President Biden's announcement of $10,000 (or $20,000 in some cases) in loan "forgiveness" has been raising all sorts of questions, about which libertarians have relevant insights.

Is this a "giveaway"? Eliminating a debt is financially equivalent to giving the debtor the same amount of money. And if the loan was supposed to be paid back to the government, to then be used for new loans or any other supposedly necessary purpose, then the loss is going to have to be picked up by the taxpayers. And the same is true for loans that were supposed to be paid back to somebody else (e.g., a bank) but were "guaranteed" by the government promising to make the lender whole if the repayment doesn't happen. Either way, taxpayers will be on the hook.

And the taxpayers include many people who already paid off similar loans, and people who never took out loans for college at all. Doesn't this reward irresponsible behavior?

On the other hand, many people who have large amounts of student debt claim they didn't understand what they were getting into. They didn't realize the financial consequences of taking on debt, or they chose a program of study that left them unable to support themselves and pay back the loan. In some cases, they say they were misled by the college, promising a career that didn't work out.

What's wrong with this picture? Who is at fault? Yes, in many cases it was the students, making poor, uninformed decisions. In some cases it may have been the colleges, promising results they couldn't deliver. So two lessons we might take from this: Maybe teenagers shouldn't be trusted with tens of thousands of dollars in borrowing? Maybe colleges shouldn't be trusted either, since accepting students who may not be qualified or be making good career choices but who do qualify for a government loan is just too tempting a deal for them to pass up?

The idea of taking out a loan to make an investment in education isn't inherently unreasonable. In some cases it can make sense. But what's missing here is the discipline that comes from the loans being made voluntarily, by people who will have to accept the financial consequences, people like.

• families and friends with a personal stake in the student's life
• charitable institutions promoting a field of study
• charities set up to support some disadvantaged class of students
• prospective employers
• financial institutions making loans with their own funds
• the colleges themselves

Any of these kinds of potential lenders is in a better position to evaluate whether a particular student is likely to pay the loan back. Because the funds they have for making such loans are limited, they will have to be careful, both in judging the student's prospects initially and in following up with the student during his/her time in college. Sure, they will sometimes make mistakes. But the direct risk will be to those lenders, and the indirect risk to the overall economy very limited.

In contrast, the risks involved with government loans are immense. This always happens when politicians are able to spend other people's money – and making loans that might not be paid back is spending other people's money. This is true of other kinds of loans too, of course. Remember what happened when Congress decided that everybody deserved to be able to borrow to buy a house, without regard to the traditional metrics of ability to repay?

Government shouldn't be picking winners and losers, in any sector of the economy. What sense does it make for the President to have this kind of power, to give $10,000 gifts to some people and not others?

Yes, some students can't be trusted with that much money. And some colleges can't be trusted to provide a service that is worth that much money. But we know for sure who can never be trusted with other people's money - politicians.

The temptation to buy votes is just too great. Neither Congress nor the President should have this power. However the details of the current loans are worked out, the answer for the longer term is obvious. The government should not be in the student loan business. All such programs should be terminated immediately.

Joe Dehn
County Chair