gave banks higher ratings for home loans made in “credit-deprived” areas. In short people with low and poor credit were still given massive loans for homes, despite the obvious risk to both borrowers and lenders. The government made clear that it would take the hit for any mortgage default. As a result, banks realized that the smart money was not in being careful with mortgages, but instead lay in getting as many people signed up as possible. After all, Uncle Sam would bail you out. This caused the 2008 economic collapse.
Both examples are useful when considering the announcement this week to cancel student debt. The decision is comparable to the illegal immigration amnesty, as it states all you have to do is take out a student loan and sit tight for the government to cancel the debt for you. Much like the illegal migrants waiting for the next amnesty, there will now be waves of people signing up for student loans and college courses, confident the government will bail them out in the next round of amnesty/debt forgiveness. This is how the current situation is comparable to the amnesty act and mostly impacts the prospective students. But it is not just the students who will be implicated.
