Bernie Sanders keeps talking in his rallies (and in general) about drastically lowering the amount of student loan debt burdening Americans (and I'd imagine he's also quite open to just eliminating it, but is being a bit conservative in his wording).

My question is this: given that a lot of those student debt bonds are in the private sector, could the federal government use its requisition powers to force purchase these bonds back as part of a debt forgiveness program? In addition to the bonds already owned by the federal government, which can of course just be forgiven.

Or am I wrong in my understanding, with the government only being able to force purchase real estate?

  • 3
    One thing to consider: If the government, rather than force purchasing loans, offers something like $1.10 per $1 of the loan+expected interest, then most financial institutions will rush to sell to the government. So the question should be specifically about buying them at face value or lower.
    – Bobson
    Commented Mar 20, 2019 at 14:55
  • @Bobson: While IANAL, I think legally the government would have to give face value, or a price the loan holders found acceptable. Otherwise it would fall afoul of the Constitutional prohibition against taking private property without just compensation.
    – jamesqf
    Commented Mar 20, 2019 at 17:23
  • @jamesqf - Yes, but what's considered "just compensation" is subject to debate. It's an issue with eminent domain, currently, where people feel like they didn't get paid enough when the government takes their property.
    – Bobson
    Commented Mar 20, 2019 at 18:10
  • 1
    @Bobson : But it's much easier to determine a fair price for bonds, since there's a market setting prices. With eminent domain, you not only have to consider the market value of the property, but other things such as the cost of moving...
    – jamesqf
    Commented Mar 21, 2019 at 3:54

2 Answers 2


Short answer is yes.

Any policy that deal with money is possible to implement by the government institution.

Example : Once upon a time, the USA government say it is impossible to track and trace illicit money run in the bank. September 11 happens and everything change.

As for Sanders example, it is possible to implement a system similar to Australia Higher Education Support Bill. However, since education loan is a trillion dollar business (direct loans and derivative), finance companies are definitely going to spend hundred millions in lobbying and media propaganda to demonize such idea.

Many will argue that this against "free market", but in fact, without government bail out finance company and corporate during financial crisis, a lot of corporate America will ceased to exist today.

In fact, if 20% of USA population default their student loan, it will caused a finance meltdown similar to sub-prime meltdown in year 2008.


@Andrew Grimm point out that the loan is guaranteed by USA government. In fact, a guaranteed loan means little to shield banks from massive liquidity shortage. It all depends on the scale of the student loan default, i.e. the subprime does't meltdown in one day, it is the snowballing default that crack the camel back.

In fact, the guaranteed loan policy also give us another conclusion : private bankers that provide student-loans is simply a rent-seeker.

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    I think this answer does not really answer the question that was asked. Tracing money transfers is a different thing than forcing banks to sell debts to the government. And the political possibility to implement state-sponsored higher education doesn't say anything about whether or not the government has the power to force banks to sell them debt bonds which already exist.The real question here is: "Has the US government the right to use eminent domain to acquire financial instruments?"
    – Philipp
    Commented Mar 20, 2019 at 14:25
  • @Philipp Hmm, I am not sure whether I should use government proxy such as Fannie Mae & Freddie Mac. Then it will touch the story how the deregulation (subprime loan..hic...) sunk the ships, too long to write.
    – mootmoot
    Commented Mar 20, 2019 at 15:49
  • I thought the US government guaranteed student loans, which would contradict the last paragraph.
    – Golden Cuy
    Commented Mar 21, 2019 at 7:48
  • @AndrewGrimm : A default simply mean "failure to pay interest or principal on a loan or security when due". Government guaranteed is not perfect, it does not shield bankers that hold the debt or derivative from liquidity shortage. E.g.. A guaranteed water reservoir 1000 miles away will not save those run out of water in the middle of the dessert.
    – mootmoot
    Commented Mar 22, 2019 at 8:08

You seem to be treating students loans as a security. While they can be analyzed as such, there is no need for the government to implement "forgiveness" by actually "buying" the loans to forgive them. It can simply pay off the loans. As long as a loan doesn't have prepayment penalties (which are illegal for student loans), the debtor, or someone acting on their behalf, is free to discharge the debt at any time by paying off the balance. If you want to analyze paying off a debt as "buying" the debt, then the absence of pre-payment penalties is equivalent to the debtor being free to "buy" the debt any time they want. Basically, they are "callable bonds".

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