Is College Loan Forgiveness Really a Good Idea?

It was an exciting week for about 43 million Americans. President Biden announced he will forgive up to $20,000 of college loan debt. With a stroke of the pen, the President wiped away between $400 billion and $600 billion in student loan debt. The move also extends the moratorium on student loan repayments to January 2023, a full two years after the initial payment pause was initiated.

Truth be told, I would never have attended college without my student loans. And, they took years to pay off.

Chances are good that you or someone in your family will benefit from this program. When the government gives you a gift you should take it. But, I’m not so sure you’ll ever see any of this money. Why? Let me explain.

President Biden utilized a little-known provision in the 9/11 Heroes Act. The provision allows the US Department of Education to waive or modify student loan payments, but only in times of national emergency.

This is the first time in recent history that the government has bailed out individual taxpayers and redistributed their debt to other taxpayers.

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The loan forgiveness will be available to all borrowers with incomes less than $125,000 and all households earning $250,000 or less.

Some economists are sounding the alarm that this new spending will add to a 40-year high inflationary environment. Jason Furman, a former Obama aeconomic advisor tweeted the following:

I’m in favor of waiving student loan repayment in certain circumstances. Those circumstances include actually having the money to give away. Last year the federal government spent 68% more money than it collected. The Federal debt is currently $30.3 trillion, or about $89,237 per person, plus the new $2,100 for the college loan payoff.

Also, when a bank forgives a loan you are personally responsible for the tax on the forgiven debt, as if it was received as taxable income. So, if you are a recipient, expect an IRS Form 1099 at the end of the year. At least 13 states will also be collecting state income tax, as well.

The ass-clowns in Washington on the blue and red teams have been spending money like drunken sailors. Did you know that 80% of all US dollars in existence were printed in the last 22 months? Yup, from $4 trillion in January 2020 to $20 trillion in October 2021.

A study by the prestigious Wharton School at The University of Pennsylvania found that erasing $10,000 of college loan debt will cost every American taxpayer $2,100.

Let’s take a closer look at the details on college loan debt in America.

The average financial aid awarded to undergraduates is $12,013. So, this program will wipe out the debt of 14.6 million borrowers.

In 2020, the average college tuition was $25,281. That’s more than twice the cost of attending college in 1990. Yes, these are the salad days for colleges and universities. The increasing availability of student loan financing has allowed the institutions to raise tuition to exorbitant levels. Students and parents have become drunk on student (monopoly) loans to attend college. The average amount of student debt has doubled since 1993. Last year student loan debt topped $1.5 trillion. But, wait, car loans also topped $1.5 trillion last year. And, about 35% of Americans have a car loan. That’s nearly three times the number who have student loans. So, if the ass clowns in Washington were looking for a less divisive, more egalitarian hand up, there are better options.

Meanwhile, our colleges and universities are sitting on piles of cash. They are unquestionably the most profitable businesses in America. Harvard has $53.2 billion in cash. The University of Texas has $42.9 billion. Yale has $31 billion and Stanford has $29 billion. And, they pay zero taxes on that money. At a minimum, these schools should means test their tuition and fees. Instead they gouge our children with tuition and fees, many who cannot afford to pay the loans back.

Consider that the majority of Americans do not even have a college degree. According to the Wharton study, 70 percent of debt relief accrues to borrowers in the top 60 percent of the income distribution.

Let’s take a hypothetical neighborhood of 100 homes. About 38 of the homes in our hood could be considered low income. They earn less than $52,000 per year and likely didn’t attend college. They’re likely to be firefighters, police officers, military personnel or hard-working FedEx drivers. Roughly 38 families could be considered middle income. They earn between $50,000 – $149,900 per year. Lastly, about 18 of the families in our hypo neighborhood are considered upper income families. They earn north of $156,000 per year and are likely dual income professionals with college and some graduate degrees. According to the US Census, only 13.5% of Americans have student debt. So which families in our hypo neighborhood are most likely to benefit from the loan forgiveness? It’s not the FedEx driver. It’s the upper income families, as half (48%) of student loan debt is held by households whose borrowers earned graduate degrees.

The problem with waiving college loan debt is that it’s terribly divisive. It unfairly benefits those in the middle and upper income families at the expense of those in the lower income category. Because all this new Federal debt is being added to the deficit. Yes, the struggling 37 year old FedEx driver is now responsible for the debt associated with the dual-income Lawyers earning over $200,000 per year as a family.

And, that kind of thinking is exactly why income inequality has increased almost every year in the US since 1970.

If you’re one of the 13.5% of lucky Americans who is about to win the college loan lottery, you might wanna pause plans to celebrate. Why? Because it’s unlikely you’ll ever see a dime.

See, somewhere in middle America there are a bunch of exhausted Attorneys gathered around a conference room table. They’re slugging lukewarm Folgers and Rolaids and digging deep into the dusty law books. See, the first lawyer who can get a lawsuit filed might also win the lottery. Except the reward is an all expenses paid trip to the Supreme Court of the United States. What does the Supreme Court have to do with student loan forgiveness? Let me explain.

Do you remember anything in the Hamilton musical about the President being able to randomly dismiss personal debt? I don’t. There’s an entire Legislative branch that’s supposed to handle the checkbook. And, the black robes have recently signaled their willingness to tamp down Executive Powers. They’ll also be taking a look at the the 9/11 Heroes Act, which allows the US Department of Education to waive or modify student loan payments, but only in times of national emergency.

Which raises the question, if this is such an emergency, why didn’t President Biden ask the House and Senate to pass this into Law? That path would have guaranteed that these payments could be made within the confines of the Constitution. That question will likely be raised by the black robes early next year when this case hits their docket. Instead, 13.8% of Americans with student loans will hang in limbo for years.

I sure could have used that $10,000 – $20,000 back in 1991. But, let’s not forget that there are people who died for our country in exchange for a shot at a college education.

At some point we have to wake up and realize that all this spending, regardless of how it’s packaged, comes with a cost. You can include the Trump tax cuts, PPP loans, senseless wars in Iraq and Afghanistan in that spending. We are broke as a country but spending like we just won the lottery. And, we all know how that usually turns out. Sooner of later we are going to run out of other people’s money.

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