Many years ago, when the government started offering subsidized and unsubsidized student loans, something happened that could be argued as very bad: The colleges and universities around the country began to significantly increase their pricing to students. The loans would allow the students to pay those educations off over 10-20 years, so it was no longer necessary for the student to pay up-front.
This has made those higher education institutions incredibly wealthy. These institutions also have massive endowment funds (worth hundreds of billions of dollars, in total). Tuition has gone up over 1,200% since 1980! That’s over 5x the rate of inflation.
Now consider this: Just under half of us in the US have gone onto to college, and less that that have completed college. We all walked into a financial situation with our eyes wide-open.
Today Biden has announced yet another round of student loan forgiveness. He’s already wiped away loans for students that went to some for-profit (technical) institutions – several billion dollars of it, actually. Now he’s set to wipe away at least another third-of-a-trillion dollars, or more, for ALL institution types.
Today our employment numbers show a massive amount of people that have left the workforce (yes, 400K+ people have stopped looking for work now, which helps the unemployment rate be artificially low today). We still have over 11 million jobs unfilled. A huge number of these folks are college-educated people under 35 years old. Get back to work and pay off your loans…
Here’s just the tip of the iceberg of why this forgiveness is a bad idea:
- What about those of us that saved and paid for college when we attended?
- What about those of us that paid our debt back? Why are we now paying for those that haven’t paid it back yet?
- What about those people that went into the trades, or the military, out of high school? Why are they now having to pay those loans for those students that signed up for them?
- Why the cap on salary of $125K? What about those people that accumulated over $250K-$500K in post-graduate debt (e.g., doctors or scientists)? Guess what that payment looks like each month? But if they make $126K per year, they’re not eligible? BTW: It’s financially tough to actually be a doctor these days, believe it or not; there are good tradesmen out there these days taking home more than a lot of doctors.
Here’s an alternative that still isn’t totally fair, but maybe a bit closer:
- Don’t pay off (or pay down) any of the loans with our tax dollars that we don’t have in the first place. Yes, this falls into the category of “increasing our debt” because the government will need to borrow money to pay for the students’ borrowed money.
- Zero-out the interest on the loans. All of it. Absolutely no interest. People still have penalties for not paying, but all payback is against principal balances.
- Understanding that there is a cost for money, the tuition debt interest should be shouldered entirely by those institutions. Put more simply: If Harvard charges $100,000 per year to attend, then a student (upon graduation) is only liable for that cost, with no accumulated interest while attending or afterward. Harvard can pay the cost of financing that money themselves.
- To prevent a move by institutions to quickly increase costs, we need to freeze tuition and housing costs for all institutions for the next 5 years, and baseline those costs on 2020 published rates. Then allow only 2% increases annually after the 5-year freeze period. Teach these institutions to live within their means.
This forgiveness is a well-timed pre-midterm gimmick that is financially bad, and every economist interviewed thus far in print and on video has said this will again add to inflation, and lead to increased college costs yet again. Obama’s former economic advisors have called this out (today) as bad. Everyone is calling this bad except those around Biden. But here we go: Let’s add another almost half trillion of printed money to the overheated economy from the current 3+ trillion extra that is circulating from this year. My advice: Be sure you hold on to something.
